of urgency with respect to the needs of that parent. it's all like numbers on a page. but all of these stories, all of these individual stories, these individual challenges, the individual frustrations to these parents, they matter. and for us to act like that it's okay for us to plan the plan and study the study and debate the debate, that doesn't work for parents on a practical basis. so one thing that i think we should do, the reason why educational choice is so important, it gives us an opportunity to meet parents where they are today, deal with the sense of urgency, the urgency of needs the parents have today as opposed to waiting for the system to right size itself for everyone to get it, whenever that is supposed to happen. so i think the big option as i see or the politics of education and the fact everything we do in terms of talking about education and learning is a long range plan and there's nothing that deals with the immediacy of these parents needs and that's where we get to educational

choice. >> as you work on these issues in louisiana, some folks probably try to offer kevin's argument in the opposite form saying, look, the school choice stuff might have some possibilities downstream, but right now you're taking dollars away from schools that are struggling with kids. how do you justify that and how do you make those numbers work? >> thank you. i'd also like to thank senator scott for putting this forum on. it truly is very important, and it's very important for us to hear not only the issues but also some solutions. so you know it was really funny. when i became an elected official, i didn't think it was my job to -- or my position to deal with the public school

system and the things that were going on at the local level. i was a lawmaker. you know, i was a state senator. that was for the local government to deal with. you know, it became evident to me rather quickly when my constituency told me loud and clear they didn't care if i was a state senator or local garbage collector, i was elected, and i was elected to help them with a problem. you know, when we looked at the issues that our public school system is facing, and then the challenges of taking money from the public school system, i realized very fast that it didn't matter that we were funding a bad thing. i tried to help folk understand

that throwing money after something that was hurting our kids and hurting our quality of life -- and i can talk about what this means as the quality of life issue -- was not a good thing. so i didn't care about a system. i didn't care about funding something that wasn't working but i cared about using the dollars that we had in a more efficient and more effective manner. >> bob, as we think about efficient and effective schools where we're doing the most good for kids with the dollars they have, do we know how much about how district schools kpart tocompare to public schools compare to private schools? >> yeah, i think we know a lot. i'd like to add my comments as well and say thank you to senator scott. we know a lot about traditional public schools or what i would call state-run schools. we publicly fund schools through taxation but they are run by the state or local entities.

essentially the same thing you'd have if you run a grocery shop with state entities. what do we know when that happens? the costs are extremely high. revenue sources from traditional public schools come from three areas, local dollars through taxation, state dollars and federal dollars. all in, depending on the state, somewhere an average of $13 to $14,000 a year. in some states, like new jersey and some cities like district of columbia, that's up in the $20,000 range for traditional public schools. right? so this is because there's a beaurocracy built up around supporting a system, not students. all right. so the system has been made for the adults. the money has to flow that way. what school choice and charter schools have done and not and private schools -- let me reflect on that for a second. what the ability of parents to choose a charter school or private school using public money set aside for them has done, they started to see what

does it cost to educate children. charter schools are typically doing it for 80% or less. private schools and vouchers are doing it for much less than that. in my state, elementary school student receiving a voucher, who is poor, gets $4800 to go to a private school. he can get $15,000 if he goes to a failing public school or sorry state-run school. so what we do know, we know that the current system is inefficient. we also know from choice programs freedom foundation did a study, we found looking at the 10 programs enacted to 010, $1.7 billion in savings to the states. the sad thing is we can't tell you where that money went. we know that the states have saved that money through school choice programs because it costs less to educate a child in a traditional private school or charter school. >> bob, just to clarify on this, when you suggest it costs $13, $14,000 to educate a kid in traditional district school, 80%

on average in a charter and maybe less than that in a private school. why is that? where do the savings come from? why is it cheaper in some schools than others? >> some of it is because they have been charging tuition they subsidize. in the private sector you have multiple ways to bring in revenue. let's say district of columbia or indiana, you can get the voucher. you can get parents who can top up if they are able to. a child tax credit on that. you can get the schools themselves and their fundraising. have you multiple sources of revenue which allows for a better price controls. >> so does that mean they are not actually running cheaper but cheaper to the families. >> cheaper to the families. >> they cost the same to operate. >> private schools and charter schools tend to not have the same debt and same amount of beaurocracy. in economic terms to be one of those suit pants again

it's called a monotonous rent. when you're providing lower quality product for a higher cost someone is taking a cut. where the market is supposed to draw a line of supply and demand, basic economics, right? this is what every student will know, cost you this for this to get this money. that's what public schools have traditionally done, charged more for a product not as good. >> emily, success academy is a growing organization of charter schools in new york city, you guys have real high performance. talk a little bit about how much does it run to run success acadamies compared to other new york schools. what are some of the challenges of trying to grow and create more school sites and seats for kids. >> sure. thank you, rick. i'd like to add my thanks to senator scott and his staff for this extraordinary day as well. success academy schools has about 32 schools in new york city. nearly 9500 scholars as we refer to them. the student population is about 95% minority and 80% free and reduced price lunch. our scholars are in the top 1%

in the entire state of new york in math and top 3% english language arts. [ applause ] we're very proud of the accomplishments of our scholars. just to add to what rob said, there's a tremendous funding disparity between what public charter school students receive and district school students. in new york it's about $6,000 between what doe spends and what charters are receiving. and to add to the disparity, we have a longer school year, a longer school day. and by the time our scholars will have graduated from high school, we will have offered about four years of additional education compared to the traditional district counter-parts. so there is a profound disparity. what we are doing differently is we're leaner on the beaurocracy

as rob mentioned. now, i will say that bureaucracy is as we get bigger is one of those dangerous things that just as the charter community in general we have to be very cautious that we're not allowing bureaucracy to overtake what it is we're doing. it's harder as we grow. just counting up before i got here, i had my team count up the report that our schools were required to prepare over the course of a year. it's something like 60 major reports that request demands for reporting that we get. 25 of which from various sources, city, state, federal, that require hundreds and hundreds of hours of personnel time, thousands and thousands of pieces of paper, that we would argue, first of all, i don't think anybody is really looking at. more importantly, it's not relevant to whether our schools are doing well.

we think that the authorizer should be the ones holding charters accountable and they should be holding them accountable at a very high level. if charters aren't performing, they should be closed. with respect to the many reporting bureaucracy, we call it bureaucracy creep, that it is slowly entering into what charts do. it is literally crippling the charter school movement. i said this before, i believe that beaurocracy creep could actually take the charter movement down. if i may add a little bit tangentially, i do think opponents and teachers union is very much aware of that. what we find in the attacks that we're getting, it's along the lines of bureaucracy. just as a quick example last year, there was an arcane real estate law -- i won't get too much into it -- that we heard

was sort of passing through the legislature more quickly than usual. we could have sort of -- it could have passed a notice but what it was was a new procedure that charters would have to now undergo through real estate law in order to get your facilities. and fortunately folks noticed this, and there was a little bit of an outcry. what it was doing was adding tremendous layers of bureaucracy in order to try to stop us in our tracks. so i think bureaucracy is definitely a danger for charters. >> ann, this is something obviously you all have to wrestle with because when people like bureaucracy they say it is quality control. they say it's a way to make sure children aren't being done wrong. how do we make sure that doesn't get in the way of educators being able to work with kids and make good decisions. >> i think one thing we are very much in favor of, that's accountability. because that's what this is all about. how are we accountable to the quality outcomes that we're seeking? and so, you know, what we have

to do, though, is ensure that the measures and the policies that we put in place, as we've all talked about, aren't a hindrance to that school's ability to be unique. so that's what we like or what i love about the charter school environment in louisiana is that our schools are allowed to be unique as it relates to operations and the methods by which they are educating our kids. one of the things i wanted to piggy back on rob's comment about the cost savings if i may. we found, you know, with regards to our thriving voucher school movement voucher movement, as well as the movement towards tax

rebates, we're finding that in our state we -- last year we actually saved over $24 million of taxpayer dollars in the money that would be originally provided to a failing school for a child that would give into a voucher school to help educate. >> and when you say the $24 million was saved, can you say another word of explaining how -- >> absolutely. so, in louisiana, the kids are funded through the minimum foundation formula that creates the amount that is allocated per child. and it's about $8,600. and so that $8,600 traditionally would've gone to a failing public school. or a public school. in retrospect, if that child had a voucher, the average tuition at a private school or catholic school that is participating in our program is about 5,000, 4,500 to 5,000. so when you look at the difference of over $4,000 per

child, that's a huge, tremendous amount of savings for the taxpayers. >> emily, let me ask you to clarify when you talk about this bureaucratic creep, can you give a couple examples to folks who don't do this stuff every day of what does it look like? and where are these hundreds of hours going that aren't being spent working with kids? >> sure. >> and i think you make a good point. every hour spent recording. those are hours not spent on kids. since i see many charter school students here and staff, i think you would agree with me that charters are staffing more lean ly. so we don't have the additional staff to spare to dedicate to these hundreds of hundreds of hours of projects. the local district asked us to have one person at each of our schools to operate the ats

system which is this computer system that all public schools in new york city have to operate and it's this dos-based system with a green blinking thing. from my understanding, you have to log in five different ways before you can get to the start screen. and then you have to enter screen by screen the information. if you make a mistake and have to go back you may be 30 out of 500 students in. you have to then start all over. and the reason i say from my understanding is to the best we've been able to, we have to now been able to resist using this ats. i think it's called automate the schools, which is a little bit ironic to us. but they wanted us to staff our schools to do nothing but enter student by student our attendance data and things of this nature which we can't do. every single person in that school, for those of you educators know, every single person is striving to have each child perform at the highest

possible level. so that is the kind of thing that we're faced with. the other thing i would add is amongst the reporting, it's incredibly do you want duplicative. and it would be okay if we could say, let's take this report from our authorizer and the state wants it, too, here, let's pass this over to the state and you can share. other challenges that we face, they all have spent tremendous amounts of money in creating their own computer systems and it has to be entered in their own format. has to be entered in their own format. meaning you can't take the data you've produced elsewhere and share across the board. you've got to enter student by student. and we have developed sort of a, what we call a bureaucracy busting arm in our organization where that is just as important to us to fight the bureaucracy screen. not quite as important as the education, but it's part in

parcel. >> this sounds disconcerting to me. because it seems part of the whole rationale of charters was so educators could focus on working with students and not filling out paper. how common is this? how much of a concern is this for you? >> well, i was whispering to ann, it reminds me of an expression. ive used this before. we look in the mirror and become the thing we've been fighting. and that happens. there is a natural tendency to over bureaucraticize things. i'm somewhat concerned about the fact that we do imitate and replicate the monopoly we tend to fight. by putting in rules and regulations that are unnecessary, putting in barriers for parents who want to engage in choice. and, look, the bottom line is what steve perry said earlier. isn't steve perry great? he's terrific. and this is not a jobs program. this is about education and

learning. we have doubled education spending in this country over the last 30 years. in some states, we've tripled it. and you know this, rick. and yet the outputs are going down. we now, even when we have so-called the autonomous school model working in a lot of school districts, we have principals that have to have four or five people from central office check the box if they want to rent out their gym. okay? so, you know, there's this tendency for us to over bureaucraticize all aspects of education. when i was in texas a couple weeks ago, they asked me, well, how will school choice affect the local district? and if you think about the tone and tenor of most of the questions that we get, always say, how will it affect the system? or the local school district?

but we, the pivot is, how will this affect the kids if we don't change? we need to start looking at how we staff schools, how we fund schools, how we engage in this whole notion of education and learning. not from the vantage point of the local school district or the system, but the kids. so this is the way i would look at it. and i know eva subscribes to this at harlem success. howard fill filmer has this great example. if you're going to fund a school system or a school district, you start with the most important thing. let's imagine you have a child, call that child a student. you put them in a room, call it a classroom and an adult who is going to teach and call that a teacher. and then you put some other children in there. and everything you do should be tailored toward funding that interaction between those, those students and that teacher. so that child can learn. but what we do with the school bureaucracy in the district, where only 60% of the dollars in

some states, 50% go into the classroom. if we spend it on everything. else. and i remember when i use to have if city council hearings and the superintendent would say we need this because it is the assistant to the deputy assistant to the assistant and it's important to the essential personnel. we can't do without it. if you ratchet it down to that dynamic that's most important. the children and the teacher in the classroom, there's no way. if you have a school district, this is the first thing any superintendent should do. where you have less than 90% of the dollars going into the classroom, then you're not funding education, teaching and learning. you're funding a bureaucracy. that's part of the way to get rid of bureaucracy creep, this notion that we ended up, you know, replicating the thing we're fighting. it's to make sure that we keep tabs on how we're fund egging those

extraneous jobs and services that really don't have anything to do with that dynamic of teaching and learning in the classroom. and i think that's a discipline that politically is hard. because folks would have to change the way they do business. [ applause ] >> kevin, i mean, you're right when you talk, you know about changing the way we do business. but unfortunately, you know, where we are today is this is big business. the education is big business. we are fighting money. we are fighting tradition. we are fighting people's jobs. and so, until, and unless we can get past the issues that this is some tradition that we must maintain. until we can have people understand that, we need to create new traditions.

until we can get past the jobs that we're talking about are not jobs we need to protect if those jobs aren't protecting our kids. we have to get past that. and unless we can get our elected officials to understand that, this will all be even more, continue to be more of a challenge. >> but this is why i totally agree with it. and this is why school choice and particularly vouchers are so important. in every single state, at least half if not more than every single dollar goes to k-12 education in your state. it's a huge business. >> yes, it is. >> and we're talking about fighting the power of that business. and the problem is if you create this symbiotic relationship or this relationship where legislators and public school groups come together -- because this is the largest employer in the rural and suburban areas in most cases? the schools. >> that's right. >> they have the power and the legislative power, therefore

they have the pact and the money that goes to candidates. that goes to candidates. and there's this incredible relationship that goes to half the state budget and the same people benefitting. we would call that other states and areas maybe corruption. right? if you think about it. so this is the reason why all the dollars have to follow the kids. you have to have vouchers. because until you allow total choice you are never going to change the structure of a monopoly that has so much money. my favorite example of the regulatory creeping is -- who here knows what that letter is? they're required to have a hard copy of that letter. you know, this is the 21st century, so hard copies are required. remember, this is a system that's built itself up over a long period of time. and it's not just the legislators. it's not just the public school bureaucrats. it's every single committee. it's every single school

committee. it's every single level of this government. so -- >> so, but just to stay with this. then, are you suggesting that this regulatory creep concern that emily flagged is not just charter schools, but private choice program? >> yeah, there's an absolute move in country for people who oppose school choice to make all of the charters schools and private schools receiving public money just like public schools. and by the way, i think it's we as reformers also are a little bit to blame for this. we'll accept anything sometimes to get a bill passed. right? instead of saying this is a line in the sand. and when we say accountability, we mean accountability for results. so in our state of indiana, when fail, when you are rated d or f as a preschoolivate school that receives vouchers after two years, you can get no more new money for new kids. right? the way to change that for us was starve the money out. but, right, so -- but we've accepted a bunch of other things

like chief seattle's letter. it's the reporting. it's okay to report, even if private schools don't have the personnel to do it. >> emily i'll go to you in one sec. but bob while we're on this we've got an audience question. wayne's christian academy in waldorf. wayne, are you here with us? there we go. and asked how can private schools better demonstrate to the public sector, especially the business sector the important role they play? how can private schools demonstrate the role they play? >> there's a ton of ways they can do that. obviously, showing their graduation rates. but to me, i look at mine. i have two children, right? and they're 18 and soon to be 16 in about a week. really, i love them to death. i only care about one thing. are they going to become tax paying citizens? are they going to become people who have a skbrob and pay taxes? and one of the best way private

schools can show their value is to show how much money they bring back into the system. as a result of their education. >> emily, you were talking before about some bureaucracy busting in order to let the educators focus on educating. what are some of the things you guys have done or folks can learn from y'all about how to make that happen? >> so, i think one of the things that we do actually, i can tell you've spoken a lot with eva. for our mantra and folks who come into our organization, the first thing they ask, is it good for children? and sort of rules be darned. is it good for children? and if it's not is it going to take away from what he we offer to kids, we are going to take a position to try and push back and to fight. and everything we've become so accustomed, and i think this is

natural for most organizations, the recessions are coming. and they just want one little thing. and it's easier to kind of scribble it out or type it out and write it the way they want. and just send it over. and before too long, as kevin described, it becomes a monolithic bureaucracy. and we resist every single point. not resist, but we look very carefully and ask and enter into a regular conversation with our authorizer and our regulators and to understand, do you actually have the time to look at this? do you have the staff? and what is it that you actually want to achieve? because maybe we can shortcut that for you and give you the information and the documents you need. and for the most part, those that are interested in focusing on children and outcomes, they're willing to have that conversation because they're not funded sufficiently to go through thousands and thousands of pieces of paper. it's a real danger because when

people are afraid, when people talk about accountability for charter schools, the answer the easy, easy answer especially when it comes to politics and the noise that charter schools often face, the easy answer is to specially a piece of paper on there and say oh we're actually checking for that. see, we asked for that information, and we've got it now. and it's very hard to disabuse people of that notion. i want to give one example of a piece of paper that we really, truly dislike. and it's every year there's a requirement that teachers that are not certified have to send home in the backpack folder for their scholars a piece of paper saying just wanted you to know, parents, i'm not highly qualified. so, yes, i've been teaching for five years and my scholars are in the top 1% of the state of new york, but i wanted you to know i didn't have that thing called highly qualified and somebody thought i should write you and tell you and let you know.

it's to a level that's truly, truly absurd. whereas we would want the teacher to write home and say, look, this is what we were doing to get your scholar to the highest potential. and i've been doing it for five years successfully. and this is what you need to do is bring your child to school on time. pick the child up from school on time. get the homework done and make sure that they are motivated at school. and that's what we would like to do and we have to do the other thing in instead. >> i wanted to respond to what could private schools do. this is is essence of oceaneducation of choice. at the end of the day, at the end of the day, if you run an elementary school and the learning in the eyes of those

black and brown boys in fourth and fifth grade, you're running a good school. unfortunately, we've got, you know, nearly 2,000 dropout factories. and those are schools where 90% of the kids are going to drop out of school. and the light of the learning is out of the eyes of those kids in 4th and 5th grade. and if parents want to go there because they know that nurturing and learning is taking place, and you're demonstrating you can teach these babies in a way that will meet them where they are and accommodate their needs and not force the circle in a square, you're doing great work. going back to this bureaucracy thing, you know, i remember several years ago when i was in office here in d.c. and, you're right, eva and i used to talk a lot. eva runs our own success was chair of new york city council education committee at the same time i was in d.c. and we were both getting beat up and everything around the house and everything and used to talk too

each other all the time. but, you know, at the end of the day, d.c. had 146 schools, d.c. public schools. they had nearly 2,000 people in central office. the archdiocese of d.c. had 110 schools and they have about ten people in central office. and their outputs were better. at the end of the day, we know that you don't need a large central office to run good schools. and i think that parents know that. so why not find ways to continue to give parents those opportunities as opposed to telling parents you have to do it this way because the system works this way. the focus on the way the system is used to operating, that's, an anachronism. that's old.

that's gone. i mean, right now with this new way of living, if you are a 5-year-old today, chances are, you will work in a job that doesn't exist today. so we've got this whole approach to school and learning to try to develop kids for careers that ain't going to exist. and now we've got systems in place to run school districts that are going to be outdated over the next 10 to 15 years. i think part of what we need to do is step back and say, you know, what, we've got all these different kids, no one, talking about choice. no one responds to the same learning modalities. so why don't we figure out, just like that menu in the restaurant or the buffet line -- because i

always tell people fit's chicken fried steak i just ain't eating. i don't like chicken fried steak. but you have all these menu options for parents. and they tell you, no, you can only have it this way and this is the only way you're going to get it and the only way you're going to take algebra in ninth grade even if you're not ready for it or if you should have taken it a couple of years before that because your grandmomma took it in ninth grade. that's the way we do it. we don't change it. if you try to change it, there's something wrong with you. no, i think that private schools can continue to do what they do and feature that because parents are demanding something other than what they've been getting for far too many schools. so so. >> so ann if you want to build on that, that's fine. but also, i'm curious, you know, you have done a lot of the work on the ground. curious, given the challenges and questions, how do you bring people together? how do you build that coalition where folks who maybe have different concerns can find enough common ground to go ahead

and pass choice legislation and make this happen for kids? >> yeah, and that, you know, in early years of us in louisiana introducing choice and vouchers and expanding charter schools. again, we had to fight with the tradition of public schools. it was -- it was very hard and difficult at the time to convince my colleagues, especially my colleagues in the caucus in the black caucus that what it didn't matter that it was perceived that this whole movement was a movement of white republicans. but, you know, the thing i used to tell my colleagues was, that doesn't matter. at the end of the day, who's benefitting? our kids. and i don't care who's writing the check, i care who is benefitting from that check. and so at the end of the day, we had to begin to show.

and i can honestly say today, we are getting much more, many more of our colleagues and our in louisiana to understand that you're right. this is not about who's writing the check. but it is about who is benefitting. you know, i really would like to say one other thing about to the person who raised the question about what can private schools do? what you can do is continue to do what you do. and that means continue to demand excellence. continue within your own organizations. continue to be unique because that's the beauty of choice. the beauty of choice we found and what i hear from parents. even if their kid is in a performing school is that i need a school that meets my child where he or she is. i have three beautiful daughters. and i have three gorgeous granddaughters. and if i could have had them

first, it would have been wonderful. but -- [ laughter ] but each one, honestly, each one of my girls and each one of my granddaughters and two are twins, have totally different personalities. and we hear this and we know this. every single one of them learned differently. and are learning differently. and the ability for my girls to choose or to find a school that not only met the academic needs, but also met the personal and the nurturing needs. so what you have is a unique opportunity to create that brand, to create that family of learners that is unique and is important and will be important to somebody's child. so continue to do what you do. continue to build excellence. speaking from, and build your brand. speaking from the perspective of higher ed.

as mentioned, i'm the chairwoman of lsu's board of supervisors. and when we look at the kids that are applying to lsu, and when we look at, you know, and we ask and some of the questions what school did you attend, certain schools just stand out. you know, and so when we hear that -- don't want to mention schools, but when we hear of certain schools that a child is coming from, we know that that child, just because of the brand, just because of the excellent that has has maintained within their organization. and try to be another school. their school. we go after them. and that's what i could suggest to the private schools who have that opportunity to create your own brand and to continue the excellence in your own unique fashion. >> i think we have time for one

more question. i'm kind of curious. kevin mentioned earlier, the president of american federation of teachers. and he's sparred sometimes over school choice questions. and we know that the unions are often portrayed or often portray themselves as concerned about school choice. i'm curious about why. i mean, it seems to me that so much of what school choice does for students, it also does for teachers. it gives them a chance to find schools where they want to work. it gives them a chance to maybe get away from some of the paper shuffling and bureaucracy and try to find schools where they can find more time teaching kids. can you help me understand a little bit where, why it is that either teachers at the association might push back on choice and what's going on there? >> well, rick, you stuck me with a challenging question. and if i may, you know, look teaches unions are not -- and we don't have -- we are for -- we

think there is room for everybody. but i don't think that view is shared on the other side. and i think the reason for that is because they are very interested in protecting sort of the lowest common denominator. so rather than in new york state, for example, probably across the united states, it's extremely, extremely challenging to take a teacher who is, as you know, who is not performing and to remove them from the classroom. and for some reason, we believe demanding extraordinary performance and quality from teachers, that elevates the teaching profession. it's respecting teachers as the professionals they are. for some reason, that's extremely threatening to the teachers union that we demand excellence and then we -- that we think if you're not executing for children that you should not

be in this profession. so they're very interested in protecting the lowest common denominator, which we just won't do just as we wouldn't for our scholars. we teach to the highest common denominator and the same way we expect for our teachers to meet a very, very high bar. >> kevin am i wrong? school choice can empower educators? >> well, it can, common denominator, i mean traditional unions have fought against the firing of teachers who molest kids. that's the lowest form of common denominator, let's say. at the end of the day, the only people who are fighting against educational choice. the only people that fight it are the ones that already have it. okay. if you have educational choice, you have the luxury to say, well, i can send my kid -- i've got the money i've got the

resource, the neighborhood, the zip code over here. i can send my kid over here, but i don't want you to. there's something, something, frankly, not right about that. and we need to distinguish between the political arm of the organized teachers union and teachers. when we had that rally a couple weeks ago, 3,000 parents and teachers. we had a bunch of teachers who marched right across the street from the union headquarters. and said i want to put my kid in a -- we have to distinguish the politics of education, which is held out there in front by the union forces, the bureaucracy, the status quo, and then those folks who are fighting against that to try to get something better for their kids. and that's not the teachers. i think the school choice as

said, when they did that study was -- would increase teachers' salaries by up to $12,000 to $15,000 a year. and i've heard so many people who run charter schools. i know there are folks at richard wright who taught in a traditional system. so many charter school teachers and principles said for the first time they could do their job because they had the freedom from the bureaucracy to do their job when they got -- you know i'm right. rick's trying to stop me. but i ain't stopping. just so we're clear. but no i do think we have to distinguish the politics of education swayed by the union as the rank and file teachers. >> i think that's a strong place to close and a great transition. next panel. please join me in thanking the panel. [ applause ] >> please take a little break, and the next panel will start in a few minutes.

and i'm frustrated, i'm very frustrated that we didn't know about this. i didn't know about this till monday. i'm frustrated that i can't act until we get all the facts, because i know that our workforce is waiting. what's your action going to be? but i just don't want to act

improperly too soon. let me just say this, the president, the first family, they're safe. we moved these individuals to nonsupervisory positions. rather than administrative leave, where they're getting paid for no work. we can still get work out of them. but in a different capacity. >> they're still getting paid. >> yes, sir. >> no reduction in pay. no penalties financially or otherwise. right? >> no financial penalties. sir, i would say that i'm sure they're paying a penalty right now. >> well, unfortunately, this is the last in a long line of episodes somewhat similar. drinking, carousing, on and off duty, that this agency has suffered these last few years.

it's not working right, mr. director. >> yes, sir. >> if we've got to have some changes. and you've got to be the one that makes those changes. and i don't sense at this moment that you have the determination to make that happen. am i wrong? >> sir, i would disagree with you with all respect. i will say that there is an element within our agency, there's an element within our agency that does cope with the stresses that many of you have mentioned today, by using alcohol. there's no question we have that element. we also have other elements that -- in our agency that go to a different route. some go to exercise. some go to religion. some go to their family to cope with these stresses. but we do have an element that goes to alcohol. three, four weeks ago we kicked off an initiative, a worklife initiative to look at those stresses that our people are under. they are considerable. there's no excuse for the actions.

we have to take -- there has to be self-discipline, self-accountability. but we've got to find a way to help some of these people that are going towards alcohol to solve their -- as a coping mechanism. >> well i'm concerned about their health, as well. but i'm more concerned about the health of the president of the united states, and who's protecting him from harm. >> yes, mr. chairman. >> and if we've got special agents, on the grounds, at night, in the white house, ramming a barricade, drunk, it seems to me that the only discipline that you could exert would be caused by the ability of you and your staff to terminate as punishment, so that every other agent knows, boy i don't want to go there. that director's going to fire me. that's what makes the mind work. what do you think about that?

>> i agree with you. i think deep down, within our agency, as in others, people want to see discipline. people want to be disciplined. they want to have people held accountable. i just want to respect the due process. as frustrating as that is. and let my actions speak for how we're going to move forward in this agency. >> we'll be watching. >> yes, sir. >> and waiting. >> yes, mr. chairman. >> current reports say the agents nudged the barricades with their car and may not have been drunk. secret service director joseph clancy began to explain that during his testimony. the entire hearing sunday morning at 10:30 eastern.

the senate finance committee held a hearing recently on the u.s. tax code. they heard from former senators bob packwood and bill bradley. both of whom were part of the 1986 tax deal under president reagan. this is about two hours. >> today's hearing is about the need for tax reform and what are lessons we with learn from act

of 1986. the last successful over haul of the united states tax code. we have before us today two former senators who were key to that effort. i don't know why they call your i don't know why they call you former senators. i think you're always going to be senators to me. i look forward to hearing their thoughts and advice, and i think we all do, during today's hearing. before we engage meaningfully in tax reform we need a clear vision of what we want success to look like. a vision is not a specific system of rates, of deductions or credits. instead a vision is how we want to change the opportunities for american families and the rewards that americans receive from their labor. entrepreneurship, and investment. a successfully reformed tax system will help make america the best place in the world to work, conduct business, invest, and prosper. a successfully reformed tax system will be one that provides economic growth, and is simple and fair. this, more than anything else,

should be our vision for tax reform. the landmark tax reform act of 1986 was developed by then-chairman bob packwood through a careful and methodical partisan -- bipartisan process that relied heavily on member input. senator bradley was a key part of that process. i don't want to leave out congressman rostenkowski and a whole rash of others in the white house at that time. but these two are the two great leaders in the senate at that time. over the last few weeks we've begun a similar process that we hope will yield a similar result. tax reform legislation that both parties can support. the 1986 act signed in law by president reagan reformed a costly and complicated tax system into a simpler one, with lower tax rates for american households and businesses, affording them greater personal prosperity.

over time our tax system has once again become costly, complex, it's impeding growth, standing in the way of shared prosperity and placing american workers and businesses at a distinct disadvantage. put simply, it is past time for congress to stand up once again to fix our broken tax system. if you've been around washington over the last few years, chances are you've already heard me talk about tax reform. i've been making the case for tax reform on the senate floor, here in the finance committee and public appearances and written materials and in private conversations. in december the republican staff of this committee produced a comprehensive report outlining the need for tax reform and providing some direction to our overall efforts. i'm sure everyone here has read that report cover to cover. i've already publicly laid out seven principles that i believe should guide our tax reform efforts. i will not go in to much detail on each principle today, instead i'll just talk about them briefly. first principle is economic growth. tax reform if it's done

correctly should promote growth, and significantly reduce economic distortions that are present under the current income tax system. the second principle is fairness. the income tax base which has become riddled with exclusions, exemptions, deductions, and credits, should be as broad as possible. tax reform should broaden the tax base by eliminating or reducing a number of tax expenditures along with lowering tax rates and removing distortion. the third principle is simplicity. the taxpayers and businesses spend over 6 billion hours a year complying with tax filing requirements, with annual compliance costs in excess of $171 billion. which is more than the gross domestic product of new zealand, for instance. simplifying the tax code will result in greater clarity and compliance, and will free up resources for families, job creation, and other productive uses. the fourth principle is revenue neutrality. tax reform should be revenue neutral and not an occasion to

raise taxes on american households or businesses. general revenues already exceed their historic average as a share of our economy and greater revenue should not be an objective of reform. the fifth principle is performance. the joint committee on taxation lists almost 100 provisions of the tax code that will expire over the next decade. this is unacceptable. families and businesses should be able to plan for the future without wondering if the tax code is going to change from year to year. the sixth principal is competitiveness. the combination of a high corporate tax rate, worldwide taxation and the temporary nature of some tax incentives makes american companies less competitive when compared to their foreign counterparts. tax reform should reduce burdens on businesses, large and small, to allow them to more effective compete on the world stage. the seventh principle is the promotion of savings and

investment. many aspects of our current tax system discourage savings and investment, thereby hindering long-term growth. savings and investment help build the capital stock, providing fuel for economic growth, and it generates prosperity for american workers and businesses. these seven principles are the guideposts that we use when looking at tax reform proposals. i think we're going to have an interesting hearing today. we have two really great former leaders, chairman packwood and senator bradley, to see what advice they can give us if we undertake our tax reform efforts in this congress. i did read showdown in guchi gulf and some indication of how difficult this was. if anything it may be even more difficult today, because of the mess that has occurred since, none of which you deserve to be blamed for. senator widen? >> thank you very much, chairman hatch.

as chairman hatch noted, the finance committee is joined this morning by two legislators who are at the heart of the last major overhaul of the u.s. tax code in 1986. chairman packwood spent more time than anyone figuring out how to make the numbers in tax reform work. that is the tough work of legislating. senator bill bradley was the intellectual godfather of the reform plan that broadened the base, closed loopholes, and kept progressivity in the code. senator bradley lit the fire that got the reagan administration invested in reform. and i don't think anyone would question my judgment that senator bradley had by a wide margin the best jump shot in the senate tall guy caucus. now if there's one obvious similarity between 1986 and today it's that people are quick to say that tax reform is absolutely impossible. americans say congress can't organize a two-car parade. there's no way they could come to the on major economic legislation.

so what happened three decades ago needs to happen again. turning the impossible into the possible. the congress and president reagan came to the to pass the 1986 tax reform act based on what i call principled bipartisanship. one side wanted to flatten the tax code. the other side wanted to close loopholes and guarantee that the tax code treated everyone fairly. both sides said we're going to set aside the partisan attack. look for common ground, and each side came away with the feeling that it had upheld its principles. when president reagan signed the bill into law, he called it an historic overhaul of our tax code, and a sweeping victory for fairness. he continued, and i quote here, it's also the best anti-poverty program, the best pro-family measure, and the best job creation program ever to come out of the congress of the united states. those same objectives guide the finance committee in the congress that works again to

modernize our tax system. reforming the tax code is always a herculean task. but the same strategy of principled bipartisan can work once again. the congress can turn the impossible into the possible. however, policymakers need to recognize that the process is going to look different. not every part of a 30-year-old game plan for tax reform can work today. china and india are now superpowers in the global economy. which is a much bigger factor in the tax reform debate. the gulf between wage earners in the top of the income ladder has widened. and america is at its best when a rising tide lifts all the boats, and it should be obvious that making that reality -- that a reality once again is going to take some hard work. the status of the middle class across america is at the top of

the list of compelling issues for tax reform to address. it's fundamentally unfair that a middle class wage earner could pay a higher tax rate than an affluent person whose earnings come entirely from investments. the tax code should not be used to punish the wage earner in america. many tax incentives for college education and retirement savings are simply out of whack. the support those incentives provide don't always get -- get to those who need them the most. and that ought to change. another challenge is making america more competitive in the global economy. today, look and come away saying our country is trying to win a road race in a 30-year-old car. our competition, meanwhile, trades up to more efficient models. america hasn't done enough to drive innovation at home, and worse, the tax provisions for research and development expire

year after year. in 1986 there wasn't a lot of talk about the tax code. for example, and a clean energy future for our country. that's something else that has to change this time. and finally, modernizing our tax code has to be done in a fiscally responsible fashion. tax reform cannot become an exercise in slashing rates at any cost. the biggest lesson from 1986 is that tax reform is possible, when democrats and republicans set partisanship aside, come together, and focus on shared principles. over the years, i've talked frequently to senator bradley about how tax reform is always totally completely and thoroughly impossible until that moment when it happens. the finance committee today has two experienced, knowledgeable witnesses who are going to help and finally, modernizing our tax code has to be done in a

fiscally responsible fashion. tax reform cannot become an exercise in slashing rates at any cost. the biggest lesson from 1986 is that tax reform is possible, when democrats and republicans set partisanship aside, come together, and focus on shared principles. over the years, i've talked frequently to senator bradley about how tax reform is always totally completely and thoroughly impossible until that moment when it happens. the finance committee today has two experienced, knowledgeable witnesses who are going to help us get closer to that point today. chairman hatch, thank you. and i look forward to our witnesses. our first witness is bob

packwood. senator packwood was first elected to the u.s. senate in 1968, and served the people of oregon and this body for 26 years. he was chairman of the finance committee from 1985 to 1987 and presided over this committee's efforts to draft and pass the tax reform act of 1986. he made a typical difference in this, as did our other witness. he also served as chairman of the commerce committee for four years. and prior to his time in the senate, senator packwood practiced law in portland, oregon, for ten years. was elected to serve for three terms in the oregon state legislature. he received a bachelor's degree in political science from william f. university -- willamette. i got to pronounce that better don't i? and a law degree from university of new york law school. we feel honored to have you here

today. we know you can help us in many ways to understand some of the difficulties we're going to have to get through. and hopefully give us some advice on how to get through it. our second witness is another great human being who i greatly admire and admired before he came to the senate, and that's senator bill bradley. senator bradley represented the people of new jersey here in the senate for three terms. beginning of 1979, and as a member of the senate finance committee he played a pivotal role in the drafting and passage of the tax reform act of 1986. of course prior to his time in the senate, senator bradley was a great professional basketball player. he's a two-time nba champion and a member of the basketball hall of fame. senator bradley holds a bachelor's degree in american history from princeton, university and a master's degree from oxford university where he

hosts a program. thank you for being here. senator packwood you go first. >> and senator bradley also holds a record for the most points ever scored in the play of basketball playoff in portland, oregon, when he scored what, 64 points? 58. mr. chairman, when i was contacted everyone asks how do you do it in '86, and are there any other parallels till today? there are some but the circumstances were different. in our era, fairness was the issue, not income and equality. and the next to the last page of my statement, you will see a list of newspaper stories about people that paid no taxes at all. industries, defense industries at the time of the reagan buildup that not only paid no taxes, they got money back. and the public, and the members of congress, could not

understand how wealthy corporations, and wealthy individuals could pay nothing. it wasn't fair. so that was the premise we were operating under at the time. you will find -- you will find in my statement on occasion the word diary. that means it was taken specifically from my diary at the time. now, what happened. first tax reform is not a new idea. stanley surrey who was president kennedy's assistant treasury secretary for tax came up with the idea of tax expenditures. you can lower taxes and get rid of them. bill bradley and dick gephardt in their fair tax said the same thing. studies treasury one and treasury two, we all knew how it worked. we all knew that you could lower the rates, if you could get rid of deductions. it's pure mathematics.

the house had public hearings for a year in 1985, and they had a lot of individual votes on things as they went along. and they picked up enemies. they picked up barnacles because some of those interests lost their votes and there's lots of single issue groups. and i don't mean the nra or right to life but you touch mortgage interest, and you've got -- you touch charitable contributions and you've got every organization in the country opposed. and the problem with the -- the house bill is that they had enough of these barnacles attached to the bill when they finally came out of committee, that there were votes on the floor to pass it. it would have failed but for the fact that ronald reagan literally came up on the hill. met with the republicans and said, please vote for this bill, i will veto it if it passes in this form, but send it to the senate and see what they can do. with that, enough republicans changed their vote and the bill passed.

although you'd never know if they changed their vote because it passed on a voice vote in the house. comes to the senate. and in those days the senate didn't get going as quickly as you've gotten going now, and going till mid-february or march. i finally started having some hearings on this bill but we didn't need many hearings because in the summer of 1985 we had about 30 hearings on the subject of tax reform. just in case the house would pass something. because if they passed it, i mean we have to act relatively quickly and i didn't want to have a lot of hearings at the same time. so we pretty much cleared the deck of hearings. but there's one thing that caught my mind at the time of the hearings. and i would ask witnesses how low would the tax rate have to be before you didn't care whether there was any deductions?

how low? 30%? 20%? 25%? it's always in that range. i didn't think much about at the time but i was intrigued that almost every witness i would ask, that's what i would get. well, all right. we come to the spring of 1966. because i'm frankly making no progress in committee. we're not making the bill any better. we're not making it any worse. we just aren't getting any place. so on friday, april 18th, i simply adjourned the committee, said we're done with the bill. somebody said you mean we're done for the day? i said no we're done with the bill. this is the end of this bill. and at that stage i called them and this is where things moved so rapidly. i called david brockway, who was then the chief of the joint tax committee said give me three bills, 25, 26, 27 percent. he says 25% you'll have to get rid of mortgage interest.

and bill i remember you saying how much trouble mortgage interest on your bill. so i asked him what about 26%? that's friday. the following tuesday he comes and he gives me three, not bills. they weren't bill form but three plans as to how you could get 25%, 26%, 27%. and i looked at them and then i was delayed for 2 1/2 days, because at this stage, up came fast track for the canadian free trade agreement. it's one of those things where the president can't move unless you give him fast track authority, and there was a deadline. if congress had not acted by, this is tuesday, the next wednesday at midnight, he got it. the house had not acted. fell on our side to take care of it. i thought it was a slam dunk. i was sure we were there. turns out i didn't have the votes. i was missing one. and it was sparky who was mad from hawaii that the president had not answered his letter on macadamia nuts. and i had to get over that

hurdle, and bring him around. we finally succeeded in doing it but it was thursday before i was done. then on thursday i presented to the committees at the same time our committee just the outlines. we have no bill. just the outlines of what might be possible, and they seemed to like that. so i thought to myself, meeting's over, and getting toward the weekend and i'm thinking at this stage how are we going to do this? and i thought the only way it can be done is bipartisan, quickly, and behind closed doors. the bipartisan because i could see any bill that was utterly partisan on the republican side would have no success with the house conference. any bill that was not done quickly, but hung out like the house bill did, would pick up enemies all along the way. and it would have to be done behind closed doors. it was helpful to have the president on board. it wasn't critical, but it was helpful to have him basically going the same way we were going to go in the senate. on that weekend on saturday and

sunday, i called six senators. bill bradley, george mitchell, pat moynihan, jack danforth, john chafee, malcolm wallace and i said would you be willing to meet in my office starting next tuesday at 8:30 to see if we can work out a bill that would be satisfactory to us, and the president? every one of them said yes. and now passed starting that tuesday the most extraordinary experience in my life in politics. we met from tuesday to tuesday, the bill was at -- every morning at 8:30 i'd meet with staff at 7:30, this core group, a cabal as i called it at 8:30 we'd work out what we thought should be in the bill. we had one or two open committee meetings but basically the

committee was just marking time waiting for us to finish. and you could tell although the meetings were behind closed doors there's no secrets in this town. and the board was getting out. we were having the meetings but no one exactly knew what it is we were doing. but on the thursday between these two tuesdays, came a phone call that became very important in this whole process, and i will read it to you, because it's from the diary. back again to tax reform in closed session was interrupted by a phone call from daniel rostenkowski. bless his soul he said, pal, i've been thinking of coming over there and without fanfare, without press, just to say i've

been through it. i know every day you go through troughs and on hills and i've been bleeding for you. but i think what you've got in terms of tax reform is the best thing congress has seen in ten years. you get this through the senate. and between the two of us we're going to put out a bill that for a generation of americans will look like a pinnacle. god i appreciated it. what he was saying, with the ways and means committee chairman is saying write this bill in the senate, ways and means doesn't say very often. we continued our meetings through friday, and then we had a public meeting friday afternoon and i said to everybody, we're done. and we're not going to meet this weekend. by this time, the hallway is packed with lobbyists, we have speakers out there. committee we're done.

we're not meeting at all this weekend. cheers in his office. and then i said, to the core group, but we will meet tomorrow. bill had already planned, went to kentucky that night for a speech, cansinged the kentucky derby and came back to be with us the next day. on that saturday the seven of us met all day, from about 8:30 to around 4:30 or 5:00 in the afternoon, and that tied up all the last of the things we needed. joint tax needed a couple days to get it together. but they would have it for us monday or tuesday. and we were ready to gone tuesday night until i finally had to make an odious deal with the oilies to get their support, not the committee, we could have beaten them in committee, but to get their support for something we needed desperately on the floor and if we lost this particular issue on the floor the bill was dead. and that was it. we vote that night and most of the committee had not ever seen the whole outline of the bill or the whole bill until that night. so from tuesday to tuesday the seven of us worked that night the bill is adopted 20-0. now, can you do the same thing

now in this committee? here are the things that would be critical. it's helpful to have the president on board, to have him with you from the start. but at a minimum, you've got to make sure that he's not against you, or gives the impression that he's not sure if he's going to vote for it, or he has some questions, because you're not going to get your members to take tough votes on things that the president might veto if you put them in a bill. so at a minimum he must say i'm open to sending you a good bill. two, i think you're going to have to do it in much the same way we did, which is behind closed doors. but that's not uncommon in the house and the senate, even today. behind closed doors, and try to do it quickly, and present it in one grand bill. we did it combining both corporate and individual into one bill, and then used the money we raised from them to

lower tax bills for everybody else. if you look on the last page of your statement you'll see who the major groups were we hit. it was almost all corporations and rich individuals. and do it in one bill so that people don't have to pick out a particular thing that they don't like and are forced to go on it. give them this. you give them the whole bill and i think they'll go for it. and so that's what we succeeded in doing and believe it or not, hitting business as hard as we did, raising their taxes, about $140 billion, we managed to lower the corporate rates from 48% to 34%. lower the individual rates from 50% to 27%. and keep the bill revenue neutral. you can do it. but orrin and ron, the two of you are going to have to make an agreement as to what we're trying to get, and the thing i like about the fact that the two of you doing it, ron, you may recall about ten years ago we ran into each other in the dry cleaners. and you were working on tax reform then. and i know, orrin, you crossed party lines many times i remember you working with ted

kennedy on things. we both showed a willingness to work across party lines and on some occasions when it didn't please your parties too much. so it can be done but it can only be done if the majority and the minority at the start are on the same page. thank you, mr. chairman. >> well, thank you. that was fascinating. we're very appreciative to have that overview. senator bradley, we'd love to hear from you. >> thank you very much, mr. chairman. it's always a pleasure to be on a panel with senator packwood. he's an extraordinary leader, and he ran the committee with great effectiveness, not only on tax reform, but on a whole series of other issues. this is also a first for me. the first time i've been in this room since december 1996.

i notice it hasn't changed. but what i'd like to do is i'd like to keep a few thoughts about structure, and make amplification on two things that senator packwood said. first, what is the ideal income tax system? i believe the ideal income tax system is a system that provides the greatest number of people the lowest rate. in terms of principles, and these were the principles that i think we used in 1986 to determine what it was in, what was out, one was efficiency. the basic threshold question for members of the finance committee, and the efficiency point is, i believe, the mark of a more efficient allocator of resources than is a member of the ways and means committee or the finance committee.

so that was one principle. the second principle is an equity question. horizontal equity. equal incomes should pay equal taxes. not somebody has the same income and next door somebody is using loopholes to reduce their tax rate. third is fairness. which is essentially vertical equity. and that is those who have more should pay more. in other words the progressive nature of the system. and fourth, do whatever you can to make the system less complex. we live in a time where few people fill out their returns, and where tax fraud is estimated to be nearly $80 billion to $100 third is fairness. which is essentially vertical equity. and that is those who have more should pay more. in other words the progressive

nature of the system. and fourth, do whatever you can to make the system less complex. we live in a time where few people fill out their returns, and where tax fraud is estimated to be nearly $80 billion to $100 billion. so those are the principles. efficiency, equity, fairness, simplicity. and you measure everything against those principles. now what do you need to pass tax reform? drawing on our experience i think you need at least six things. the first thing you need is the exact thing president packwood said. you need a president who is going to put this prestige and clout on the line to drive things through when the inevitable obstacles appear. second, you need a treasury secretary who is the president's designee to deal with it every day, and you need a treasury secretary who has an incredible person who constantly monitors

that. of course, in 1986 the president was ronald reagan. and his secretary of treasury was jim baker. and his assistant was dick darmin. all of whom played critical roles in this. i can't tell you how important it is to have a treasury secretary who can speak for the president, who doesn't have to run back to the white house all the time to check this or check that. and, in fact, as bob remembers, we got down to the critical strokes at the end of this process. there were some difference of opinion, and jim baker was in the room doing the negotiating. because he knew enough of the substance and had paid attention to it. i remember him convening a meeting during the period when there was treasury one and treasury two, which were things that ronald reagan tasked as the treasury department to do. and he convened a meeting with

jack kemp at his house, and me, and i think bob or a few other people, i think it's important to know the long-term journey of tax reform. when i came -- one of the reasons i ran for the senate was i wanted to reform the income tax system. i remember reading an article by milton friedman many years before when i was a basketball player about how you could have a tax system with 16%, and i thought that's pretty interesting. and i read all of stanley surrey from harvard, joe peckman at brookings, and i remember in 1984, i went to walter mondale who was the candidate for president, for the democrats and tried to convince him to do tax reform. a a a

it leaked that maybe he would be doing tax reform. and so that is when ronald reagan in the middle of the campaign called for a study by the treasury department that was treasury one. and it so happened that the people at the treasury department and the tax area were really great people and they took the charge seriously. and they produced a document that was outstanding naturally when you throw it out there you

throw something out specific and everybody views on it, everybody chews on treasury one. and terrible this is and that is. and you ended up having treasury two. and treasury two accommodated some of those interests, stiff armed others, but it was an improvement over treasury one. so that is how the treasury department got involved. you need a president, a secretary president that likes it knows it you need a chairman of wanes and means and finance to get it done. and bob mentioned, we passed

with bill that president reagan put forward and dan ended up being the king in special interest. so i think this was to seize the government mantle and push forward with a challenge that would make him a historic chairman of wanes and means. and i think the senate -- i don't know specifically what your political interests were, but i sense it was to do something that no other finance committee chairman would do before. and you wanted to affect them in a positive way and potentially change the way you think about

taxes. without bob packwood, and jim baker, and president reagan, this never would have happened. you need to have those parts in place. and you need a chance. and you need zeller. that is the role i played in 1986. i did not but talk about tax reform for years. it got so bad, i remember i was on a sunday morning interview show, and at that time my daughter was eight or nine days old. she had a girlfriend of hers staying with us and i said dad is going to be on tv. eyewitness news conference, senator bill bradley.

stick around dad is going to be on tv. so she said let's go, all shehe's is going to talk about is loopholes. and i also tried -- i recognized i did not have the power. the power was with bob packwood. so i tried to be supportive in that role. the sixth thing you need is a committed, knowledgeable staff. i remember bob's staff was absolutely first rate and the keep thing is they can cut the deal on a lot of issues and everybody knows they speak for the chairman. they keep their word just like the senator keeps his or her

word. so i think those are the six that i think you need. a secretary that is knowledgeable, a chairman of the wanes and means committee a chairman of the finance committee, you may or may not need a zellot and a staff that is competent on honorable and has absolutely integrity. the last thing i think you need and probably the most important thing was e pit mieded by a visit we made to the white house to meet the president. i was seated around the table in the west wing. and each of us could go around

the table and tell the president what we thought about tax reform. so when it came to me even though he made his commitment and position clear, i said mr. president, i know you're interested in tax reform which means lower rates, because when you were an actor, the rates were 90%. and i said i'm interested in tax reform because when i was a basketball player i was a depreciable asset. so what the story says is there has to be something for each party in the deal. it can't be all one there has to be something for each party. i make only two other quick

questions. bob talked about writing the bill in a short period of time with seven people. bob packwood wanted it to happen. if i would have called seven people, they would have said yeah, i'll meet you tomorrow or in two nears from now but when the chairman called you showed up. it was because of him at that committee but we also mentioned that when we were headed down the path that the house did for a long period of time we had 30 hearings about tax reform. bob resided over every one. i was at every one. we asked questions of after witness, and one of the questions was how low the rate would have to go before you give up this that or the other kind of thing.

and i said how low before you give up capital gains exclusion. and the answers came back that i don't care if the rate is 10%. we still need a differential. it will affect capital depreciation and formation. a lot of other people came in and they said no matter what you have to have a differential. other people said well, if you got the rate down to about 20% or 28% 29%, we would give up that differential for capital gains and that is indeed what we did. we got the rate to 28 and% and that applied to capital and earned

nm. so mr. chairman, with those thoughts i would thank the committee committee for the opportunity to come back to the room every 20 to 30 years. >> everybody here has to realize that you went through a very trying time. very difficult. i just want you both to know how much i respect and appreciate both of you. revenues have averaged 74.2%. trending up to 18.3%. of gdp by 2025.

in other words taxers are higher now than historical average and ahead even higher. since taxes are already higher than average and raising revenue and tax reform makes enacting it less likely, shouldn't we do tax reform on a revenue neutral basis? we'll start with you, senator packwood. >> i would much prefer you do it on a revenue neutral basis, but i would combine corporate and individual into one bill. and then you have a little more wiggle room using either side of that equation to reach your revenue neutrality. >> we of course did revenue neutral. it might require additional tax. but i think that is something

for the committee to work out itself. we found that upper nm americans will pay a higher%. we cut the race and the top 5% paid a higher percent after that reduction rather than before. >> it currently taxes the income of their companies where ever that income is earned. currently they have the ability to bring the profits they earn back to the u.s. but they face a tax of 35%. the businesses that would rather not pay this additional tax and keep their revenues abroad.

in current u.s. law they are allowed to defer the tax indefinitely. that would substantially immaterial deferral since it imposes a minimum tax of 19%. did you think we should go to a territorial percent hike most all major companies or not? >> mr. chairman i thought so the last 30 years. we often say we have to compete overseas and here is the advantages they have. and one of them is territorial. i think we ought to go to the system that the other principal countries use which is if you make profits overseas, and pay taxes overseas you can bring them back and that is a good system. >> of course when you have

profits overseas and you're taxed a the a particular rate that that country charges, all of those charges are deducted against your liability in the united states. the tax credit. so i think you have a clear view of how these works. the president proposed two things. one is a 19% tax on the deferred income going forward, and the 14% tax as a toll that is going on abroad. i think the committee will have to work it's will on that. i think that the territorial tax makes sense in terms of the overall picture. and in reality, you're going to have to figure out is there some other way, i don't think that is going to happen, is there some

other way that you could bring the money back and you, i think embodyied in the president's proposal the possibility that maybe it is 14, or 19 or maybe it's less but somewhere in there where do you give up capital gains and at what rate, but how do you bring the rate back. >> thank you, mr. chairman. the two of you have told inspiring story this morning about bipartisanship on a major chick issues and we just looked up the votes that attest to what happened. 97-3, and on the conference report it was 74-23 and in the house it was more than two thirds. this kind of work paid off. what i would like to start with is asking you about the process.

as far as i can tell in the effort to promote bipartisanship every step of the way, they say we're going to use the normal process, and it promotes bipartisan. and you have just 60 votes and certainly neither side today has 60 votes and they use the normal process and it forces bipartisan. the alternative is to use what is called reconciliation which is 61 votes and they can have their way on tax reform. my question to both of you, either one wants to start, is it your view that using the normal process that you used in 1986 was helpful and is it your assessment that using the normal process helps promote bipartisanship? >> absolutely but for a variety of reasons. every member of this committee

ought to have misgivings about reconciliation and using it to jam as many things in the bill as majority wants because they're not sure they can get it passed any other way. that lends it etc. to more and more. even in lyndon johnson's era, no one would have thought of taking a bill away. reconciliation holes out that -- i much prefer the regular order for a couple reasons. one, it skill we didn't get to offer the arguments. if you win it in the normal process, you have better credibility than if you jammed it through in reconciliation. >> senator bradley? can you top that? >> no, but i have a comment or

two, your question was what, mr. chairman? >> normal process tissue. >> i mean i think. >> inviting bipartisanship reconciliation. i think the way that we did it i would agree with senator packwood 100% that the normal process is better it also has to do with the cloud of the committee in the larger senate. we had an agreement among members of the committee that when ever a vote would come up on the floor none of the committee members would break from the bill that was reported out of the finance committee and would stay with the committee bill. and that was a point of personal anguish for me because in the committee, as it referred to

what they referred to as the oilies. they were the ranking member, and he had a few interests in the oil patch. and i, of course, was going to go after it. we have to go after that, we can't leave that out. we were meeting in secret and we had a vote in the back room and it was 11-9 against me. i thought it was in the back room, but if there was one senator that if taken public, he would not vote that way. so when i raised the issue in the committee full committee and i saw senator long's head go like that and i called for the vote, and the person who i thought would switch didn't switch.

and right up there against that wall russell long got ahold of me and said if you ever do that again -- life went on, and the screw turned. we got to the senate floor and a republican senator offered the exact amendment that i had offered in the finance committee. but because we had a deal, that we were all going to stay together, i voted against my own amendment. so the cloud of the finance committee in the senate as a hole is instrumental in getting a bill passed. to the extend that you can speak clearly, authoritatively, and hang together you won't need to have any kind of reconciliation. >> senator hatch i would like to ask one other question because this was a remarkable

feature of the '86 bill. in 1986 you were able to say that income from wages and income from capital was treated equally. i think it would be helpful to know how you two reached that judgment. today people say if you could just reduce the difference between the way from income from capital and income from wages was treated that would be a huge reform. how did you get to treating wage income and capital income the same in. >> we wanted to keep the same progress that we had in the existing law. that we were going to lower the rates tremendously.

so in order to make sure that the the wealthy were on the same incline, we had to get rid of the differential. it didn't even really bother the committee that much. it was a small issue. he did i say to his credit, we agreed. we made the rate the same but we didn't put it as a sprat section of the bill. he said you put that in the bill and get rid of the word capital gains and then they will raise the rates and capital gains will go up with them. >> just a little addition to that. i agree with what senator packwood said. there was a provision in the bill since we got to the magic number of 28 for capital and earned income we had a provision in the bill that said

if the general rate ever went higher than 28% the capital gains rate would be 28%. you would never tax capital higher than 28. and i remember after four mounts, they said we need a differential on capital gains. if you take a differential in capital gains you're going to have a much high erer general rate. and that is exactly what happened. capital gains went back in and the rates went to 39%. it seems to me there is more coherence in a bill with a lower rate that treats capital earn labor the same.

>> thank you. >> thank you both for coming. i will ask senator bradley a similar question. it deals with presidential involvement, do you think tax reform would have happened if tax reform was not a priority in his administration? and isn't it going to take that much from president obama with his own party in congress to get a tax reform bill enacted? and then for senator bradley, could you share your thoughts on the importance of presidential leadership and accomplishing tax reform?

>> president reagan was so important. is it essential that the president be there from day one and pushing, i don't know, it's like saying this committee could not reach testit's own conclusion without the president. one morning there was a small breakfast, and the bill had passed before congress, and the president took danny and me aside and he said if you can keep the revenue neutral and keep the rates you got, you can sound on my support no matter how you get to those rates. we knew we had his backing. had absolutely. but that was about the treasury. jim baker was up to his nec in the negotiations with us and especially his assistant treasury secretary because in the last seven days they talked about where this was all done

baker wasn't here. he was in tokyo with the president on one of those economic multination meetings. and all of the final negotiations were done and you will see an interesting exchange. so is it critical? i don't know if it is critical. is it immensely helpful and was it? yes. >> senator bradley? >> i think presidential leadership is essential. i believe that there are so many times when things happen that you need to have have the president's clout.

i would also say going back to my anecdote, i think the president was in favor of lowering tax rates because he had a 90% rate. and i was very in favor of this because of the asset of the basketball player closing loopholes had traditionally been what democrats were for. lowers rates what republicans were for. so if they said can you bridge that divide, the answer is yes. >> well, senator grassley. democrats want today get rid of unjustifiable deductions.

as president reagan said, i'm not signing it unless it is revenue neutral. and you could not raise revenues, you this bill you had to use it to lower rates. but you had a willingness on both sides for different reasons to want to reach the same conclusion. >> my last question deals with something we have to tackle here in a basic way. so both of you in your view, how important was it that the '86 bill was comprehensive tax reform package rather than focusing only on business or, on the other hand, individual reform and getting support for its passing? >> for us it was critical because we needed a lot of the money we raised from business. remember, don't confuse rates with revenue. we raised an immense amount of revenue, more than we were raising from businesses before. but we lowered the rates. and we used a lot of their money

to lower rates for individuals. and we mixed the two of them up. i would have misgivings about trying to do just business and then later on we'll try to do just individual. i think you're better off to try to do both of them at once in one big bill. and i want to use the word "grandeur" again. you come out with a big bill that you've agreed upon and if you do and it touches the points bill and i have talked about, before the bill ever gets to the floor of the senate you're going to have immense newspaper support, academic support across the board, liberal and conservative, and you will be glad in retrospect that you combined it all in one. >> i agree. we should, you should -- you should combine both corporate and individual. because if you just do corporate, it's not like you're

going to have an easy path. if you do anything that's serious. for example, when we did the individual and corporate, essentially, the business community split. large percent of the business community were for the reform. another segment of the business community was against reform. guess what was the dividing line? what tax rate they pay. >> if they paid less taxes because the rate went from 50 to 28, they were for it. if they paid up more, they were against it. but the key was constructing a coalition that included a significant part of business. this is where bob was brilliant. and so i would argue that that's very important. you also might get to a point where you might have more flexibility if you do individual and corporate because they both -- they both are essentially two sides of the same coin.

for example, you might decide that you want to cut the corporate rate to 10%. or 15%. and you might want to offset that by increasing the taxes on the individual side. on dividends and capital gains. that's what they do in denmark, for example. you wouldn't have that flexibility if you didn't have both individual and corporate put together in the same bill. >> senator isakson. >> thank you, mr. chairman. thanks, both of you, for being here. i was a real estate guy in 1986 and had a development company and a brokerage company. so i have a question for both of you. first of all, thanks for being on the nine who voted against selective treatment from the passed law. i think that's right, both of you voted against that, if i'm not mistaken. oil and gas won real estate kind of lost. but looking in a rearview

mirror, had some transition been applied to those investments made prior to '86 so that the tax treatment could have continued and the tax treatment on passive loss been prospective rather than a clawback, did you ever think about doing that? or if we go into something again could we do it that way? >> we did not think about it at the time. and he's absolutely right. if there is an industry that we hit, it was real estate. and we drove the s & ls out of business, who were one of the principal financers of real estate. and we did not do it retro -- i mean we did it retroactively. we found passive losses such a grievous way for rich people to shell their money and pay very little taxes. we got rid of it. but senator, you're absolutely right. the real estate industry was hit hard and the oil industry got a particular favor because of a deal i made, because i was going to need their votes later on on the floor in a particular issue.

>> senator bradley. >> i agree that the real estate industry paid more. if you phase it in you have of course not as much revenue. and you also skew the distributional tables. but in regard to real estate keep in mind that was at a time where there were i would say real estate tax shelters that were not, investment was not based on the need for apartments or office space, but based upon the individual taxpayer getting a tax deduction offset against all his other income. or her other income. i had a call sometime in this period from paul volcker. who was then the federal reserve

chairman. and he said, you know, i really like what you guys are doing up there. i said, why is that? he says because i can't get at these banks who are simply throwing money at uneconomic real estate investments and it has to be through the tax code. so i think that's one of the reasons, at least for me, that i felt we were on strong ground. >> i think you did the right thing because it was abused. my point was if you could have transitioned prospectively in terms of passive loss rather than a clawback you might have prevented the savings and loans and the creation of the reits, which is basically what the ramifications were. >> i think you're right. >> one other question -- >> i wouldn't say the savings and loans collapsed because of the tax reform act. >> no, if was the last straw, i guess. >> yeah, maybe that's a better way to say it. >> my other question is did you consider in 1986 or have you

thought since about going to a retail sales tax or a consumption tax instead of a progressive income tax? >> i've thought to myself, what kind of a deal could be made between the republicans and the democrats that would result in some increased revenue? i thought what happens if the democrats were to offer this to the republicans? we'll go to an electronic funds transaction tax, which i prefer to a v.a.t. or retail sales tax, and we will cut in half the corporate and individual income tax. and you will allow the tax however to produce an additional $500 billion in revenue. now the republicans are thinking wow, you could cut the income tax in half and corporate in half and we're not really, we've

already spent a supportive consumption tax anyway. is that kind of a deal possible? we'll go to it one day. there's no question in my mind. the danger of any kind of a consumption tax is probably why republicans are more afraid of it. it is so easy to raise. need a little more money? raise it half a percent. take a look at your sales taxes in different states that started at 1% or 2% 30 years ago. they're now at 8% or 9%. look at the european value added taxes. i don't know if any major country in europe that's not less than 20% on the value added tax. but to answer your question, yes. if you could combine it, i think there's a possibility that you could possibly, maybe see the republicans shaking their heads. you could possibly make an argument for some increased revenue in exchange for dramatic reductions in corporate and individual taxes. >> running out of time. but real quickly, senator

bradley, i'd like to hear your comment. >> i think what senator packwood said about electronics transfer tax is extremely interesting. you know, if i were the chairman, i would task the joint tax committee to do an analysis of that in terms of revenue that could be generated. because you've got to know what revenue you're going to generate before you decide how you're going to spend it. on the consumption tax issue in my testimony, i make a suggestion, basically, the point is that we should tax less those things we like such as wages and tax more those things which are bad for us and dangerous, which are pollution, for example. and i think here there could be a very interesting trade-off between employment taxes, social security medicare, and

unemployment and a gasoline tax. or a tax on things like volatile organics or sulfur dioxide or lead or nitrous oxide or whatever. right? it's just a numbers game. and if you do that, it would be -- have profound impact. for example, if you were able to dramatically cut both individual and corporate social security employment taxes you would in essence be giving individuals a tax cut and corporations a tax cut. at a time where jobs were needed. the fact there's this 15% hurdle, it affects different industries in different ways. if you're mckenzie or microsoft