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

or google or you want to hire real talent, you pay them more because you really need that talent, so that you pay them more to offset the employment tax. if you're working the lumberyard in oregon or somewhere, where there's a surplus of labor, the -- you don't pay them more to offset it, so the irony is that it ends up hitting the lower paid guy and the lower -- the struggling industry more than it hits the person who's in the consulting or technology industry. so reducing those employment taxes are -- have many benefits. for example, 24 million people or 25 million people working part time now could very well be brought into the workforce. you could find people that weren't working to be brought into the workforce, so that's the good news. the question is, what are you going to use to provide the

money to do that? and you know, i know the committee has looked at it. it's probably not possible. but who knows? they said tax reform wasn't possible in '86. you could take a dollar gasoline tax or you could take a carbon tax and use all that money to reduce those employment taxes and i think the net benefit would be greater job creation, economic growth. it would hit certain sectors more than others, obviously. but let's just take the dollar gasoline tax. never could it be offered would it be a better time to do it than now when prices are where they are, but let's say you phase it in as you suggested you do on the other things. if you phased in a gasoline tax over five years and the automobile industry was going to require to improve the auto --

the mileage efficiency, at the end of that five years individuals would be getting more miles with less gasoline, they would be paying no more for gasoline with a dollar tax that could be used to reduce social security taxes and employment taxes than they're paying now without that. >> senator nelson. >> and could also, senator bradley, improve the roads and individuals that are crumbling. this has been a fascinating discussion for me and thank you very much. i take your ideas and try to put them into the day's politics. offsetting, lowering employment taxes and going after something like nitrous oxide and that's much more difficult today

because of the climate debate. that is going on. getting the votes. i think about what you said, senator packwood, that president reagan was so critical in tamping down the opposition is among republicans in the house. well, how are you going to get president obama to tamp down that opposition today, just over the kneejerk reaction to some republicans to the word tax. so it's hard for me to make the transition from your success in '86 to today. and it really puts a real burden on the shoulders of our chairman and ranking member. >> well, that's why this committee, at least in bill's and my era there was much more

non-partisanship in the senate than there apparently is today. i can't tell you whether or not you can put it together, by 1986 it appeared to us just as difficult to put it together as it appears to you now. there are different issues that we had then. and nobody can make the right circumstances. you can't buy them, you can't wish them, you can't coerce them. all you can do is be around when the circumstance comes and hope you can take advantage of it. maybe there's a possibility. but if at the start we're going to say the republicans say no bill if there's any revenue increases total and if the democratic position is no bill unless there's some revenue increases, then you might as well spend your time working on asia pacific trade agreement or something like that.

>> you know, our problem thus far since a lot of your success has been we're in this kind of herky-jerky patch at the 11th hour. tax extenders, an example. you want to give us your thought about how we take this illogical approach to taxes? do you have to do it in the overall global kind of big deal in order to get it done? >> tax extenders are lobbyists for the employment act. >> yes. >> you have to bite the bullet and make some decisions. what should be permanent, what shouldn't be permanent. there are always questions of revenue, so you always -- you want it to go out a year or two but not three or four because that would affect the revenue. and i just think that you know,

the practical reality is that people would probably say extenders are necessary. but they're necessary only because fundamental choices are not made about the tax code. what kind of tax code do you want? what do you want in, what do you want out? not what do you want this year. because then we all know you lobbied every year about the same thing and quite frankly, it becomes boring, i would think. you know the argument before they come on. on your earlier point about nitrous oxide, you know, you would be cutting some taxes. social security. a couple of years ago, you cut the social security tax and then there was a quiet deal. you let it go back up and nobody said anything about it. right? not one party attacked the other party. well, that's the kind of thing here you could get with the

employment tax reduction and the increased taxes on essentially either pollutants or gas or carbon. >> i have mixed feelings about extenders. you make some of these permanent, you're going to play hell getting rid of them when the time comes you ought to think you get rid of them. at least with extenders, you are forced to look at them at least and think, should this be kept and then of course everything falls apart and you extend them all. say you made them all permanent. now, you don't have to look at them until someone says you should look at this. kind of pay your money and take your choice on it. >> thank you. next is senator coates. >> well, mr. chairman this has been fascinating for me. i'm a rookie senator sitting, can't use a basketball analogy, but i can use a baseball analogy.

in the left field bleachers when my friend from nevada had to extend the rostrum here to accommodate the three of us. so it's a -- well, that's home plate. i figure i'm in the left field, although i would prefer to be in the right field. nevertheless, having had the opportunity to serve with these two distinguished former senators, just sitting here, listening to them talk through the process has been fascinating. so often, we take an issue and start with the substance of the issues. comes to a grinding halt because the process wasn't set until the beginning. in terms of how are we -- what

is it going to take to get from here to there. so it was fascinating to me that both of you outlined the principles of the process you that had to work through in order to accomplish the goal. and it occurs to me mr. chairman, that a buy-in of the committee with the principles up front to prevent us from having to be seduced away either through ideology or through special interest group pressure on particulars, well, okay i can get behind you unless you -- if you exclude this. or include that. prapz us from getting the batter's box all the way around to home plate. i just thought it a fascinating lesson in history here. and i had the great pleasure of

serving with both of you, being in the house in 1986 but -- watching what was happening there as a somewhat neophyte member of the house. and then now awful a sudden having the opportunity sitting here thinking could this really be done? and what you left with us is yes, if you avoid, if you, if we as a committee can avoid the pitfalls of making prejudgments as to what ought to be in, what ought to be out and look at how we could accomplish something of the enormous impact of the future of america, for the whole generation, i think that's what we're looking at here. what a legacy that would be. to you, mr. chairman.

to ranking members and all of us on this committee, it appeared to me there are some stars lining up here. between the house and the senate. given the personalities. experience and background of the leadership of the ways and means as well as the finance committee here. question mark in terms of where the occupant of 1600 pennsylvania starting, from relative to their situation and -- relative to their income level and the things that cause them the eureka moment to say yeah, i want to get on board that. to me it seems like -- i'm just going on here. but it seems like the real challenge here is to address the question of how a lower rate and

cleaner product can result in the kind of growth and economic -- in the dynamic economic impact of something we would do he and where that money should go. should it go back in the government for expenditures as perhaps appealing as it might be. how many roads could we pave and how many bridges could we fix? or do we let the market determine how that capital is better invested? it's really not asking the question. if the panelists want to comment on that dch i was-- i was actually just making a statement. >> i'll comment only in one sense. senator wyden, you may remember my predecessor for whom you used to work at one time used the expression give me control of the procedures of democracy and i will control the substance of democracy. this process in 1986 was not really a planned procedure.

the house pretty much ceded to us the right to write the bill and if they liked it they'd adopt it. but i wasn't making any progress following normal procedures. it was only when the thing wu not moving at all that i came up with this idea of half a dozen of us getting together in secret and in this group we had, four republicans, three democrats. we had an agreement. if any four or us could agree on something, it would be put in the chairman's mark. i recall no vote that was four republicans, three democrats. i recall a number of those where i was on the three side of the vote, but we had that agreement. it was that bipartisan in that sense. but it wasn't planned. it was -- nothing else has worked. and yet the circumstance was there to make something work. and that's how it happened. i don't know if the circumstances here. you feel it.

you don't plan for it. it arrives. i'm not sure how to make it arrive. >> i'm trying to get that feeling. senator carper, you're next. >> thank you, mr. chairman. senator wyden. to chairman packwood, to my friend bill bradley, it's great to see you. just great to see you. i was talking with brian sealander the other day, whom you graciously sent to me when you withdrew from the presidential race, sent him to delaware, signed him up to my senate race, and one of the reasons why i'm here today is because of that kind gift along with sean barney and a couple of others who came as well. so, thank you for all of them. couple of years ago, we're having a hearing on the issue of deficit reduction and we had a bunch of really smart people here to talk to us that day too. one of them was alan blinder.

has been the vice chairman of the federal reserve. back now teaching economics at some school in new jersey, starts with a p. princeton. that's it. anyway, in his testimony he said to us in terms of deficit reduction, 800-pound gorilla in the room is health care costs. says if we don't get our arms around that, we're doomed. he said more than that, but that was the sum and substance of what he said. we had a chance to ask questions. came my time to ask a question. i said dr. blinder, you say health care costs are the 800-pound gorilla in the room, if we don't get our arms on that we're doomed. i said, what's your advice to us? he sat there for a while and thought, and then he finally said, i'm not a health economist, i'm not an expert on that stuff. but he said this would be my advice to you. find out what works. do more of that. that's all he said. find out what works. do more of that. i said you mean find out what

doesn't work and do less of that? and he said yeah. we're happy you're here and looking to find out, you've given us idea of what worked. all the those many years ago. one of the keys is clear to me, leadership. most important in any organization. whether it's a basketball team, military unit in the navy, army, air force, marine corps. went to college university or business. most important here. the most important ingredient is leadership. and we can't pass laws to create leadership, but every now and then people come along and provide great leadership. just talk about the importance of leadership here and what our leader, what we, our lead rs of this committee and of the senate especially, what we need to be doing. >> as i said earlier, leadership starts from the president, the treasury secretary, chairman ways and means and chairman of finance committee. that's the leadership structure. if any one of those isn't on board, it's not going to happen.

i would also make the point when senator packwood made the point, seven people in a room, voting 4-3, whoever voted, won sometimes, lost sometimes, four republicans, three democrats. that was fun. legislating is fun with the right people. you can do something very important and you can enjoy what you're doing because you never know what's coming around tomorrow. if you're in that kind of negotiation. it requires you to know what you're talking about. i just hope you guys are having that much fun. >> fun would be good around here. >> i've got to tell a humorous story about bill because -- >> remember, i don't have a little bit of time.

>> sorry, go ahead. >> if you could, if you want to just answer, i'd love to hear the story about bill. but the question about leadership. and i think what senator bradley told suss very important, right on. >> well, you know, all of us in politics have seen natural leaders. some of them are inside leaders like lyndon johnson. are-some are outside leaders like ronald reagan. but everybody in the senate, there's a small fraternity. we all know who are the standout leaders. we knew in my era that scoop jackson and sam nunn on defense were good for seven or eight votes in a tight vote anytime. we knew that dick lugar on foreign policy was good for six or seven votes, they were leaders in their area. all of you on this committee know who the half a dozen leaders are. i don't know who they are, but you know. and certainly the ranking member and chairman know who they are.

and there's -- and a coalition of those can be put together. but the key is not do you have the leadership. does the little leadership group agree on the goal they want to reach? if they don't agree on the goal, no quantity of leadership is going to make any difference. >> all right, thank you. second question deals with you know, did all this work in '86, ink dry on the legislation for all those years and we started changing it. a whole lot over time. did you ever think at the time that we'd see this kind of change that quickly and to such an extent? and duffer think at the time what can we do to sort of preserve what we have, at least for a while? i don't know how many changes we've seen but i'm told like 15,000 or something. maybe more since '86.

should we be looking for some way to preserve for a while what we're we're going to do or is that just a fool's errand? >> tom, that was a real lesson for me. that obviously one congress can't buy another congress. you can pass something which i thought, i think bob did it and people as significantly as tax reform and it can be like a sand castle on the edge of the sea. can be washed away the next year. which means you have to be humble when you do these things and you have to -- i don't think there is an institutional fix to make things permanent. maybe the reason this wasn't permanent was that you know, this wasn't something that bubbled up from the country

saying you must do that, do this. this was something that happened because people who had responsibility on this committee assessed what was the right thing for the country. >> all right. senator packwood, briefly. my time's expired, i'm afraid. thank you. >> senator heller. >> mr. chairman, thank you, thanks for holding this hearing and i want to begin by thanking our distinguished guests for being here today. as a relatively new member of the is that the and a new member of this committee, it's great to get to this historical perspective, so thank you so much for taking time. i'll also thank you and the ranking member for being committed to this effort. i know the it's not going to be easy, but it's good to see that there is real work moving forward and i appreciate your priorities and i share those with you and look forward to getting that done. to our witnesses. the further you get out here in

left field, the more general the questions. but the good news is to know that both of you started where i am today. so there's hope for the future. i want to move to five years ago and the boles simpson proposal. did either of you testify or have an opportunity to put any input on that particular proposal? >> i did not. i was not called as a witness. i followed it very carefully in the press but i was not -- i was not a witness before that commission. >> can you give me any perspective of what you thought of that report? >> well, i thought the report was excellent in the sense of here is where this country is going, if we don't do something. i've often put it -- when i speak i put it in a different version. i am less concerned about the deficit than i am about the

increased spending. if you are rich enough, you can afford a deficit, as long as you stay rich. you can afford to pay the interest on a debt. but i look at spending, and the figures are not that necessarily good from a century ago, but as best we can tell a century ago all of the governments in this country, federal, state, local, water districts fire districts, spent about 10% of the gross domestic product. today the same governments spend around 40% of the gross domestic product and that same pattern has been true in all of the major industrial countries. they just started at a higher point a century ago than where we were. but if you look at the simpson-bowles report and you see what's coming in medicare medicaid social security, that 40% figure is going to go up. and the debate we ought to be having in this country is not is there a deficit. of course there is. you can debate can we afford to

carry it. i think we can. but do you want this country to eventually spend 45%, 50%, or 55% of all the available assets in this country on government? that debate doesn't get discussed very often because it gets mixed up with the deficit. >> senator bradley, i propose the same question to you. >> i was not -- i did not testify. i always talk to my buddy al simpson but we didn't spend a lot of time talking about taxes. >> he's one of my favorites, allen simpson. when i was in the house, i was on the ways and means committee and dave camp was my chairman. as you know bowles-simpson was dead on arrival. camp came up with a proposal last year. and as you're well aware of, got

no hearings and was dead on arrival. what lesson do we learn from these efforts? >> you're discouraged. i read the camp proposal. i thought it was a good proposal. i thought it covered a lot of the bases that needed to be covered. and you're right. it was dead on arrival. and i'm not going to badmouth the president but it irritated me that he appoints this commission and as soon as it comes out he just gives it the back of his hand. that practically kills it right there. i thought the commission did a first-rate job. >> i think camp had some interesting ideas. what happened, he kind of started too late. people knew he was going out the door and he did his own thing and put something specific forward which is a necessary prerequisite, the treasury one and the treasury two, and you have to put in something

specific because the interest chews it up and you figure out what can be swallowed and what can't. i think you need to see the total picture. i think he did a very good job of thinking through tax policy and coming out with a coherent package. >> senator bennett, you're next. >> thank you, mr. chairman. and what a great privilege to have both of you here. i was thinking back, actually, as senator packwood was talked to john mcphee's book, a sense of where you are, a book about senator bradley when he was playing basketball at princeton and asked the question, how could this -- maybe not the best athlete that we have or the best of this or that, succeed so well at what he was doing and i think in terms of tax reform senator packwood interestingly said the opportunity appears to do it. and so with that in mind, i wanted to read -- i took a look

at showdown at gucci gulch in advance of your arrival. and the first chapter -- i think it's worth the historical perspective, the author's note. and i'd ask you to respond for us. "the groups with an interest in the existing tax system were well organized and ready to defend their tax breaks at a moment's notice. the populace who stood to benefit from lower rates were unorganized and diffuse. furthermore, congress was a slow and cumbersome institution" -- that's not true anymore of course. "that usually made only piecemeal incremental changes. tax reform proposed something very different. a radical revamping of the entire tax structure. there was a tremendous inner shah in congress that resisted any such sweeping change. as a result the conventional wisdom in washington held that tax reform was destined to lose. and the conventional wisdom had plenty of history to back it up. tax breaks after all, had always been part of the currency of congress.

this passage i would say is even truer today than it was 30 years ago as a description of where we are. just in 2014 federal lobbying totaled over $3.2 billion. i wonder if you could take us inside that room that you talked about and tell us a little as senators how you were able to overcome these interests and the pressures that you faced and how we as senators should think about that in the arc of our careers on this committee. >> well, if you're talking about the little cabal of seven of us, the pressures were not really that great on us. we knew what had to be done. we're wondering can we swing it will it work, but i don't recall any one of us saying i'm not going along with this if x is in this bill or if x is not in this bill. so those pressures were not on us. i know what you mean about the interest groups. and that's what happened to the house bill. they had a lot of individual

votes on each of those little parts. and if it hits your part and you hate that, you're against the bill. you don't care what's in the rest of it. you hate the bill. there's enough of that. that was not in the -- the senate bill just didn't happen. that senate bill was written in those seven days. and we didn't have any hearings. and it was suddenly, it was like minerva, born fully formed. here on the last night does the committee see the whole bill for the first time and vote for it 20-0. but had they had to vote on individual little sections -- i will give you this. the reason i made this deal, i never told bill why i did this. the reason i made the deal with the oilies and gave them what they wanted when nobody else got it and we'd taken it away from everybody else and gave it back to them,ability was furious. george mitchell was furious.

i hadn't bounced this off my little group because it was the night re voted anyway. the reason i didn't is becauses the biggest issue i was going to face on the floor -- when this came out of committee 20-0 it's going to pass, but there was unissue and it was the i.r.a.s. there's not two sides. there wasn't a great clamor about tighten up the i.r.a.s. the clamor was on the other side about more, more. and as you'll see listed in my testimony the i.r.a.s was about a $24 billion pickup. well on the senate floor this i.r.a. amendment came up and i won it 51-48. and 19 out of the 20 oily senators voted with me. and had i not made that deal i would have lost a couple of them and had i lost a couple i'd lose i.r.a. and that loses the bill. >> senator bradley? >> the reality is that tax

reform was failing until the packwood counteroffensive. and it wasn't like this just sprung forth from the head of zeus, right? we had had 30 hearings. the substance had been thoroughly chewed over by the committee. so it was familiar territory. it was just put together in a different way. >> thank you, mr. chairman. >> thank you. senator -- no wait a minute. let me just see here. i'm sorry. senator menendez first. >> all right mr. chairman. thank you. thank you both for your testimony which i read at length. i think we all agree we need to simplify the tax code and make it more economically efficient, but i always think before we go

about the task of comprehensive tax reform, we need to agree what is the end-goals we are trying to achieve so we can direct our focus. and i know some of my friends here argue that we should focus solely on corporate tax reform and profits and snoorkt gains and i think i've heard you both say you that really need to do it all at the end of the day in order to make it effective. senator bradley, do you believe it's enough for tax reform to be focused on increasing gdp on the stock market, on corporate profits, or should we also have the goal of ensuring economic growth as part of it particularly as it's felt by as many americans as possible? is that the type of goal we should be looking for, sir? >> yeah, you want the economy to grow and you want everybody to benefit from that. and when we did this bill, as i

said earlier, we had four principles, these are the things you should consider. that the market is a more efficient allocator of resources, the ways and means committee and finance figured out we should do this or that activity. second, equal incomes should pay equal tax. it is not fair to have your neighbor pay less because they have a particular tax benefit. and third, those who have more should pay more. the progressive principle. and fourth, if you can simplify it, please simplify it. to me those are the four principles. the economic issues, economic growth, obviously progressivety would say would say people want to move up. and say to people at the top, you have to pay a little bit more. so i think those are the principles that i would use

going forward. >> you know, i think that it's -- my question suggests, at least i view it, is that it is not an either-or proposition. in fact equity helps reduce the load on lower and middle class families. it's not only morally responsible but economically good policy because 2/3 of our economy is fueled by consumer spending and certainly low and middle income class families have a higher percentage of their income that they need and spend on goods and services. so in that respect i think it makes eminent sense to be looking at how we deal -- how the consequences of reform deal with them, not just on corporate taxes as well because i think it will fuel spending that will help private sector profits. senator packwood, at the end of your testimony you included a statistic that in 1983 at least 1,900 people who learned a million dollars or more paid no

federal tax. and that fact was due to a myriad of special interest loopholes that were clogging the arteries of the tax code before '86. and as you noted in your testimony, the product that passed the finance committee 20-0 and would later become law raised the taxes significantly on corporations and rich individuals. they would pay more middle -- income and the poor would pay loss. less. and we have now a situation in which the average new jersey familiar that makes $65,000 per year pays a higher rate -- a higher rate than the wealthiest 400 americans that make an average of about $270 million per year. so from your experience what impact does inequity have on the public's perception of the tax code fairness and would you agree that a focus of reform

should be to eliminate the loopholes and preferential rates that have allowed the wealthiest to steadily reduce their effective tax rate over the past 30 years. >> there's no question that the public is aware of the inequality. in 1986 when the issue was fairness, how did these people avoid paying any tax at all? major corporations making profits in the defense industry get money back. and that just irritated whefsh. and that was a driving goal for us. inequality is obviously a much higher goal, preference, issue than it was 30 years ago. what i'm hesitant about is not do you want to fix that, the longer i've been in life and in senate, the less confident i was that what we were going to do would necessarily get us to what we wanted. and that is why i agree with bill. the market is a better

allocation. if you want to undo the inequality, i think that is legislatively doable, if you can get both sides to agree, that is perfect. but it wasn't what drove us in 1986. >> thank you. i might say that -- >> i'm sorry. >> in terms of the middle class, we need good-paying jobs, more good-paying jobs. and so that's tough to get at through the tax code. but not impossible. so i'll share with you one of my hobby horses. infrastructure investment desperately needed. tough budget, you can't do it. and the size that we would like to do it. but there are people that have money. chinese, singaporeans, koreans, in the persian gulf. large sovereign funds.

i mean hundreds and hundreds and hundreds of billions of dollars. and they have to decide what do they do with that money. and i ask any number of them why don't you invest in infrastructure in the united states, in other words they play the role the british played in the 19th century. and they say well there's this one provision in the tax code. and the provision of the tax code is section 892. and that says that if you're a foreign government and you invest in stocks or bonds you don't pay tax on that. very simple, extend that to infrastructure and you could very well find a significant amount of money for infrastructure coming from sovereign funds. >> thank you. >> great. senator stone. >> thank you, mr. chairman and thank you all very much for being here. i was a staffer back in '85

and '86 when this was done last time and a great admirer of the hard work that went into it and the ultimate result and i'm embarrassed things are different and this is a different time and a different place probably than it was back then. and the one thing you alluded to that made the difference was the involved active engagement of the president in the process. remember treasury one and treasury two the big books they sent up here and how hard they worked to try and get that across the finish line. and that to me seems like to do anything really big and consequential in this town you really need presidential leadership. i hope we'll get that. i just have a couple of quick questions with regard to the issues you batted around back at that time. one had to do with whether lower rates or more favorable cost recovery provisions ought to be the focus of tax reform and which of the approaches is better for economic growth. i think that was part of the debate. and the question i guess is do you believe lower rates paired with longer appreciation

scandals was the right policy choice and how do you propose we approach that question today? >> don't foe how you ought to approach it today. we clearly felt that lower rates were the most desirable thing we were doing. depreciation was a major difference in interest between the house and the senate on that, when we had to go to conference. but i'm not going to advise you as to what you ought to do in this. i'll just say lower rates in my mind, and keep it revenue neutral. but there might be something you can work on to increase revenues. but lower rates would be driving me. >> how about the issue of cap gains at the time going the same as normal income. in your view when you look back on it, was that a good thing? >> yes, it was. and i remember bill talking a few moments ago about the hearings we had, and that fellow, you had to have a differential. if it was 30%, had to be 15%.

and it it was 20%, had to be 10%. so i asked him i said, if there was no income tax, would you have to have a subsidy to invest? because there's no differential. and he had never been asked that question. didn't know how to answer it. but i think you can do very well if you have a low rate with capital gains being the same rate. >> okay. and this has been alluded to a little bit all right today. but there's been some discussion of the goals of tax reform. one of the things that separates us here which makes it kind of hard is there are folks who look at this as an exercise to raise revenue. that's something the president obviously wants to do. a lost us believe that the best way to get revenue is through greater growth. and that tax reform -- the goal of tax reform ought to be how do we generate economic growth in the economy which lifts everybody's boats and addressed a lot of those income disparity

issues that were mentioned earlier as well. speak a little bit about growth as an objective, a goal of tax reform and how you think that plays into the deliberations that should occur here. >> growth -- obviously everybody wants growth. but i remember russell long who's chairman of this committee for 16, 17 years in one meeting going, in '94, "i have been here for 30 years." he says, "three times we have put the investment tax credit in in tax reform. three times we've taken it out in tax reform. you tell me when it's reform and when does it work to help the economy? i think a lot of us don't know exactly what works. i do know there are all kinds of industries who want things who say this will work. but i don't think we're necessarily smart enough to know. >> sir bradley, you've talked a lot about growth. tell me your views on that. >> well, i think you can have growth and equity.

i think growth you get in part through the lower rates but also in part from clearing out the code of all of this underbrush that prevents the economy from growing because it subdiesed one segment as opposed to another. i think if you're going to deal with the equity question, i think the way to do that is with the earned income tax credit. i think the president's proposal on second earner credit is pretty interesting. i mean, you can do things in the code that are structural that are not special interests that will allow to you deal with equity at the same time you're lowering the overall rate. and to me that's the key. >> thank you mr. chairman. senator bradley, you're a credit to basketball players everywhere. >> it's a big compliment coming from you, senator.

>> senator scott, you're up. >> thank you mr. chairman. thank you both for being here with us and providing us insight from 1986 and how you brought together at times what seemed to be impossible. and i'll tell you that sitting here as a relatively new senator it seems relatively impossible for the two sides to culminate together as well. so your insight has been valuable to all of us. just for point of refrn this is treasury two and this is treasury 1. during the years that you guys found the will to make things happen. these are about six years of the president's proposals. my first question really for both of you all is how do we find common ground when finding a serious partner towards real tax reform appears to be missing in the seriousness of the presentations and the proposals, number one, and the second part

of that and the second part of that is when we've heard from our chairman and senator hatch and senator thune just talked about revenue-neutral position. revenue neutral position. when you start the conversation as well talking about achieving several hundred billion dollars more of revenue versus a position of neutrality, how do we bridge that chasm? >> i don't think bill and i can tell you how to bridge that gap. if the positions are irrevocable. revenue, no revenue, that gap cannot be bridged. >> i kind of agree. senator. >> senator, if you can bridge that, then spend some time doing something else. i think, however that the question is can you put together a small group of people on this committee that have sufficient

clout within the committee as bob said earlier that you could actually -- you chose spend the time to come up with something that was pretty good. i mean, you know. more taxes, you have to figure out which taxes -- the trade-offs i offered with the consumption tax versus cutting the social security and employment taxes. that is not something we're going to decide. that is something you have to decide. and as i said earlier, all i know is we ended up in that room with seven people and you're doing things and taking votes and affecting this part of the economy. and that's a lot of fun. if you are just coming in and having your two sides make your statements, that can't be too much fun. >> can't be too much fun is correct. looking for other things to do with our time, sir, i thought about playing basketball but i'm too short and built for

football. so good news is senator hatch on the other hand has taken a fairly inventive and creative approach to make sure we find some common ground looking across the aisle and looking for sweet spots. he's put together some working group that's could be very beneficial going forward. one of the areas i have great passion and interest as an entrepreneur over the last 15 years is why simplification of the tax code benefits all. i think senator bradley, you said tax loopholes are ways for politicians to spend money without going through the promotions process. and the more opportunities politicians have to spend money without the appropriations process, the more complicated and difficult the tax codes comes. when i started my business, i didn't think about loopholes to start a business. i thought about creating jobs and making a profit and changing the lives of family members and employees. i would love to hear you chat a little bit about the notion of

simplification or either of you esteemed gentlemen talk about notion of simplification and the natural outcome of allowing money to find its best place through the private sector. >> you know, when i was speaking about this every day for four years, i went on the "david letterman show." that's when he was late late. and i took out a card and said you ought to be able to do your income tax on this card. now, that's not quite true. but we do know the vast number of americans have income from wages, interest, or dividends. and guess who has that information. other than the individuals. the irs could do the return based on that, send it to the people and the people could either sign it or say no, i want to have another accountant do it.

that would be a dramatic simplification. >> in 1986 i had a younger person on the joint tax committee who is gone, i can't remember who it was now, give me just a ballpark estimate a flat tax which is simple. and he said, at that time, it took him a few days, you could have a flat tax, 11% and raise the same amount of money that we are now raising but that meant a widow with two kids would now pay 1100 in taxes. and i said what if you exempt all families under $11,000. he said it slightly tilts toward the rich. and i was curious about slightly. and he said if you realize if you get rid of every deduction that mankind can conceivably has, you're talking about people of the rich and not the poor. sally who works out the mill who

fills out a 1040-ez single-digit doesn't have any deductions is not adversely effected. but if 19% is the norm, you could keep the same progress and do it around 17% on the low end and 20% middle and 23% on the top. now this is a top of the head thought of his. but it is worth running if you want to see what you could do and then, senator, you have got a simple tax. how much did you earn? you are in the 20% tax bracket, you don't get any deductions and that is simple. >> that is interesting. thank you. >> and senator white, we've had over 30 hearings on this over the last four years. >> i do want to tell this one quick story about bill because it was cute. >> sure. >> the president signed the bill. the signing ceremony is going to be on a wednesday. bill is in portland at a noontime luncheon fundraiser for a democrat candidate for governor and catch the plane

back for the signing ceremony. my campaign manager is a tough woman and she said you are not up for re-election, but bill is going. well portland is socked in. he can't get a plane out in the afternoon. and he called seattle, can i drive to seattle and get a plane out. can i get a charter plane in san francisco and nothing is flying out. and so he -- and i was having a press conference the next day at 7:30 and the president was going to call me after he finished signing and i said bill we have a press conference tomorrow morning if would you like to come and he said no, i'm going to get out. early the next morning he calls the next morning and said where is that press conference and he comes and the president talks to me and the local network affiliates are there and the president talks to me and i chat a bit and say by the way, bill bradley is here and you know how valuable he was for us.

and he comes on, and he makes national television for appearing on the local affiliate in portland and i don't get covered nationwide. >> well the more relevant point is it was because of my respect for bob packwood that i decided in the middle of his campaign to join him in a press conference about tax reform. i think that is probably not happened a lot recently. >> that was well-done. >> well i have a lot of respect for both of you. you've been both great senators and you have both done an awful lot for this country. and we are very proud of you. senator wyden has one more. >> i'm going to be very brief and thank you both for that simplicity discussion. because i've thought for a long

time that this insanely complicated tax code plays right into the hands of the special interests and the lobbyists and it will be even more challenging today than it was in '86. and we talked about gucci gulch and wonderful descriptions in it about the lobbyists who would wait in line outside of the ways and means room for a phone booth. well today a lobbyist is going to sit in the back of the room and set in motion a tweet that is in effect probably going to go to millions or tweet directly to millions from the back of the room. so simplicity is going to be hugely important and i think there are some contenders for how to do it and senator bradley mentioned one in his testimony with respect to the information that the irs, in effect, has in giving the citizen an option of in effect having the irs mail something, it wouldn't be required, just an option.

the postcard concept, in effect, you can put a tax return on the back of a w-2 and that is something worth exploring. and i'm also interested in looking, we'll be following up with the two of you, on the idea that if you triple the standard deduction and a number of senators of both political parties are interested in a significant increase in the standard deduction, you don't have so many people itemize and that is another possibility. but we'll follow up with you on the simplicity issue. i want to wrap up with one last question and that is, is there one thing you regret about what happened in '86 and you would counsel us in terms of what to do in the future? in other words, it is always easy to think about what is possible today in the abstract, but you two went through it. anything you regret and you would like us to change? i know that one thing i regret about '86 and i was june a

junior, junior congress person is senator bradley is right when he says no current congress can permanently bind a future congress from unraveling it but you can make it really hard. can you put people through multiple votes and the like. so i can think of some things, but you two went through it. anything you regret, one thing that you would tell us to be careful about? >> well, i regret the deal i had to make with the oilies which is totally unjustified given to them and no other business got it but i needed their votes on the floor and what they wanted didn't cost very much money. and the ira's were $24 billion. but do i wish i didn't have to put that in? you're right. but that is one of the decisions you make on the spur of the moment. i literally made it the night we were doing the votes and i

didn't ask for it and i put it in and have them be mad rather than put it in and think i double crossed them. >> so even in this world of great equality among the senators and the group of seven that senator packwood talked about, there was still the chairman's prerogative and i think that is what that was. nobody -- nobody questioned that. because we've been through the whole process. do i regret anything? i regret that the bill lasted only a short period of time. as i said, it was a humbling experience, sand castles at the edge of the ocean and only a commitment from members of this committee and from presidents -- succeeding presidents, president clinton had a totally different idea of taxes. he would like to spread through the tax code and that helped unravel the deferential capital

gains came back and we didn't treat the deferential, rate went up to 39 and there were hiding places for little provisions. my favorite being the one that says if you rent your house for would weeks, you pay no tax on that income. there was once a senator from georgia on this committee who had a lot of friends that had the master's golf tournament and big houses around the master's golf tournament, these things happen, but i don't regret that -- that was before my time. but i do think that you have to find some way -- i regret that it didn't last. that is what i say. >> thank you to both of them. senator, you have one of your top staffers, one i know, that

was with you at the time. do you care to introduce? >> bill. bill, stand up. >> if i can. >> he was the chief of staff of the finance committee at the time and i said if that bill wasn't my bill, it was our bill. he was critical in this and especially critical in dealing with the administration and with dick darwin. but it would not have passed but without him. >> i agree with that. >> i want to thank both of you. this means a lot of to me personally. and i've admired both of you as premier legislators and people who care for people and who both are extremely intelligent. so this has meant a lot to me and i appreciate it and with that, we'll recess until further notice. >> thank you.

here are some of our feature programs for this weekend. on book tv saturday at 10:00 p.m. eastern on after words eric foner on the efforts of free blacks and white abolitionists to help fugitive slaves. and saturday night at 10:00 the rise and leadership of isis in the middle east. and saturday morning starting at 9:00 eastern and throughout the day on c-span 3 american history tv joins historians and authors

at the abraham lincoln symposium live from ford's theater. and sunday evening artifacts related to president lincoln's assassination. find the complete television lineup on c-span.org. e-mail us at comments@c span.org or send us a tweet. join the conversation. like us on facebook. follow us on twitter. next fcc commissioners discuss their recent open internet vote classifying the internet as a common carrier. last month the fcc approved new open internet rules designed to prohibit internet service providers from blocking or discriminating against legal content moving through their

networks. held before the senate commerce committee this is three hours 40 minutes. so let me start with my remarks

and then we are going to go to distinguished ranking member senator from florida for his remarks and ask fcc commissioners if they could to find their remarks in three minutes to get to the question and answer which i think everybody is interested in. so welcome today oversight hearing. every day every single american relies on some part of our nation's vast communication system, the internet, telephone, television, gps or the radio. efficient effective communication system is the bed roc of our nation's economy and the tie that binds together our 21st century society. the fcc sits right in the middle of america's digital world. this is more true followed the fcc decision to turn or broad band internet infrastructure into a public utility. it is apparent from that action last month that the fc contraction is threatening an unpredictable agency that it struggle to operate designed

nearly 00 years ago and not seriously upgraded. nearly so 0 years ago and. to be clear today's hearing is not a response to the title 2 order but clearly no discussion about the fcc can ignore one of the most significant and most controversial decisions in the agency's history. my views on this subject are well known. i believe there should be clear rules for the digital road with clear authority for the fcc to enforce them. i put forward a draft bill with my house colleague to begin the legislative discussion of how best to put such rules into statute. like most first drafts with are our draft bill is not perfect. i invite members of the committee and stakeholders from across the political spectrum to offer us ideas so that the final draft can win bipartisan support and provide everyone in the internet world with the certainty that they need. the fcc's recent action accomplished the exact opposite. rather than exercising regulatory humility, the three majority commissioners decided

to take the radical and polarizing partisan path possible. instead of working with me own. my colleagues in the house and the senate to find a consensus, the three of you chose an option that i believe will only increase political regulatory and legal uncertainty which will ultimately hurt average internet users. your actions jeopardize the open internet that we're seeking to protect. there was one idea that unified them for nearly two decades. the internet is not the telephone nut work and you cannot apply the old rules of telecom to the new world of the internet. three weeks ago three regulators turned their backs on that consensus and i believe the internet and its users will suffer for it. the debate illustrates the importance of the fcc which makes it amazing that congress has not reauthorized the fcc. indeed it's the oldest expiration in this committee's

jurisdiction. a situation i intend to rectify in this congress. today's hearing marks the beginning to write and pass legislation to reauthorize the fcc. i know that contentious matters divide this committee but fcc authorization is an area where i believe republicans and democrats can and should work together. wanting the fcc to be an efficient regulator shouldn't a partisan goal. i know members on both sides of the aisle have common sense ideas to make the agency for responsible and i look forward to hearing their suggestions and views and i look forward to hearing the commissioner's thoughts today. about ways congress can help the agencies improve. writing a new fcc reauthorization bill should not be a one-off effort. it is my hope that the committee will get back to regularly authorizing the commission as part of its normal course of business. in order to do that effectively the committee must be diligent.

as such the commission should expect to come before this committee again. how the commission works is just as important is as what the commission does. in addition to discussing important communications policy matters, i hope members will use today's hearing to explore the commission's operations, processes and budget. for example, the fcc has requested $530 million for fiscal year 2016. this funding level would be the highest in the commission ears -- commission's history. that alone raises eyebrows particularly when american house holds continue to do more with less. but they want the fund the increase by raiding the universal service fund. paying for record high funds is a dangerous precedent. we may have varying differences, bun thing we can agree on is that its limited fund should not be used as a reserve fund to pay for the fcc's core statutory

functions. that's what the commission's regulatory fees are for. usf funds should pay for usf services. given the significant interest in hearing from the commission today, i do not expect this hearing will be a short one. in order to get to the member's questions i ask that all of the witnesses limit their oral statement to three minutes apiece. the longer written statement wills be submitted for the record. i look forward to hearing from your commissioners today in what i hope will be a productive afternoon. with that i would yield to my ranking member, senator nelson. >> thank you, mr. chairman. a few weeks ago everybody in this room today knows that the fcc responded to the dc circuit court and responded to 4 million americans by restoring essential protections for consumers and competition on the internet.

obviously there's going to be a lot of discussion today about the content and the development of those rules. and there will be much scrutiny on the legal justification that the fcc used to support its adoption of the rules. now, while those legal means are important, in fact, they are the statutory tools congress gave the fcc to perform its job. and we must not lose sight of the results of this rule making in terms of the protections that the fcc adopted. as this senator has said repeatedly, as i have discussed with the chairman, i remain open to a truly bipartisan

congressional action provided that such action fully protects consumers, does no undercut the fcc's role and leaves the agency with flexible forward looking authority to respond to the changes in this dynamic broad band marketplace, so much of which what we think we know today is often changed because of the rapidity of development of technology. many of you have heard me speak of title x as a yet to be defined title. and i use the term as a way to think beyond the rhetoric that has now engulfed this political argument. the key question for me is, we must ask how or is it possible to take what the fcc has done and provide certainty that only legislation signed into law can

provide. is it part? it is part of the larger debate on the appropriate role of the law and regulations in the broad band age. and as we have that broader discussion, i invite you, mr. chairman wheeler, to continue to work with us to craft the right policies to accomplish that goal. as important as the issue of net neutrality is to this nation, we should never forget the other vital work that is done by the fcc. with ongoing regulatory oversight over as much as one-sixth of our nation's economy, this agency plays a critical role in ensuring universal access and promoting competition and protecting

public safety and protecting consumers. the fcc recently closed the biggest spectrum auction in history, $41 billion. and funding the nationwide public safety wireless broadband network in providing $20 billion for deficit reduction. that's huge. and it's in the midst of planning for the voluntary broadcast television incentive auction, a new form of spectrum action that could fundamentally change the nation's spectrum policy. yet, we can't rest. and when it comes to spectrum, continued public and private technological development will continue to put train on us. congress, the fcc and the rest

of the federal government needs to work together to develop a smart forward looking spectrum policy and i certainly, this one senator will certainly try to help that effort. the fcc is also overseeing the ongoing evolution of the nation's communication networks, known as ip transition. one of the trial projects associated with ip transition is proposed in my state. i'm looking forward to an update on that. generally, i have concerns about how the ip transition might affect public safety. so we can get in that. and the fcc has done a lot to modernize its universal service fund programs, including expanding the e-rate program. what one of our senators has not been involved in e rate and

promoted. and this program provides critical support for our nation's schools and their libraries. the enhancements, the increased funding will help guarantee the nation's students have access to 21st century technology, not just some of the kids in this country. and i also appreciate the work that the fcc has done to increase the availability of affordable high speed broadband in rural areas around the country. i encourage you to redouble that effort to ensure there's not this digital divide that keeps going on, that urban kids get one thing and rural kids get another. i want to thank chairman wheeler and the fcc's staff on improving

the agency's consumer complaints department. senator udall and i sent a letter to the fcc last year asking them to upgrade the commission's consumer complaint website to make it more user friendly. and the chairman delivered. the new consumer complaint website is light years ahead of the previous system and i hope that we can continue to see the additional upgrades. i want to thank all of the five fcc commissioners for your public service. i want to thank you for subjecting yourself to five committee hearings -- no, eight committee hearings in five days. and mr. chairman, i thank you for the privilege of serving with you on this committee. >> thank you, senator nelson.

i share that. and we'll look forward to working tot on a lot of these issues in the days and weeks and months ahead. the colleagues on this committee on both sides of the aisle, important work to be done. we're going to start by hearing from our commissioners starting with the chairman tom wheeler who will kick it off then we'll go no alphabetical order of that with commissioner clyburn, o'rielly and commissioner pai and commissioner rosenworcel. >> thank you, mr. chairman. it's a privilege to be here with my colleagues. we're five type a individuals who have been working together for the public interest. let me make three quick observations in keeping with your three-minute rule. one the open internet decision, as you indicated is a watershed. your leadership, mr. chairman, has illustrated that there

really aren't any differences about this need to do something, as you said today. we need clear rules. there are different approaches to be sure. >> wireless is causing cancer and the fcc has been hiding it from everyone. suffering with brain injuries, breast cancer. >> you're subject to arrest! >> cancer. world health organizations classify -- >> order in the hearing room. >> world health organizations classify all of the wireless as the class 2 b cancer again. these aren't safety standards. >> sorry, mr. chairman. please proceed. >> thank you, mr. chairman. as i said, there are different approaches that we take to be sure and no doubt we'll be discussing those. we've completed our work, strong open internet rules will soon be

in place. but let me touch on a couple of other issues real quickly. one is that there's a national emergency in emergency services. congress holds the key to that issue. the vast majority of calls to 911 services now come from mobile. we had a unanimous decision of the commission just a few weeks ago to require 911 location capability from wireless callers. the carriers are stepping up. but delivering location information from the phone is only the front end of the problem. there is no national policy on how to maximize the life saving potential that is delivered as a result of the carrier's activity and our rules. there was a tragic example in georgia a few weeks ago, a lady

who was calling from a sinking car in the middle of a lake and her call was picked up by an antenna in a different public safety answering points jurisdiction. you can hear this heartbreaking conversation with her as she says where she is and the dispatcher keeps saying i can't find it because this other jurisdiction didn't have the maps as to where this woman was all because of the vagaries of how a wireless signal gets distributed. there is a real opportunity of 6,500 different public safety answering points are staffed by dedicated, qualified individuals but there is an absence of a federal program that recognized that mobile has changed the nature of 911. we can't just worry about a signal coming from the caller.

we have to worry about what happens to make sure that that signal is used. and just let me be clear on one thing. this is not an fcc paragraph. i don't care how this gets done, where it goes in terms of responsibility but we have a responsibility as americans to make sure that the information that we as a commission are requiring be transmitted get put to life saving uses and the congress has the ability to do something about that. my second quick issue. the broad band support that we recently -- rural america is falling behind. the disparity behind rural america, we are lacking high speed broad band. 53% of rural americans do. we tackled that part of that

with the e-rate modernization and the rural fiber gap for schools. 40% of public schools -- 40% of rural schools are without access to fiber. they now have alternatives under the new rules. the commission recently revised the support mechanism for price cap carriers an additional $1.8 billion from universal service funds that upgrade their activities in areas not participating began the process that would lead to an auction next year where alternative providers can step up and say no i will provide service in an experiment leading up to that have put $100 million out to actually test alternative pathways. we plan to act on rate of return carriers this year to create a voluntary path for those who elect to receive defined amount

of funding to deal with the tying of voice and broad band together which is a problem that they experienced, to deal with replacing the infamous qra. that is a process that would be greatly facilitated if stakeholders could agree on a common solution. so i thank you for the opportunity to be before you. i look forward to discussing any of the issues that you want to discuss as we go forward. >> thank you chairman wheeler. >> members of the committee good afternoon. my written statement details my views on some of the difficult decisions facing the fcc. for purposes of my oral summary, however, i will focus on just two. while i prefer competition over regulation the truth is that market place nirvana does not always exist and here are two examples where markets have failed and regularatory back stop is needed.

i made rule call completion a priority as acting chair because it is unacceptable in this day and age that calls are not being put through. we tackled this practice by prohibiting a ringing signal unless a call is actually completed and we have required carriers to retain and report call data. data collection rules go into effect april 1 and we will use this information to ensure that the fcc has the tools necessary to take additional action if appropriate. while a petition requested relief from egregious inmate calling rates remain pending at the fcc for nearly a decade fees and rates continue to increase. calls made by deaf and hard of hearing inmates topped $2.26 per minute. add to that an endless array of

fees. $3.95 to initiate a call. a fee to set up an account another fee to close an account. a fee to use a credit card. there is even a fee charged to users to get a refund of their own money. there are 2.7 million children with at least one parent incarcerated and they are the ones most punished and the down stream cost of these inequities are born by us all. the fcc adopted interstate rate caps in august of 2013 and what has been the result? despite dire predictions of losing phone service and lapses in security we have seen increased call volumes as high as 300% and letters expressing how this relief has impacted lives. i hope we answer the call with permanent rate caps and fees. for all of these customers this

summer. i am grateful for the opportunity to appear before you today and look forward to answering any questions you may have. thank you. >> thank you. >> thank you members of the committee for the opportunity to deliver testimony to you today. i have always held this committee in the highest regard given my past involvement as a congressional staffer with oversight hearings and legislative efforts. i recommit myself to being available and be any help in the future. in my time at the commission i have enjoyed many intellectual and policy challenges presented by innovative communication sector. it is my goal to maintain friendships even when fellow commissioners and i disagree and seek out opportunities to work together. to provide a brief snapshot i voted with the chairman on virtually 90%. it dropped to 62% for higher

profile open meeting items. one policy i am not able to support is commission in every aspect of the internet. the ends justify means approach [ inaudible ] without a shred of evidence that it is necessary. the order pawns authority to fcc staff to review current and future internet practices under vague standards such as just and reasonable, unreasonable interference and reasonable network management. this is a recipe for uncertainty for our nation's broad band providers and ultimately edge providers. i continue to suggest creative ideas to refleck the current market place often through my public blog. i advocated any document considered in open meeting should be made publically available to the website. under the current process i meet with numerous outside parties but i am precluded for telling

them having read the document that the concern is misguided or addressed. the stated objections to this approach presented on the cloak of procedural law are grounded on resistance to change. in addition the commission has questionable post adoption process that deserves significant attention. i generally reframe from commenting on legislation i appreciate ideas put forth which address these and other commission practices such as abuse of delegation that block public out of critical end stages of the process. i believe these proposed changes would improve functionality of the commission and improve consumer access to information. i have been outspoken on many issues such as need to free up resources for wireless broad band licensed and unlicensed. i look forward to working on this and other issues on the months ahead. i stand ready to answer questions you may have.

>> ranking member nelson and members of the committee, thank you for giving me the opportunity to testify this afternoon. it has been an honor to work with the members of this committee on a wide variety of issues. there is a particular privilege to appear before you today now that senator moran joined the committee. i can only hope his kindness will continue if and when he has a chance to question me later today. i last testified in front of this committee march 12 of 2013. since then things have changed at the fcc. i wish i could say the changes have been for the better but unfortunately that is not the case. the foremost example, of course, is the commission's decision to apply title 2 to the internet. the internet is not broken.

the fcc didn't need to fix it. our party line vote overturned a 20-year bipartisan consensus in favor of a free and open internet. with the decision the fcc voted to give itself the power to micromanage virtually every aspect of how the internet works. the decision will hurt consumers by increasing broad band bills and reducing competition. the order was not the result of a transparent rule making process. the fcc has already lost in court twice and its latest order has glaring legal flaws that are sure to keep fcc mired in litigation for a long time. turning to the designated entity program. the fcc must take immediate action to end its abuse. what once was a well-intentioned program designed to help small businesses has become a play pen for corporate giants. the recent aws 3 auction is a shocking case in point.

dish which has annual revenues of $14 billion and a market cap of $34 billion holds 85% equity stake in two kaechs claiming $3.3 billion in taxpayer subsidies. that makes a mockery of the small business program. the $3.3 billion at stake is real money. it could be used to under write over 580,000 pelgrants, fund school lunches for over 6 million children or incentivise hiring of over 138,000 veterans for a decade. the abuse had an enormous impact on small businesses from nebraska to vermont. it denied licenses they would have used to give rural consumers a competitive wireless alternative. in my view the fcc should adopt a ruling to close loopholes before the next option. members of the committee, thank

you for giving me this opportunity to testify. i look forward to answering questions and working with you and your staffs in the time to come. good afternoon members of the committee. today communications technologies account for one-sixth of the economy and they are changing at a breath taking pace. how quickly? well, consider this. it took the telephone 75 years before it reached 50 million users. to reach the same number of users television took 13 years and the internet took four years. more recently angry birds took 35 days. so we know the future is coming at us faster than ever before and we also know that the future involves the internet. and our internet economy is the envy of the world. it was built on a foundation of

openness and that is why i support network neutrality. with an eye to the future i want to talk about two other things today, wifi and the homework gap. first, wifi. a few of us go anywhere without our mobile devices in our palms pockets or purses. that's because every day in countless ways our lives are dependent on wireless connectivity. while the demand for air waves grows the bulk of our policy conversations are about increasing supply of licensed air waves for commercial auction. this is good but it is also time to give unlicensed spectrum and wifi its due. we should do that because wifi is, after all how we get online. wifi is also how our wireless carriers manage networks with license through offloading. wifi is a boon to the economy. there are studies that

demonstrate that it is responsible for more than $140 billion of economic activity every year and that's big. so we need to make unlicensed services like wifi a priority and the commission is doing just that with our work on the 3.5 band and next year with our work on the 600 mega hertz band. i think it will take more than this to keep up with demand. that is why i think the time is right to explore greater use in the upper portion. going forward we need to be on guard to find more places for wifi to flourish. second, i want to talk about the homework gap. today roughly 7 in 10 teachers assign homework that requires broad band access. but fcc data suggests as many as one in three households do not have access to broad band at any speed. so think about those numbers.

where they overlap is what i call the homework gap because if you are a student in a household without broad band today getting your homework done, just getting your homework done is hard. and it's why the homework gap is now the cruellest part of digital divide. it is within our power to bridge it. more wifi will help as will recent efforts to upgrade connectivity through e rate. with more work remains. i think the fcc needs to take a hard look at modernizing the program to support connectivity in low income households. i think the sooner we act the sooner we bridge this gap and give more students a fair shot at digital-age success. thank you. >> thank you. we have a lot of participation on both sides today. as much as we can trying to

adhere to the five-minute rule. i know it will be hard because there is a lot of interest in the subject. let me start by talking a little about an issue important to me and my state. i start by saying laws and policies that are outdated often lead to rules that are arbitrary which ultimately limits consumer choice and raises cost. the current universal service fund rules require a rural consumer to buy voice service in order for that carrier to be eligible for usf support. if the same rural consumer decides to buy only broad band services without a telephone subscription the carrier is no longer eligible to receive u.s. support for that line. this contradicts and under mines the mission of the new broad band centric usf and ask makes broad band more expensive and increasingly threatens sustainability of rural communications networks. last year senators led letters

to the commission that urged fcc to propose rules to solve the issue. nearly a year later the issue remains unsolved. i want to ask each of you a question. i will take the approach of chairman rockefeller and ask for commitment from each commissioner and the question is will you commit to solving this growing threat to rural communications by the end of this year? >> absolutely. >> yes. >> yes. >> yes. >> very good. thank you. >> wethis is designed to get all on the same side of an issue. i want to -- i want to make just an observation too. i know the commission's order is the subject of the day in addition to other things we would like to talk about, as well. i have a father who is 95 years

old. he lives in my hometown of myrtle south dakota with population of 500 people. he is a user of the internet. it strikes me if i had to suggest to my dad that we're going to regulate the internet that he uses with a law that was passed turg the great depression when he was 14 years old i think he would probably be flabbergasted. essentially that is what we are doing. we are trying to take something that was designed for a very different era and squeeze it trying to fit it into a modern technology. one of the issues that that statute allows for is rate regulation. now, i know that chairman you have contended that no rate regulation will result from open internet order. let's say hypothetically that someone files a complaint at the fcc alleging that the rates they

are paying an internet service provider for broad band service are not just and reasonable under section 201. as a result of title ii reclassification isn't the commission legally obligated to investigate and rule on that type of complaint? >> that is absolutely right. the order opens the door to complaints under section 208 to the commission and the country. it would be up to the commission to adjud kate whether or not a rate is reasonable. this limits to saying we don't engage in things line tariffs and says nothing but expost regulation. that is why rate regulation is a real prospect. >> so if that circumstance were to happen if the commission judges the rates to be unreasonable could the fcc require the isp to adjust its

rates or impose fines on the isp? >> we don't have such a case before us right now but i think it is important as an order of due process that any provider having difficulty succeeding in getting interconnection they need to provide service has opportunity to complain to the commission and seek resolution. >> so the answer is yes, the fcc could? >> we will see when we have a complaint before us. >> i'm not saying you should but i'm saying you could. >> in a rate complaint case how will the fcc decide if a rate is unreasonable or unjust? >> given the same context that you set up, one of the examples that i gave in my opening statement was on inmate calling. that affirms and should affirm to us all that the bar is incredibly high when it comes to the scenario that you put forth. we waited over ten years to think about addressing what was obviously a market failure. so again we won't know until

something is before us but it passes prologue that far is extremely high for that case to come to the resolution. >> you would have the discretion to determine if a rate is unjust? >> we have an obligation, i believe, to look at any complaint filed before us and make a decision accordly. >> if that conclusion is reached the fcc could in that circumstance act in a way that would adjust rates or impose fines? >> i jokingly say that even though i'm from the south and we have the other south, south carolina, and that we have been known very interesting people who have predicted the future i unfortunately do not have that talent. >> well, i have a hard time i would think explaining or how that process would not be rate

regulation. and like i said granted the chairman has said that something on which they would forebear but if you are -- if a case is brought forward strikes me that the fcc has an obligation to respond. and i also think that things that are decided by this commission certainly don't bind future commissions which is why we argued all along that working constructively on legislative solution is the best approach to doing this. my time is expired. senator nelson. >> chairman wheeler rate regulation regulation, unbundling, tariffing, these are things that some of the big corporations are quite concerned about. no doubt you have had

conversations with ceos of those corporations and you have explained what your order is. how did you explain it and what was their reaction? >> thank you, senator. so rate regulation, tariffing, unbundling those sections are all foreborn. i never knew what the past tense is on forebearance. we are not using them out of title ii. the point that senator thune was just making 1993 created section 332 of the communications act in the house which was sought by the wireless industry when they asked to be treated as title ii common carriers and to have

forebearance from parts of the act that are no longer appropriate in a nonmonopoly situation. that included specifically as a decision by congress section 201. so the kind of example that was just raised about section 201-b being some kind of back door into rate regulation has existed for 22 years in the wireless industry and the commission has not been confronted and has not acted in this kind of way that suggested some kind of back door regulation. in fact, what has happened is that with the absence of consumer rate regulation that industry has been incredibly successful. the wireless voice industry has had $300 billion in investment since then. it was that model that is actually more forebearance than

was created for the wireless industry that we patterned the open internet order on. so that it is not your grandfather's title ii. title ii has 48 sections. 27 of those sections we said we will not use which is 50% more than 22 years ago. so i think that the record is pretty clear that if we say we are not going to have consumer rate regulation we are not going to have tariffing, we are not going to have unbundling and we explicitly remove those sections and say we are not looking at those sections and pattern ourselves after something that has this kind of a two-decade record of not having these imaginary horribles happen that we are in pretty good course. >> things like transparency and

a host of other issues there is wide acceptance. >> so the interesting thing is that there are four regulatory actions in our order no blocking no throttling no pay prioritizuation and transparency which are the same things the legislation introduced contain those four. the isps run ads saying we are all for these. we would never think about doing these kinds of things. those are the four regulatories. the thing is that we also say and there should be a basic set of ground rules for things that nobody can anticipate that are not proscriptive regulatory saying we are smart therefore you will do this but are saying let's take a look. is that just and reasonable? is that in the consumer

interest? is that in the public interest? and on a case by case basis and the fascinating thing to me sir, is that the isps for years have been saying we don't want the fcc to have such broad rule making authority. they ought to be looking at things like the ftc on a case by case basis. now we come out and say we do something that is likely ftc on a case by case basis and everybody says that is terrible uncertainty. we don't know what it is if only they would be making rules and telling us what things were. you can't have it both ways. i think what we have built is common on four aspects. the only four regulatory aspects and says there needs to be a set of rules and needs to be a set of standards and needs to be a referee on the field who can throw the flag if somebody violates the standards. >> and i would just conclude, mr. chairman, by saying that certainly the five commissioners

in front of us would never do this kind of dastardly stuff but would a future commission do it? and the flip side of that -- and i would like you to comment, chairman wheeler -- what about the future ceos that presently you have confidence in them but what about someone that suddenly wants to go beyond the scope of your intent? >> so ceos come into me senator, and they say we trust you that we think you have -- we agree with everything but you are not wild and crazy. we think there will be decent responsible decisions but we trust you. what about the crazy person that will follow you some years down the road? my response is i feel the same

way about you, sir? you have said you would never do these kinds of dastardly things to the internet. what about the wild and crazy ceo who follows you? all we are trying to do is say let's have basic set of rules. is it just? is it reasonable? is there a referee on the field who can measure against that yard stick and throw the flag if appropriate? >> thank you senator nelson. senator fisher. >> thank you mr. chairman and ranking member nelson. chairman wheeler, there are a number of members of congress who believe that new technologies can help the united states remain innovative. i am working with senator booker on the internet of things. i think that is going to be a very good bipartisan resolution and moving forward hopefully legislation so we can see that

innovateers are able to grow businesses and able to solve problems with clear rules and also clear expectations. i think that's necessary that innovators have to have that certainty out there. when i look at the general conduct rule that is proposed that you have here i'm concerned it could jeopardize that regulatory certainty that i think we have to have if we are going to remain competitive. the electronic frontier foundation has described this rule as an overreach and confusing specifically the eff said the fcc believes it has broad authority to pursue any number of practices hardly the narrow light touch approach we need to protect the open internet. "wall street journal" reported that at a recent press conference you said with respect to the general conduct rule that, quote we don't really know. we don't know where things will

go next. the order says the agency will watch, learn and act as required, a process that is sure to bring greater understanding to the commission. so my question is how can any business that's trying to innovate have any kind of certainty that they're not going to be regular rated by the fcc under what i view as a very vague rule that you have here. for example, when will it be applied, what specific harms does the general conduct rule seek to address, that the rest of the president's open internet order doesn't capture? what are you after here? >> thank you senator. first of all i would like to identify myself as an entrepreneur, and as somebody who has started multiple companies, and spent the ten years before i came into this job as a partner at a venture capital firm investing in those

companies. and i know from my experience that the key to innovation is access. and when a gatekeepers deny access, innovation is stifled. that's what we want to avoid. we do not want to be in a situation where we are having proscriptive rules. we want to be and what we have structured is something that says, okay let's ask a couple of questions. what's the impact on consumers, of this action, what's the impact on content providers, those who want to be delivering. and what's the public interest. and i think we can probably all agree that nobody wants to sit by and see something evil happen to any three of those legs of the stool. and those are the tests. and we look and say, okay now, what happens on those three legs

of the stool with this kind of an action that we have had a complaint on. and the important thing is, as i was saying to senator nelson that this is not us saying we're so smart, we know what you should do this is specifically doing what the isps have been saying to us don't make rules, but rather look at things on a case-by-case basis. and that's what we've tried to build in, that kind of flexibility. >> but that flexibility, though, what do you do with these entrepreneurs and innovators that are coming up with things that i can't even imagine? >> right. >> and there's a process that they're going to have to go through, with the fcc that they don't know if they're going to be required to go through it or not. >> we don't move up the stack. we're talking about the delivery

services. we're not talking about regulating two guys and a dog in a garage and they have to get permission as to -- >> do you think that's clear? >> yes, ma'am. yes, ma'am. we're very clear on that and that is an essential component of this. first of all i mean, i think it's questionable what our reach would be, in terms of statutory authority. we're dealing with the delivery of what these creative people want to do and make sure they have open delivery. >> and if i could just switch gears here, in your testimony, i read that you're trying to move forward with a voluntary incentive auction no later than early 2016. >> yes ma'am. >> are you committed to that? >> yes, ma'am. >> okay. thank you. >> thank you, senator fisher. senator mccaskascaskill.

>> we've visited about this. the thing that's -- the rest of the story that was not explained was that not only was this a very big company using small businesses to get a $3 billion advantage, a $3 billion advantage, one of the entities that was used was an alaska native corporation, which if i think most people are aware, that they don't have any rules about being small. so it is insult to injury because alaska native corporations are multi-billion-dollar, multi-national corporations that get special deals under our law. they don't have to compete. they don't ever age out of the program. they never get too old for the program. they never get too big for the program. and you confront legally so this is really, i think outrageous. and i hope we can figure out a way to get to the bottom of it. i want to talk about lifeline a little bit. i've visited with many of you about lifeline. i think it is a program that

began under, i believe, president reagan, president bush, you know, it was a subsidy. it morphed into a program without any kind of controls without any kind of regulation. and it was a mess. now, i know we've had some -- we've had some enforcement, but i know we've had a pilot program on expanding it to broadband. let me ask you first, chairman wheeler, when will the report on the pilot program be available? >> senator, i can't give you the specific date but it's in the next couple of months. >> well we had some enforcement. there hasn't been much in a year. there's a list of reforms, i think, that include -- and if any of you disagree with any of these reforms, if you would speak up for the record, i would appreciate it. taking eligibility and determination out of the hands of carriers? competitive bidding? making sure consumers have some

skin if the game? placing a cost cap on the program? anybody disagree with those four reforms? okay i would like to see those instituted and i would like a discussion from you about whether or not it makes sense to continue the lifeline program. doesn't it make more sense to make it a broadband program? looking at the homework gap, looking at the capability of making calls. over the internet. does it make sense to institute these structural reforms, as we transition this, from a program where no one has skin in the game and we have allowed the carriers to commit massive fraud in this country. doesn't it make sense to convert this whole program over to broadband? and i would love your take on that. >> i'm not sure who you're -- >> any of you if someone would

speak up i would love somebody to speak up who disagrees with doing it. >> well, i was showing my southern graces. i cannot sit before you and say you need that. one of the things i'm adamant about. i put four five principles last year. one of which is the most important, that would get to the heart of some of the problems we're having is getting the companies out of the eligibility game. they should not be in that space. when it comes to grocery stores do not setter or have people eligible, you know, for s.n.a.p. they're not in that game. doctors do not qualify people for medicaid. it should be an independent arm. and i truly believe that a lot of the issues that have plagued this program, if we take them

out of that would go to the heart of what we're seeing. please. >> i wanted to -- commissioner pie and commissioner o'reilly i've had an opportunity to talk to the chairman about this idea. would you be willing to work with the democratic commissioners on a program that had controls and had reforms in it, that transitioned over to a broadband program? >> absolutely. and as you may know, i actually wrote recently about this issue put forward some of my principles and reform. and i thought it would be helpful to start in a review of existing program and all the issues that it's faced, before we go to the broadband, expand the program to broadband. that hasn't seemed to be where the direction, where we've been getting the signals internally. i've tried to put forward reforms that i would think we could do going forward. i think we should have that fundamental conversation on the reforms that should be in place before we go there. >> or maybe there in lieu of? >> i would be open to that as well. >> senator, first, i want to thank you for your leadership on

issues that actually see fiscal responsibility, including the aws-3 auction and lifeline. with respect to lifeline with regard to broadband i think it's critical to learn the lessons from the pilot. secondly, i've put forward in a speech citizen against government waste, a number of different principles for reform, including some of the ones you've talked about. and i think it's critical for us to institute those first to ensure that the program's on a stable footing. because, remember, the lifeline program is the only one of the four universal service fund programs that is not capped. so if we don't have those basic reforms for the process, as this program stands if we expand it to include broadband, there's no telling what kind of problems we might encounter. >> sure. in 1985, when ronald reagan was in the white house, that's when we started this program. it was last updated during the bush administration. it is time to modernize this program along the lines you described, make sure it is free of any waste, fraud, and abuse. and then make it address

broadband and things like we described the homework gap. >> all right, great. >> and this is not a question of how do we take what's there now and just do a paste here or a change there. we have to look at this entire program, soup to nuts and say, wait a minute, this started in a twisted pair environment, met metamorphosised into a mobile environment. we now live in a broadband environment. why in the world are we sticking with the decisions of the past? >> right. great, thank you, all. >> thank you, senator mccaskill. senator heller try to keep it to five, if you can. >> thank you mr. dharm. thank you for calling this hearing. i have a statement for the record i would like to submit. i want to thank you the chairmans for being here and chairman, thank you also for attending. today what i would like to focus on is how rules are adopted. and commissioner