80% is big business. we are talking about 3% of businesses, which is very small. my guess is that the real job creation is with the 97% of small businesses. . .

that is not the point. the point is trying to let the facts speak for themselves. it is true that 50% of business and come [unintelligible] it is true that the vast majority is for pass-through organizations. the second point, another benchmark we used to aim for was part of our reform. people pay taxes and pass-

throughs were viewed as a desirable thing. they allowed us to tax all business and come at the appropriate rate. -- income at the appropriate rate. we ought to remember since we need tax reform that this issue of taxing small and large business and come was a goal -- income was a goal of tax reform. >> clearly, we need reform. there is no doubt about that. we will work on that soon. i do not think -- [unintelligible] to be a step toward reform. not backwards. one of you suggested -- can i have order, please on the

committee? to be courteous to our witnesses, please? thank you. one of you said it might be improper to extend the rates and not do much else. that might be a step backwards. i am hoping we can find some way to take a step toward reform in whatever we do. thank you. we have enough senators so we can conduct some business. as minor as it is. it is our usual practice to discuss the agenda. i would like to ask to do that next. as is our usual practice, i ask that we close the meeting. so ordered.

>> thank you. let me simplify the discussion on little bit. as i understand the argument that is being made for extending the tax cuts that were enacted in 2001 and 2003, the main argument is this will contribute to economic growth and job creation. you made that point and others might have as well. it is my impression that you get more bang for the buck than you do for extending tax cuts for folks with higher incomes. that middle class is more likely to spend the money that they obtain through those continued

tax cuts. let me ask you. is that an accurate way to think of it? >> it is the traditional way that economists have thought of tax cuts on the economy. the other concern i have is if we in addition to extending the middle class tax cuts, we also were to choose to extend the reduced top two rates or the tax cuts for folks with incomes over 200,000 or couples with incomes over250. the loss of revenue is about $1 trillion. going forward. i can understand the skills of the core argument that we ought to be making that trillion dollars of through cuts in spending. it makes sense to recognize early in the process will have to do both. we're going to have to cut some

spending. just as we did in 1993 when president clinton came into office. we're going to have to raise some revenue. if we cannot raise revenue in this way, i do not know where we raise revenue. you have any thoughts? >> that is right. even if we limited the tax cuts to what is defined as low and middle income people, we would be running substantial deficits. there is going to be a need for more revenue and spending restraint. a point i made in my testimony is that if we cut taxes on high income people now, given the long-term budget projections, taxes will have to go up anyway. the tax cuts are being granted in the short term. the congressional budget office when the doctor was the

director, the treasury department looked at the effects of tax cuts that are financed by deficits and their conclusion was the lead to higher taxes and they left the economy worse off than if the taxes had not been cut at all. i would say as a practical matter, unless you can accomplish some kind of spending reductions we have never seen in our history, the effect of the tax cuts right now at best, if there are economic benefits will be short-lived and in the long term, we would be worse off. >> let me ask you if you have any thoughts on any of this. if you do, i would be anxious to hear them. >> certainly. i would like to emphasize the distinction between that short run -- the short run and the long run. if you are worried about stimulus, tax cuts that are oriented toward people who would spend it rather than save it and it would have a bigger

bang the buck effect. one of the key things for long run growth is lower rates. you have this tension when you think about the top two tax brackets. those are ones that are not crucially essential when you are thinking about stimulus. the rates are important when you think about long run growth. you have this tension that for the economy would be good to have lower rates but it would be good to have the smaller deficit and greater revenue. i would like to point out that the tax reform proposal that the senators have put forward which has an attribute, when you look at the income tax component, what happens is a race is somewhat more revenue relative to a baseline of extending the tax cuts. it raises somewhat more revenue and not to keep the tax rate. the way it does that is filling in some of the swiss cheese of our existing system.

from an economic growth point of view, if you want to do things on the tax side, that is the right direction. >> if we're not going to this year fill in the swiss cheese, then i do suggesting it makes sense to cut the rates? >> it becomes an issue of how concerned you are about the possibility that the economy may take another downturn in the next year to. there is this race between the fact that -- extending additional stimulus but not as much as the middle income tax cuts like insuring -- extending unemployment insurance. it would not provide additional stimulus. >> i call on senator hatch. >> thank you. let me ask you this question. you said that more rapid economic growth would be essential to minimizing the

difficulty of slowing the explosive federal debt to a sustainable pace. would you elaborate and also discuss the role that tax rates have in dealing with the deficit in the overall debt. >> i think the first point is simple. the projected growth is unbelievable. it is 20 trillion dollars by 20/20. the larger is the economy by that time. more rapidly we grow, the easier it will be to carry the burden of that debt and interest payments on debt and provide a satisfactory standard of living. growth is paramount. tax policy is one, not exclusively, but one important part of the environment for rapid growth. i think someone was asking how do you get more revenue? the answer is broaden the base and keep rates low. in terms of the language of this

discussion, no one is proposing a tax cut for anyone. we're trying to keep rates where they are. and so this is a question of whether you do the wrong thing, raise taxes at the top and on dividend income and provide unequal treatment. those are anti growth provisions. tax policy will matter a lot. >> you mentioned that we will suffer a reduction in gdp growth in 2011. if the 2001 and 2003 tax acts are allowed to sunset. with that likely also lead to further job losses? >> it would. there would be a large negative fiscal shock. >> you said that the outlook is not the result of a shortfall of revenue.

it seems in the short run, we do have a shortfall of revenue. it is from the economy not performing up to the potential. what it generate revenue -- more of the unemployed would be earning and paying taxes and more capital gains and bonuses would be generated. which would lead to higher revenue collections. if we want more revenue in the near term, do we need to enact the policies that would lead to more economic growth? would tax rate increases lead to the opposite of this affect which is less economic growth? >> tax rate increases will not help. we do need the economy to recover. not just for the federal budget but for the unemployed. it is imperative we focus on more rapid growth. there should be attention paid

to the growth prospects in this economy. >> on page seven, you outlined the difference between a permanent extension of the 2001 and 2003 tax acts compared with a limited extension. if we assume congress extends only the limited provisions the year at a time, or longer, how would this compare in economic growth and other benefits for a permanent extension of the full act? >> one-year extensions would retain the uncertainty. people cannot do adequate tax planning. it would interfere with business's ability to make a decision . selling it and allowing people to plan is desirable. i want to emphasize for the committee the nature of the experiment. i am aware of the debate over

stimulus and multipliers. those are model based debates. that is nota a day. there is evidence that the the models are wrong. my point was even in the context of those models that we used one like that, it is better to do the permanent and full extension than the temporary and limited extension from a near-term economic growth 6 -- perspective. even in the context of stacking the deck, they come out ahead. >> at the end of your testimony you said -- spend some time discussing the concept of who pays the tax. is the incidence of an increase in the tax -- [unintelligible] that would be a tax at these

levels. at what extent would the players be affected? >> it was viewed as desirable to have individual rates matter. the research i have done, we find that increasing marginal tax rates lowers the probability that businesses will it lowered [unintelligible] the probability they will buy capital equipment. in each case, their reaction pushes the incidence of the economic burden on to someone else. the real cost is not borne -- is born in the economy. >> i had questions for the rest of the panel. >> thank you.

it has been an excellent panel. tax compliance is one of the country's biggest industries. it comes to about $193 billion a year. the american people are furious about all this tax compliance water torture. everybody in politics says it has got to be fixed. what happens is people are skeptical that it will and everybody goes back to tinkering with the tax system again. there were 500 changes in tax law in 2008. it comes to more than one for every working day. this has been the case for years and years. here is my question and i was pleased about the comment about tax reform. let's get you taker bring in others. what is going to force tax

reform on to the agenda? i am not sure what the mechanism is to get this out there and with the bipartisan support you will need to get it done. to me, the best opportunity coming up is the deficit commission. that would give us a chance to bring democrats and republicans together around principles like real tax relief for middle-class folks, a tripling the standard deduction, wiping out the alternative minimum tax, and promoting the kind of growth you are talking about. lowering the corporate rate so we can get jobs back in our country.

what would it take to force tax reform back onto the agenda? >> it is hard to do this. we have been trying for a long time. i applaud you for air your leadership. a big part of tax reform is the tax system was viewed as a total mess proliferation. the of tax shelters was a big factor. it is getting to that point again. the other problem was that tax revenue is inadequate to pay for the promises we have made to seniors through medicare and social security. i agree the deficit commission is a good opportunity. what i'm hoping is -- it made sense at the time. given that taxes have to increase, it would make sense to say that we are going to

throughout this irrational tax system that most people perceive to be unfair and replace it with one that people can understand and practitioners can deal with. people perceive it to be fair so there is an equal sacrifice. the need for more revenue will provide an impetus, at least i hope it does. >> what gets tax reform on the agenda? >> ultimately, it is a political question. i do not know why you would ask me. i do want to say that the first and most important ingredient is leadership. you are to be commended for putting out a bipartisan plan that attempts to lower rates, broad and bases, and make his competitive. that is imperative. i would concur that the deficit outlook is one that everyone

recognizes is threatening. and must be dealt with. i have strong feelings about tax increases in the near term that the people into thinking we do not have to do with the spending side. if i can be assuaged that that delusion does not take place, that is the vehicle to make this happen. >> thank you both and i am looking forward to working closely with you. click me get you into this. one of the most bizarre aspects of today's tax system is as long as you are tinkering, the congress starts pushing permanent tax increases to solve temporary problems like the alternative minimum tax. every year, the congress comes in and tries to avoid another patch on the alternative minimum tax which is a killer tax.

talk about hitting the middle class folks. that is a killer tax. shouldn't congress get away from the idea of applying another permanent tax increase to sell the temporary problem? that alone is a pretty strong indictment of what happens today and where we ought to reform the system. >> that is a fine question. it is something you see in a lot of context. there is something similar in medicare were you have temporary things and the only way to do with them is to pave with them as you describe. the answer is to have -- to get together and design a rational tax system. and raise the right amount of revenue. and promote growth. the answer to that question is the answer to your first problem.

>> center bunting is next. >> thank you. --- senator bunting is next. >> thank you. i realize this is not on about dividend rates but some of you mentioned them in your testimony. they certainly have an impact on economic growth. i am hearing from dividend paying companies that stock analysts have downgraded their stock because of the likelihood of a 40% tax rate on dividends next year. this has raised the cost of capital for them.

what impact does raising the cost of capital have on the economic growth and job creation? >> there are too big impact. -- two big impacts. >> that will capacity of the economy. the one that has not been discussed as under the proposal, the dividend rate would exceed the capital gains rate. that differential means that there is big distortions in corporate financial policy between debt and equity but within equity. dividend paying firms would have to stop paying dividends and most of those will go to seniors. instead, holding on to retained earnings and distributing them

in the form of capital gains. that means you would have a lot of activities and there is no value to that. >> what if the rate goes from 15 to 40? >> will have you bad impacts. >> the pc would like to pick a bond is the differential between the dividends and capital gains. i have not been able to come up with irrational tax policy reason why you would want to tax higher than capital gains. if you tax dividends it is an incentive for corporate management to hoard cash. i do not think that is a good thing for tax policy to do. profits can be deployed to investors. separating out from level of question, it is important to have those rates be equalized.

>> does everybody here remember [unintelligible] and bill archer? we had 1992a and we had to maybe 40 really good suggestions come out of the retreat. do you know how many have been enacted? 0. none of them. what kind of incentives can you give us to change tax policy not incrementally, but significantly, to make at -- it,

how can we get to the entitlements, how can we get to the things that really cost money without incrementally changing? >> the traditional obstacle to tax reform is the business community. they have an enormous vested interest and some have old capital and some are startups and the like to get capital. they tear apart any attempt to broaden bases and lower rates. the best way to get to tax reform that an economist would be proud of is to lock the business community at of the room. >> one of the things i would like congress to consider is to eliminate the zero capital gains rate. it distorts income tax for people and it does not make any

sense. i have seen people with significant income because -- coming from qualified dividend's paying no tax and that makes no sense. >> i have one more question. i want to read something. here is the significance of the estate tax. george steinbrenner died yesterday. 2010. if he had died in 2009 or 2011, there would have been a $500 million tax liability to his estate in 2009 and in 2011, under the proposal we have, there would have been a 600 million.

because he was smart enough to die in 2010, there is 0 tax liability. should that kind of a state tax exist presently or should we propose that? >> i think the estate tax serves as a backstop to the income tax. there is a lot of income that is not taxed because of the various kinds of tax shelters that are available. creating certainty would be a huge a advantage. the fact that -- i was amazed that the estate tax was allowed to lapse for part of the year. >> it is the year so far. >> in 2001 when the original

legislation was passed, i made a base satirical timeline that would happen. i think the company that invented the artificial heart would come up with an estate tax that would keep people alive until 2010. then they were all turned off. all these seemingly healthy people walked off into the sea saying this is for the children. >> i agree with you. >> thank you. >> thank you for holding the hearing and to all of our witnesses. i want to start by saying i support our efforts on tax reform that i know we will be involved in. i do want to start with a couple of comments that reflect what i believe the real world is for the majority of americans and the majority of the people live

in the state of michigan. the largestwe s surplusaw is in -- we saw the largest budget surpluses. the big question about what to do with the largest budget surpluses in the history of the country when i came here and sat on the budget committee. the answer was because of policies including the tax cuts that were passed, they turned into the biggest budget deficits. i think it's left the economy worse off. i wish it had worked. i think we have a different view on what works and what does not. what the reality is for the majority of americans is. we have very different views on

this committee. i respect the differences but i have to say that cobbling a focus on supply side economics with a number of things that happened in terms of [unintelligible] and the recklessness on wall street which has cost 8 million jobs has put the people i represent into a situation where they are looking at this debate and saying what are you talking about? in terms of what is happening to real people. to add insult to injury, we hear arguments that say we should not worry about deficits and we should not worry. this does not compute. for the folks that i represent.

when we look at the fact that extending the tax cuts will account for 60% of the deficit in nine years. i am for focusing on middle- class tax cuts and things that affect the majority of americans. i want to save for the record that at a time when people are losing their jobs and working part-time jobs and seeing their wages go down and the incomes of the wealthiest 400 people in the country have gone for under% in the last decade and a half and tax rates have been cut in half, for the majority of americans, that does not compute. that is not fair. on the issue of fairness, i believe one way to deal with that is the middle-class tax cuts focusing on what has been talked about by many people

here in terms of the child credits and so on. but not giving the extra help to the top 1%. i wonder if you might speak to whether or not allowing the rates to expire would address the inequities that the majority of americans feel today. >> i agree that there has been this issue that in comes at the top have been exploding. they took a hit over the last few years. we have been cutting taxes disproportionately at the top. the tax system plays a role in terms of mitigating some of the inequities to come out of the market system. the people at the bottom working as hard as they can have a hard time taking care of their families. some of the tax credits that have been enacted help them to be able to pay their bills. there is -- one thing we do not

focus on is a lot of the debt is financed by foreigners. we're spending more than we're producing. people outside the u.s. landis money and use it to buy their stuff. we are paying for imports that a track the growth of the debt. it means dealing with the middle tax -- middle class tax cuts. the best way to do that is to preserve fairness and make the tax system simpler. >> thank you. >> i would like to ask unanimous consent that my first four pages of shunning the light of truth and to the darkness be submitted

at this point. they could be described as grassley light or a footnote. i think you're supposed to say without objection. >> i think so. and i do. >> i am struck by this. i did not know that you were that involved in the 1986 tax bill. i was the only member who voted no. i heard from bob dole after that directly. i thought he did that. that sort of struck me as being interesting in terms of history. i did not realize you played such a large role.

that tax act. the real-estate industry in the ditch. it put agriculture in the ditch. and for five years after that, at town hall meetings, people were complaining about it. i could raise my hand and say i voted no. i do not know what all that means except to say that it was -- i was interested in your comments about that. the way i view it in terms of what happened in the real world, in kansas as opposed to what was proposed and what was hailed at the time as a historic tax measure. i'm not asking you to reply. i apologize if i stepped on your toes. in your testimony, you note that certain provisions of the egtra.

you discuss in greater detail which provisions of the actor most important to understand if you want to provide tax relief. i did not say tax cut. every time you say tax cut, our friends across the aisle for the rich." if you'res saysay "tax relief, there is a different -- if you say tax relief, there is a different connotation. the tax relief act had something to do [unintelligible] with that. i am not saying it is entirely the case. it is not true that we did not make a determined effort.

threaded billion dollars was quite a bit of money in those times. i would like you to say which provisions of the act are most important to extend. you touch on which are more effective? >> the key elements are keeping marginal rates low. keeping a cool and lower taxes on the return to innovation. and capital cost recovery. there is section 179. it allows small businesses to fully expense the cost of their equipment and the year they acquire it. those are important pro-growth policies. there are many others that are there not for the purpose of growth. they're there for other policy

objectives. helping targeted constituencies. some of those and up imposing these high marginal tax rates on low-income workers as they acquire more income. it is a hard tax policy question. if you care deeply about growth and that has to be the key consideration, you have to tailor your policy toward that end at the expense of using that for other tools. >> i appreciate that. i think you said something about the state taxes. some peopleand paid nothe fa is. ct -- the fact that some people paid no taxes. 49% of californians do not pay state or federal taxes.

everyone ought to pay at least some tax. do not take my cane. can you expend? the impact of the tax increase we're talking about. the impact on seniors. i know the chairman thinks that this is wrong to put certain people in the category of small business. i am talking about the guy who is in kansas. what do you think about the

impact of the tax on seniors? are the seniors in the tax -- top index brackets the only ones affected? >> the top rates and dividends will be taxed at that rate. the evidence is that firms will pay for dividends. they do not discriminate. on which shareholder gets them. you will see a reduction in dividends. all elderly would see fewer dividends. instead, they would have to realize -- manage their cash flow. not think it is a goodi do have

a tax policy that -- i do not think it is a good idea to have a tax policy [unintelligible] you have >> creative a different definition -- and you have created a different definition. small businesses would be harmed it seems to me. if the top two tax rates are increased. we have a difference of opinion. will go down to cuba and see what raul castro thinks about it. >> the bill gave -- fidel give a big press conference a couple days ago. >> i thank everyone for their

patience. >> thank you. i want to thank ms. markman for her testimony and expertise. i will not time thave time to al the questions. i will provide some in writing. very seldom do we have anyone to appear who has been in business. as the accountant, i know you are in a lot of businesses because you do the accounting for them. that gives you a little different perspective. when we were talking about tax reform, i am accused of trying to protect the town so they have more work. when we talk about reform,

there would like to have reformed but they do not urge reform. every time we have tried is we have made it more complicated. we need the expertise from people like you said that when we do reform, we make it simpler and more fair. i wish we had more accountants working on that sort of thing. one of the things that concerns me is the health care reform bill that we passed. one of the provisionsin that is a new requirement on filing form 1099. that probably does not seem like a big deal. now instead of services will have to file on goods . small-business is understand the burden of paperwork? >> i do not believe they do. i think the 1099 issue is

hidden. many businesses do not keep their records contemporaneously. they should but they do not. at the end of the year, there will add up their payments to various things and provide us with information. they're not in a position and they do not pay attention to the fact that before you would -- under the bill, there would have to keep track contemporaneously. before they paid someone there would have to get the relevant information. i do not believe they do understand that at all. i do not believe small business understands that. cpa's do.

it is a question of what is the right thing to do. many small-business this deal with other small businesses and they do not want the report. the recipients do not want it. their clients who will come to their prepare with the 1099, especially if they are professionals. they will come to the preparer and say ithis is the income. if they got small payment, that is sort of ignored because there is no record of them receiving it. >> most of us have the feeling that every business is simple. i think there are other thinhgs in the -- things in the health care reform bill that will [unintelligible]

i want to get to a topic here. a lot of that is definitional. the truly rich that we keep talking about can afford tax and investment planning and have done that to reduce their taxes. having been a small businessman, we were in the shoe business. if i am in that represents nine, i would feel it is 100%. it would affect me very drastically. i also know that when you're in small business, although you are showing great income, if you do not put that back into the business, you do not have a business. it provides an extra burden their. shouldn't we be expecting the

same reinvestment by small business owners across the country, raising taxes is going to provide some uncertainty for them and also eliminate reinvestment they might make in their business? with the businesses that you work with, the small business definition of $50 million or 500 employees. you work with a lot of small businesses. >> much smaller. our clients might have 10 or 15 or 20 employees. they're called micro-businesses. they are operated as partnerships and many business owners if they reinvest have a we call phantom income. they are paying tax on money that they cannot take out of the business. it is invested in inventory and

in property and equipment. that is why section 179 is important. if the businesses have the money to buy the equipment. but the answer is yes. i think it will. the businesses we deal with are not in the top two brackets. >> is the uncertainty keeping them from expanding or hiring additional people? >> right now it is cash flow. it is funding. it is not having the ability to have the fund available and not being able to get credit. >> thank you. >> come back and share your insights with us today. we are discussing extending the series of tax cuts. it makes sense to take a look at the history of these tax cuts. we have done some of that already.

i would like to go down that road a little further. when i was governor of delaware, we created a lot of jobs there. maybe 20 million new jobs were created during that time. the eight years of balanced budgets [unintelligible] we began almost every year of the clinton administration in 1993 and 1994 and 1995. we began with the realization we have budget deficits close to two under billion dollars. the estimates were that we were going to have budget surpluses. i remember having a hearing in the senate. we ought to do about tax cuts and one of the witnesses raised the alarm that we faced a threat by reducing deficits and paying

off the dead to sin. kinda rynex sitting here today. -- ironic sitting here today. tax cuts were enacted in 2001. in the years following the tax cuts, we experienced eight years of sub-par economic growth, a weak job creation, low savings rates, and exploding deficits. we racked up as much new debt in 2007 and 2008 as we did during the history of this nation. i would like you to comment on how we could justify extending those tax cuts in light of the budget results late outlined. >> thank you.

i think it would be a mistake to extend the tax cuts. there is no way we could come close to paying for the government. this is a basic factor. we're looking at $10 trillion of deficits and exploding beyond that. the effect of taxes are subtle. the tax cuts were responsible for sub-par economic growth. >> one of the big things behind the 1993 act is a lead to the balanced budgets at the end of the decade. alan greenspan said that was a huge threat to the economy. it tends to push up interest rates and raises the cost of capital for businesses. it is important to deal with that. >> thank you.

>> i believe we should keep rates low. that is our obligation. and for the children. at this point we are close to having them an economy that is broken and a lot of dead. we should have a focus on growth. the other thing we need to reestablish which was present in the 1990's and has been absent is spending discipline. if you look back to that era, at the they were much tougher. it helped to have the dot-com bubble. >> i would add -- i hathe discussion is how big the government we want and how will we finance it.

the treasury we're on, if we do nothing on taxes, they will rise rapidly relative to the size of the economy up to levels we have not seen. it might be the right or wrong decision but we have not had that discussion about where we want to index. what is the right way to design the tax code around that? the priority is to make decisions today that put the congress and the american people in as good a posture to make those decisions. to set it up so we can confront those issues and answer them and design of possible tax system to finance what we want to do. >> most of you know mark zandi. he updated his estimates of his chart. how much economic growth is

expected. calculations suggested the top two brackets would generate something like 29% of economic growth for every dollar of lost revenue. i am told tax cuts will benefit the middle income [unintelligible] and producing a higher bang for the buck. there is an economic case for extending the tax cuts. at the same time, a strong case against extending the tax cuts to benefit the most affluent represents sign of americans. if we could start and work our way down. >> i agree. in terms of bang for the buck, the tax cuts would have the biggest effect. >> i made mark zandi famous.

i hired him for the mccain campaign. this is what he puts into the model is what he gets out. it is an assumption. there is good reason to question whether the models were well formulated and to rely on them. >> thank you. >> i will agree. the mainstream view as you described, the decision that you face is going to be, if everything up in terms of bang for buck, you would work through middle tax clasclass tax cuts.

how much stimulus is appropriate? >> i am going to have to leave. >> thank you. i wanted to ask -- we're talking about individual tax rates. and the effect on growth and distribution. one of the things that is looming out there that is going to affect and come across america is this issue of action of pollutants. companies will have to look at best available control technology and that will be an expense letter in july. they will have to have full scope covering facilities, there will have to make upgrades. the cost will get passed on to

the individual consumers. that is an expense that is going to affect people moving forward. i know you have talked about proposals like we have proposed that would help tried to lessen the impact on consumers. do you think legislation is a better path to reducing the cost on the consumer as opposed to letting epa act? >> regardless of the climate legislation, it is widely recognized that to have epa go back to command-and-control is economically irrational and destructive. there is not one good reason to do this. if you want to take care of carbon emissions, you should use market forces. so that there is a price on

carbon and people respond to innovate. the technology does not emit carbon. that is a more rational force. >> is there a way to keep consumers whole during that process? >> you should not use this as an excuse to grow governments are you should set the price and the literature said you should [unintelligible] return the funds to as great as an extent possible back to the american people. >> what do you think the clock for this will be moving forward backsliding epa regulate without acting? >> regulation is a disguised tax. getting a price tag is impossible. it carries with the the burden of uncertainty. when will the epa be able to finish and post this? it is being litigated. there is an uncertainty caused

and they have no idea what investment choices to make. if we go this route, there will be an efficient choices made about how to deal with this problem. that will bear a big cost in the economy. it is a terrible idea and it is harming the business outlook. >> i am one who talked to many attorneys about this. the supreme court's ruling is definitive on what has to happen. . .

the one to make clear as a statement thatin we talk about the books -- bush tax cuts. we do not want it to go up. we think we are talking about a tax cut, but what we are really talking about is whether to extend current tax law and keep texas where they are. ted understand you do not believe in increase in tax at this time is a proper response to the economic circumstances,

is that correct? >> that is correct. >> i did not intend to do this when i came in, but i have a number of questions. there is so much being said about the fact that the bush tax cuts of the cause of our current economic situation and the deficits we face right now. the national debt is a result of these terrible tax cuts that went to the wealthy. there was an article in the wall street journal yesterday in which the author went through a selling of trillions of dollars that would have proposed surpluses with $5.60 trillion to a deficit being looked at $6.10 trillion. the point was that even if you don't give dynamics to the tax relief of 2001 into a dozen 3, it is still 15% of those

numbers. there is still a lot more going on. -- i do not agree the tax cuts have a bad impact on the economy. it will be a smaller number than that in terms of the actual impact on deficits. this offer indicates that he gave percentages to the numbers. the economic and technical revisions we have seen, a new deficit, and new spending. an increase on interest in the debt, 3% of it. he mentioned other tax cuts. my question to you is can you comment on these numbers and this analysis and give us your perspective on what really is the cause of this huge swing we have seen since 2001 a projected surpluses in the 5 plus trillion

range to the deficits over $6 trillion? >> there are several components. the first is, the original forecast was wrong. i spent a lot of my time explaining how we could be so badly wrong. the answer was that about half of the slaying was pure economical and technical changes. my predecessor implicitly extended it as far as we could see. >> it was not caused by the tax cuts? >> it was not. the minority was on tax. in my time, it broke about 20% tax and 30% spending. those numbers are a range it we have seen shirt -- during my tenure. we knew the gdp was 62%. we thought it would take longer

to get there. all that really happened was we spent a decade not fixing the problem. with the financial crisis, it eight of our cushion. >> to make sure i am summarizing the testimony accurately, the incorrect projections was not caused by the tax cuts? >> snow. they contributed to what went on. in terms of our current policy moving forward, would you agree that now is not the time to allow the taxes to swing back to the public? >> of a degree from the short perspective and the longer one that we will need a tax reform. it will have to meet our obligations.

>> please allow me one more quick question. we have a commission dealing with fiscal policies. i am one of the senators appointed to the commission. the question i have is leaving aside the question of trying to raise or lower taxes, do you believe that a form of our code could be a healthy action for us to take that will generate a stronger and more dynamic economy or competitive becoming for our country and increase revenues? >> absolutely. we have a tax code that is a disgrace. it interferes with our ability. tax reform is essential. the level of taxes that will be raised -- we know the difficulties with the spending

cycle. suppose we dropped a plan. spending is that 20% gdp. if you can balance the budget, you have to raise 20% cheapie. it would interfere badly with the economy. >> thanks very much. >> thanks. your testimony in the simulations that you sites have different conclusions. explain why your data indicates this provides more bang for the buck than the tax relief plans

in 2001 and 2003? >> both of these exercises use a fairly conventional models. the difference here is that they are present in our analysis on balance sheets that are badly damaged at the moment. in the course of the financial crisis, they lost trillions of dollars. it is important that they repair the balance sheets and put them on a sustainable spending basis. our exercise captions that. our households save more as a results. that savings stimulates more investment. >> i have another question for

you. paychecks would be smaller because the employer would be withholding more. some taxes went up when preparing for the return. could this cause a fairly immediate tax shock to the economy or would more effects be gradual? >> it would cut economic growth by 1.4 percentage points. that is an analysis -- the

business environment may be worse than can be seen. i think it is a highly detrimental system. >> i'd like to end with a statement of want to make. a follow-up on a comment by senator roberts. a more restrictive definition put forth earlier today in a discussion of the impact of the marginal rate increases of small businesses. the definition was not tied -- was tied to the small business bill that was before the senate earlier this week. everyone should know there is no single definition of small business. senator robertson noted that a general accepted definition of

small business is 500 or fewer workers. if our bipartisan focus is to do the -- you do not write very well. >> thanks. let me ask a few questions about the tax reform issue. i want to get some of principles. my hope is that there can be a bipartisan effort to deal with the deficit. in 1986, ronald reagan a creek -- a big group of republicans

and democrats agreed on a theory. i want to assess your views on it. fairness, let's keep and holding down marginal rates, because the tax on the last dollar earned is a big deal. democrats and republicans should come together. that strikes me as a very sound theory today. the theory that in my view would

promote growth, the fairness in terms of the principles, and would be interested do you think the theory is still sound? >> there was a big corporate tax increase in many people do not think like economists. i think that is a great idea. he knew better than i do because there is a strong constituency for all of those.

you have to -- it would be simpler to take less to start. >> one of the flaws in the tax act was the failure to deal with amt. what happens is you have a shifting which was seen clearly that more money is raised by it in some estimates than the ordinary tax. the failure to index it or deal with it at that level was the biggest flaw in the 1986 tax act. >> i agree with the basic

premise. there was extended poor economic performance. it was interfering with the ability to grow. some bipartisan people got together to fix that. sub-par performance. it became easy to toss another tax exemption there. the job is way more intent -- important that any tax code. the observation is correct. the last time -- there was a key obstacle.

the 86 reform did not survive long. it was a gun wound very rapidly. we went for the wrong kind of reform. at the moment it was learned, it is too hard. it became impossible to reach that objective. some reforms are easier to enact. people should be taxed on the basis of what they take out of the economy, not what they contribute to their innovation in their capital. >> i will jump in. the principles are correct. if you go back to 1986 and look at the refundable credits, everything else has been added since then. the core premise is the earned

income tax credit to reward work and provide an incentive to families with children and insure certain items. it creates enormous problems. having a core set of prints of belzberg to find a way to relieve the elements to provide the defense that working families deserve and simplify it in treating other treatments that are more fair past with the american people. >> be pro-growth would be lower rates.

getting rid of things like the amt is problematic. i think it undermines some faith in the tax system by americans. if he can make the system more simpler, that will be even better. >> one question is have would reformers these radical simplification as a way to jump- start tax reform? what is striking is that virtually -- there is a form that came in with the bush proposal -- i think it was 32 lines. it was close enough for government work to say that everybody is on the same page.

how might reform measures jumpstart reform? to get too radical simplification, you have to make some of these changes that are being discussed. any thoughts on that? >> >> getting rid of that is the central. i proposed in the virginia tax review is to go with a system where most people would not have to file tax returns. withholding could be final. i think that would be for get a lot of people's attentions. it would be a radical move.

it has gotten a lot of attention. i think a level of simplification is important. going to a one page tax return will not do it. getting rid of the things that go is important. >> any thoughts on how radical simplification might start a bipartisan effort? there are ideas on how radical simplification might jump-start the parties together. any panelist can chime in on this. >> it would be a shock. here is why.

this has been a nation whose tax plans have been a certain way. if people saw a very simple tax forms they could fill out for their taxes, they would be more confidence because they know they would fill of the same thing the other person is. they could do those comparisons. if you hide it, there will be more suspicious. all of these notions i do not think works. the jump-start reform not people throwing out the taxes feeling they are getting a bigger break -- i do not think that works. it is a compliance issue.

they want to support this tax system. >> anyone else want to chime in? >> the issue of removing the filing obligation was not necessarily the starter. it is creating a simplicity in putting forward a radical concept in saying let's get it all in the 1040. we have enormous volume to them. from a practitioner perspective, and you explained to a taxpayer what it means, they have no way of understanding it. it is court distress. there are huge opportunities that someone has to have the political courage to move forward. >> let me ask one other one.

if you think back to 1986 and what happened, but but the aspects is is cynosure get to a tax reform bill, everybody says start unraveling its. you can go back with exemptions and deductions and start once again with a huge a lobbyist bonanzas. what might be done as part of tax reform to say when you get tax reform this time, you will make it harder to unravel it. given the fact that no current effort are a future person from acting -- i am not trying to suggest some absurd drill that

would address that. it seems to me the best part of tax reform -- everybody ought to learn from 1986 and tried to see if there are sensible ideas to figuring out to make sure once the bill is passed, everyone is not trying to unravel it again. >> there was a theory of tax reform. it creates a lot of uncertainty. there is huge pressure on policy makers to come up with new tax reforms to show they are working for constituents. they should have a limit.

current congress's cannot blind future congresses. and having a jubilee every six years or 10 years where you look at the context rather then certain provisions. how might you make it tougher to unravel tax reform? a big sign in ceremony.

there is substance of the reform. the simpler it is -- one of the reasons i favor things that look like cash flow texas is that you cannot hide preferential track -- tax treatment and other things that are about timing. it is a way for us to get what we want, you just do not see it. when someone else gets a break, everyone notices it. >> one of the structural issues is which to choose. you create difficulties in measuring the income differently.

if you go with a broad base consumption tax, my suspicion is it is a harder thing to tweaked -- tweak then go with carbon taxes. we have long history with payroll tax. there are very few strange exemptions from is. it is an example that if you choose your base well, you can protect it. >> >> you discussed six factors that would cost increases over the next two years -- 10 years in income taxes. compared with the other factors, how was the first point you made? >> and coaching numbers from the

long-term projections. of for the 25 years, the recovery of the economy was about 10% of it. >> he mentioned both tax cuts. what would be the effect of a permanent exemption on the growth? >> a permanent extension of the tax cuts would reduce marginal rates which would promote growth. and it would lead to bigger deficits and a growth of debt. in the first few years, about the growing debt it would be undermined.

>> do you agree with that? >> keep the rates low. that is the best thing to do. >> what about this point to increase the deficit? a permanent exemption of the tax cuts? >> the deficit would be larger, but the top priority has to be on growth. >> the state extending a tax cuts would provide some stimulus to the economy. can you elaborate on how much stimulus it will provide? does a tax cuts stimulate the economy more than a dollar of spending? >> i do not have specific

numbers in front of me. extending unemployment insurance -- various tax exemption syrup lower on the list. >> the amount of stimulus would be greater if it was extended on a permanent basis rather than a year or so. explain why that would be slow. how would that go to something permanent versus something temporary? >> people will perceive the money would be consistent in

something they can spend. it is a temporary tax rebate. and some positive supply-side -- you could see those as well. cutting and splicing -- the supply side story is how they will encourage saving and investment. -- that argument does not work very well. if you are making an investment for saving decision, you have to consider certain things. some tax cuts did not do anything on the spending signed and there would be larger debts in the future which could bring down our economy down the road. >> i do not mean to keep you. this may ask a couple of more. thanks for your interesting

testimony. i appreciate all of you. a major thing is our tax system is not producing enough revenue. [unintelligible] >> we have tried it the other way and it has not worked out very well. people have the sense that we can wage wars and have mass expansion of medicare and taxes will go down. it makes it seem like government is free or better. we have to restrain spending. this idea that we built this

edifice for a small government and it will come, it is not working. ways toto come up with slow the rate of growth. you can budget for its or have a voucher where you can pay. the concept that she mandate benefits and come up with however much money is needed to pay for them is not the same. there may be a combination of too much spending. you have to deal with it on both

sides. >> you indicated that -- hold on a second. a tax increase would result in less spending costing jobs and threatening the recovery. whatever recovery we cover faster if we extended these tax cuts? >> -- would our recovery recover -- with our economy recover faster if we extended these tax cuts? >> i think it would build some impetus for tax reform. if more stimulus is needed, we could extend unemployment benefits or provide more aid to states. the peak height -- recovery is

being threatened. >> does this mean that higher taxes affect economic growth? >> over the short term, allowing it to expire would have a negative effect with consumption and could prolong the recession. we talked about whether we should of permanent or temporary tax cuts. i do not think permanent tax cuts are possible. we talked about the critique of the standard economic models. what are the future consequences of certain policies?

there is spending running much at.her than th over the long term, if we make permanent tax cuts, and we cannot radically cut spending -- it would leave the economy in a much worse position than if they were allowed to expire. >> on the question -- [unintelligible] why would we have a narrower definition? >> i am not in favor of that. i am mystified by the notion

that somehow it is desirable to raise these texas -- taxes in any event. if somehow there are tax analysts believe you can drop a line with the tax codes and identified job creating tax returns -- i have yet to meet that person. >> i want to thank the whole panel. i feel like we have gone on long enough. it was very enlightening as far as i'm concerned. >> thanks. you have been very patient with us for three hours. it seems to me that you have helped to highlight certain things. this tax debate has led us to a fork in the road. there is a choice. one approach involves nipping

and tucking here and there which will add to scores of additional provisions. 500 tax changes in 2008 alone. that will be a partisan debate. the alternative is to come up with a bipartisan approach. democrats can secure changes they have long sought and republicans that look at incentives. you can marry principles that both sides feel strongly about. but i come away with is the second part -- bipartisan and an opportunity to bring the country together would also help deal

with the uncertainty in the economic inefficiency of continuing to tinker which will put the brakes on economic growth. i need you to help give us additional ammunition for that point of view, unless you feel strongly about adding anything else, we will excuse you at this time. the finance committee is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] [unintelligible]

>> for a snapshot of washington and congress, the c-span congressional directory, the president's cabinet, all at your fingertips. order online at c-span.org /store. in a few moments, the pentagon news briefing. the joint economic committee hearing on the economy and jobs. after that, current and former white house staffers talk about working for the president. and later, a rare television appearance by cuban president fidel castro. >> tomorrow morning, a senate subcommittee looks at the effect of oil dispersants in the gulf of mexico. lisa jackson will be speaking, head of the epa.

this is at 10:00 eastern. >> a pentagon spokesperson says the u.s. will conduct military exercises with south korea despite objections from china. he also talked about a plan favored by general david petraeus to create local security forces in afghanistan. this is a little less than an hour. >> good afternoon. good to see you all. let me begin with a brief announcement about the upcoming trip. i am happy to get to your questions. there are travels to seoul, south korea. on july 21, the secretaries will participate in talks at the republic of korea. it will be the first meeting of them and the talks will address the full range of security and allianz issues including the

development of a new chance for implementation plan agreed by president obama agreed earlier this month as well as other enhancements to the military readiness. in the wake of the unprovoked attack of north korea in march, president obama directed this department to further strengthen its cooperation with the republic of korea. we have engaged in high-level close confrontations to a fis different ways that to those clients capabilities and improve alliance state of it -- stability. we are working with the several people regarding combined military exercises including new naval and air exercises at the sea of japan and the yellow sea.

we cannot announce precise details of the exercises. they have a long range of assets and will be initiated in the near future. they have planned bilateral exercises such as the freedom party exercise. all of these will send a clear message to north korea and demonstrate our steadfast commitment to the defense of south korea. the talks that will take place and the exercises to follow are the latest manifestations as the president's noted earlier this month, the alliance between the u.s. and the republic of korea has never been stronger. with that, i will take your questions.

>> chinese officials have criticized the plan. apparently there is growing in her. how does the position of china play into this? >> i am not sure that it does, other than the fact that they are a regional power. we respect and consider their opinions. this is a matter of our ability to exercise in international waters. basic determinations are made by us and us alone. using what assets are determinations made by the department of defense, the united states government.

that will be the framework that we make decisions such as joint exercises with the republic of korea forthcoming in the yellow sea. >> i think these were announced seven weeks ago. >> we have never announced exercises. >> there would be naval exercises early july. why did it take so long to get them on track in wire day being discussed at the ministerial level? >> there has been a lot of action on the part of the u.s. and the government's.

we have seen a series of engagements between the presidents of our respective countries and the secretaries of defense. heldusly it's an levels, they will look at that unprovoked attack -- many are condemning the attack and pointing to the dprk/ as far as these exercises, we have gone back to several people that talk about how to

proceed -- proceed on a joint basis that it has been moving forward ever since. they had various conversations about how best to do so in a way that enhances our ability to work together said they have real benefits to a our military's, but also to send a message to the region in terms of our commitment to stability. those things are complicated. they're taking time to work out. it has not been an unduly time frame. it will likely be a final confrontation on the matter.

we will proceed with what we believe is a very smart and productive and helpful exercise shortly thereafter. >> [unintelligible] >> you have to ask those as to why they would be critical of exercises in the west see. there are territorial wars that we are respectful of. beyond that the jurisdiction,

that limit, we get into the high seas, international waters that we want to operate in. it happens with regularity in frequency. it is not unusual for us to operate there. we will exercise it in the sea of japan. in terms of the timing, and this time, we are still working through them. those are determinations we make. >> ehud turning the page?

is the u.s. seeking a penalty? >> i do not know that we are turning the page. we are meeting with the north. there was a -- was a cancellation due to administrative reasons. there are -- there is still work to be done. these are steps. i do not think we have arrived at any finality. we have made steps and progress in the aftermath of this. there are real consequences in terms of the world and the

presidential statement out of the u. n -- investigating findings. i think there is a process. anybody else on this? >> on the north korea side, why do you feel -- what specifically do you feel the u.s. needs to work with during the delay of this transfer? what specific things can we see that indicate they may not be ready? >> we are fighting a control

perspective that the military is capable of taking over control. that is in terms of their development as a military force. that said, we agree there is -- we are pushing this to the right by about three years. in doing so, we could broaden the scope of what is transferred. we did better synchronize those transformation efforts. while they would be capable of assuming operational control of war fighting, should that become necessary, we will work on defense reforms, ground

operations, the movement in consolidation, all of these things can be worked on during that time said that more than operational control of the war fighting responsibilities come 2015. this will make sure we are saved up. we will be stronger as an alliance as a result. [unintelligible] >> we will renegotiate, you said? the presidents have agreed to adjust the transfer schedule

from commencing on 2012 until 2015. the secretaries will get together with their counterparts and talk about a range of alliance issues, beyond this very limited war effort should war break out on the peninsula again. they will talk about a range of things. it will not be a negotiation. this provides us with the opportunity to delve into a range of other things that can be transferred in moved along. those are things that will be brought up. [unintelligible]

>> china was still supporting the north. are you going to inform china -- >> i do not think we inform anybody when we operate in international waters. i cannot tell you the specifics. this is a high-profile exercise. when and where we choose to proceed with this exercise, there will be ample opportunity for people to be aware of what we are doing. as a role, operating in international waters, we do not have to inform anybody. i do not think anybody will be at a loss for knowing what we are doing.

[unintelligible] >> i think he is still pleased with the korean military -- with their fighting management capability. he believes they are or will be in a position to assume those responsibilities on the original time schedule, the 2012 time schedule. the presidents have come to an agreement that it is worth a jesting the timeline, pushing it three years up to the right. we want to work on other issues as well beyond the day-to-day management of a conflict on the peninsula. there are other areas that we

will focus on. those are just a few. we have additional time afforded to us. i am not so sure they have been added since then. in terms of managing the day-to- day were fighting -- they will to a broader transfer that involves a host of other areas as well. that is my understanding. we will do a pre-brief for those traveling tomorrow. we will see if we can provide you with additional information on what is in store for these exercises.

[unintelligible] >> i will not announce where specific ships will go. as i said before, the george washington has operated throughout the region. we are not in a position to announce where it is going and when. we will operate in the sea of japan in the yellow sea as a part of these exercises. the timing, assets, have yet to be finalized.

[unintelligible] >> there has been some concern with a plan. [unintelligible] >> i would say this. general petraeus is doing a job for 11 days. he has met with president karzai every day about his new command. they have been meeting daily. they have been discussing when issue at great length. it has been this issue of local community policing. .

these would be local community policing units, they would not be malicious. these would be government-formed, government-paid, government-uniformed local

police units. who would keep an eye out for bad guys in their neighborhoods, in their communities, and who would in turn work with the afghan police forces and the afghan army to keep them out of their towns. what's more, this is a temporary solution to a very real, near-term problem. this would just be a stopgap measure, at least that's how it's envisioned at this point, because we clearly do not have enough police forces to provide security in enough of the populated areas. while we are growing the ansf on target and while we are getting the partnering rates up above even expectations, we are simply not in a position to provide as much security to as

many of the areas as we would like to. and as much as the locals would like us to. so this initiative was put forth by general petraeus as a way to deal with the problem in the near term, which is let's get some locals who care for their communities, who know best who should be there and who shouldn't. let's get them in an established framework, and this is still to be determined, but within the government, uniformed, bedded, paid, accountable, and let's put them to york in their communities. this is by no means a done deal. this is a suggestion, an idea, an initiative put forth by general petraeus that is under consideration, under discussion between him and president karzai and others who are

involved in this and i don't have any update on where it's going. but i do have the sense it has not caused any problems in their relationship and that there is -- as they go about these talks, i think greater understanding and greater comfort about what this is that he's proposing. >> this is going to be similar to the awakening council in the an bar province in iraq? >> the difference between the awakening councils were malicious. these are local tribal leaders who hired guns, who hired their guys to provide for their security and that of their families and their communities. they were eventually under general petraeus' leadership transitioned into a governing force. the hiring of the sons of iraq was such a big issue. this initiative is one where it starts off housed within a government function.

it is working for the government. it is not working for any local tribal leader. so i think there's a real distinction between what the sons of iraq started off as versus what he's proposing in this situation. >> can i follow up on that, when we were with the secretary in rc-east last was up, we met with special forces training local policemen in a program that looked exactly like this, sounds exactly like this, walked, talked and quacked exactly like this. where why is it the new petraeus plan, what did we see then, what is going on now and why is there attention? >> i think there have been many names given to this effort over the years, there have been many attempts at this over the years, there have been many incarnations, none of which, as you point out, has really taken root. we now have a new commander who has his own focus, his own ideas, his own priorities. he clearly thinks, based upon

his short tenure on the ground but also based on his exposure from his previous days at sent com -- centcom and that even as we are growing the ansf on schedule, in some cases ahead of schedule, though we've significantly increased our forces and coalition forces we simply don't have the command power to provide as much security to as many areas as we would like and the people are demanding. this is a way to bridge that gap so that while we are growing the ansf to the point hopefully one day they'll be able to manage these kinds of issues and while we are simultaneously operating at a far higher tempo and degrading the taliban so they are less of a threat to these local communities, we can utilize a willing local armed population to do community policing essentially, to watch out for their own neighborhoods, but do

it in a way that doesn't create militias, that doesn't create people beholden to warlords, that puts them under a government umbrella where there is vetting, where there is a degree of professionalization, obviously if we're going to go about fully training a police force, that's going to take time so that's not what this is about. this is about putting locals to work so that they can be on watch in their communities for people who shouldn't be there, and then work with the established security organizations, the army, the police, the coalition to make sure they don't menace in their communities. >> just to follow up on the training issue, who would train these folks, then? would they be trained by afghan national police? do they have that capacity? or would you need to ask nato for more trainers? >> this is clearly not about asking for more trainers. we don't have enough trainers to do the fundamental job here which is to build the ansf.

as rapidly as we would like. so again, this is really about the fact that there are locals in their communities who resent the taliban and don't want them in their neighborhoods, who are already armed, and who want to keep their neighborhoods as safe as they can. we would be able to, in the construct of this program as it's proposed, have them vetted by the government, have them outfitted by the government, have them paid by the government so that they could protect their communities. i don't know that it involves an extraordinary amount of training for one to, in this culture at least, because there's such trouble of weapons, for one, to control their neighborhoods and keep an eye out for what's going on. >> you know, unlike the afghan national army which has drawn

from the entire nation, the afghan national police are already drawn from those local communities in which they patrol. the militaries -- >> some are, most of them are in the general area which they're working. i just don't understand, i mean, if right now you can't find enough capable, strong, dedicated, local police officers, is there some magical pool of applicants that hasn't been tapped that will sign up? >> i don't think that's frankly the issue. i think we are finding able-bodied people willing to join the afghan national security forces. the issue has been, do we have the training personnel to process as many of them as we would like? and do we have the ability, then, to create some sort of operational tempo that's more manageable, particularly for the national civil order police who are really being taxed. but i think if the idea is,

hey, you can be paid to watch your own community, i think we believe -- general petraeus believes, at least, there are -- based upon his interactions on the ground thus far, there are more than enough people who are willing, able to step up and watch their own neighborhoods. >> they wouldn't necessarily in giving training like a police officer? >> i think i answered that. again, i'm going to let him speak to the particulars of his program. my understanding is that this is -- this is all about the fact that we don't have the time, the luxury, the trainers to make everybody a new york city cop. so -- but what we do have, particularly in this culture where there is such pervasive use of guns, we have a population that is familiar

with weapons, with firearms, and we have a population which has an incentive to protect their neighborhoods, a desire to protect their neighborhoods. and if we somehow can connect that able-bodied, willing, capable local with the ansf so that when they're in trouble, when they see something that's out of the ordinary, when they need help they're able to call in support that we think would be an effective bridging mechanism until we're able to build the ansf to the point where they can handle these kind of issues. >> the idea here, though, is the reason this is getting some new momentum now is that this is a way where there are sort of local uprisings against the taliban? >> there's some of that, yep. >> and is that what -- >> is that part of what gives us confidence that this is workable?

>> yeah. >> i think certainly so. there clearly have been examples, albeit small and isolated at this point. i don't think we could say it's any sort of trend. i think it's premature to make those kind of statements. we've clearly seen examples of local communities repelling attempts by the taliban to infiltrate and intimidate their communities. we've also, though, seen examples where there are communities that may not have stepped up in that demonstrable way but clearly want to. and are looking for help in doing so. but i think all these signs contribute to -- all these things contribute to general petraeus' belief that this can work and that it is a useful bridging mechanism until we can further degrade the taliban and simultaneously build up the

afghan national security forces so that dedicated professionals can be responsible for security. but in the interim, there are communities that are crying out for help. >> i mentioned earlier this idea had been tried before and that there had been problems and one of the problems in the past have been that the taliban would attack and kill groups like this because of their hold on communities. i'm curious, is there concern in the building that starting a program like this potentially jeopardizes the safety of afghans who get involved in this program and further reinforces the idea among some in afghanistan that the united states isn't going to be there when they need them, particularly with this looming -- >> i would say that's a risk afghans take every day. whether or not to cooperate with the government, whether or not to cooperate with coalition forces. that's the fundamental battle that's going on here, from our perspective, which is we are trying to win over the afghan people. we are trying to win over

particularly the fence sitters, those who are not fond of the taliban and who are increasingly unpopular but are fearful of what the consequences may be if they turn their backs on the taliban. they are very effective at intimidating populations. i mean, there are countless examples that i can provide in which there have been just brutal attacks on civilians and civilians who have stepped up to help us. i think the infamous wedding attack with 50-plus killed involved someone who was cooperating with the afghan government. i would point you also to the fact that just since june 1, by our estimation the after gan -- afghan -- pardon me, the taliban has been responsible for the killing of more than 160 civilians and accounts for 89% of the civilian casualties that have taken place in afghanistan since june 1.

so it puts in context who is really at fault here for the deaths and the injuries that are taking place that are happening to civilians in afghanistan these days. when we are responsible for them and by our statistics, it's accounted for roughly 11%, our forces, coalition forces, afghan forces, since june, since june 1, that is because it was inadvertent, it was in the course of our operations and inadvertently afghans have been killed and is tragic and something that the tactical directives are designed to hopefully eliminate. by contrast, we know that the taliban is deliberately targeting civilians and they are doing so at an increasingly high rate it. so despite their rhetoric which says they only utilize explosive devices, remotely operated explosive devices to

kill americans or coalition forces, clearly the facts tell otherwise. they are killing civilians at an alarming rate. but under this strategy outlined by general mcchrystal and now being employed by general petraeus, it is our responsibility to protect the population. the onus is on us, even protecting from the taliban. so we have to work doubly hard not just to win their trust and confidence but protect them. so there is a real risk to those who step up in afghanistan. but that risk has been there. it will continue to be there and all we can do is continue to assure them that we are going to work our darndest to degrade the taliban, to hopefully -- and to build up the afghan national security forces to the point they can protect the population and that it is worth siding with the government against this horrible influence in their country. >> i'm having a hard time understanding, is there anything, then, the united

states will try to do to reassure afghans that joining these local security forces, that they'll be provided some kind of protection or backing in the face of -- >> what do you expect us to provide? >> i don't know. that's the beauty of -- >> nancy, this is a -- this is a very dangerous country right now. this is a war zone. there are inherent risks for the people of afghanistan. this is not an esoteric conversation for them, this is real life everyday choices they have to make. we recognize that and we understand the risk that they are exposed to, and that is why i think we are trying to take initiatives such as this, a bit unconventional, albeit, but because we know there is a need for security in these communities and yet we do not have the resources to reach them. so we need to come up with creative ways of helping people like that so they are no longer

terrorized by these terrorists and no longer intimidated by the taliban, so that maybe collectively, if enough of them stand up and join units like this and protect their communities, they can push them away and provide a safe haven where they can no longer operate. that's what this is all about. david? >> jeff, what is the scale of what general petraeus is proposing? you don't know? is this a small expansion of an already existing pilot project? but you almost seem to be describing something larger. >> i think we talked about it at length and think it should move on because i don't want it to take on a portion that it's not. listen, this is no -- we are not there yet. this is an idea. i don't know if this idea is ultimately embraced, how it is embraced. is it embraced on a smaller scale? is it embraced on a wider scale?

those are things yet to be determined. i'm just here to explain the idea. i don't know how it will be born ultimately, but these are the discussions that are taking place in a very constructive manner and i think everybody is sort of better understanding what is being put forth here by general 5 trareous but i'm not in a position to tell you ultimately what the scale of this will be. i do recognize tom's point that these things similar to this have been tried before. i think you were there when things of this nature were tried before. and they ultimately may have had, you know, limited success in pilot areas, but were never able to sort 6 -- of take off through the country. we'll have to see what happens here if indeed this is ultimately blessed and proceeded with. >> another topic, did the secretary receive assurances from memberings on the hill the pentagon would be getting the money it needs in short order?

>> let me say two things on that. first of all, despite what i've read about the trip to hill, it was not a lobbying effort on supplemental or start or anything else. this was an invitation from the republican caucus to get together and talk about some things. usually what the secretary does is sit down and he may have a couple of opening remarks, i don't know if he hit on any of these issues in particular yesterday and then just throw it open for members' questions because they're the ones who wanted to see him and he was happy to go on up. that said the supplemental did come up. i think the secretary expressed to the senate republicans that he is disappointed. that the congress did not pass the defense supplemental before the july 4 break. and is very concerned about the

predicament that puts us in in order to ensure operations are not interrupted, the services will have to begin catch flowing, operating costs for war activities using their base budget but because of where we are in the fiscal calendar, this option won't last very long. so absent more drastic action, we project that certain army and marine corps accounts will run dry in august. and while we hope and expect the congress will get this done, we also are obligated now to begin seriously planning for the possibility that they don't. the budget team and others are now developing an emergency plan should this happen. but it's not appropriate for me to discuss the details of that before the secretary has had a chance to consider the options

they put forth. needless to say, all of this is extraordinarily disruptive to the department. but we've had some practice at this over the last few years. we're sadly getting used to this fire drill. and while we've faced this circumstance in years past the situation we find ourselves in this year is much more difficult because it comes so late in the fiscal year. so most of the department's accounts are on their last legs already. so we are left with far fewer options in terms of cap flowing. let me make one final point if i may. the department has a supreme obligation to protect this nation and support the hundreds of thousands of personnel deployed in harm's way. we'll take every step possible to fulfill these obligations until the matter is settled in

washington. it may involve asking a lot of hard-working people in this department to report to duty without an ability to pay them. or other extreme measures we'd rather avoid. but we will get the job done, including in iraq and afghanistan and where else we operate around the world. but we hope and expect it won't come to that and the congress will act to resolve this matter and the matter of the next few weeks. >> another question, yesterday the nation -- >> on this? >> have i exhausted this? >> i have another question. >> the nation's largest shipbuilder northrup announced it's consolidating operations in mississippi for certain classes of ships and looking at -- getting out of the shipbuilding business altogether. what was the department -- among the officials who care about this, what was some of the reaction, was there trepidation and concern or was this welcomed as an efficiency

move? >> well, listen, this is fundamentally the decision for northrup grumman. they have a business to run and they're making decisions in light of their business, and we understand that, we respect that. i mean, what -- this department is seeking affordable, capable ships, as well as a healthy and sustainable shipbuilding industrial base. we are going to work with northrup grumman and other parties to make sure these objectives are met as northrup carries out its business decisions. i would say this, you know, the affordability of shipbuilding is a real issue for us, the secretary spoke to it at length when he addressed the navy league in may, i believe it was, and if this decision leads ultimately to affordable ships

for the department without harming the industrial base, then it's a good thing and we're clearly supportive of it. as they describe it and i've only based it on what's been communicated from the company, at avon dale facility was reduntant to their facility in pascagula and underutilized and they believe they can cut overhead and operate more efficiently out of pascagula. we're all for more efficiency and more affordable shipbuilding. in the near term, i think closing a facility like this may have a cost impact in terms of the remaining ships that have to be built, the remaining lpd-17's, in the long term if indeed they're correct and leads to more efficiencies in their operation, then it could be a very good thing in terms

of affordability. we're just going to have to see. >> i'll follow-up on avondale has produced some very poorly made ships, the lpd class is seen as a disaster in some circumstances. was the department concerned about performance down there even before yesterday's announcement given that the first class ship, the lpd-17 is in dry dock still basically in newport news because of all the problems with it. >> yeah, i don't think -- listen, this is their decision, it's a decision that has a dramatic impact on a community and on a state. i believe avon dale is the largest private employer in the state of louisiana, some 5,000 jobs, so this is obviously devastating news to that community. i don't think there's any utility or benefit to me, speaking ill of any of their operations, this is a business decision that they've made. they've given us their rationale for it, you heard it,

if it is as they described and it leads to greater efficiency and affordability, then it makes sense but we also understand it will be a very hard decision, outcome for that community. >> when i asked you last about my c.i.a., you said the officials were looking at possibly -- >> yes. because i know i've gone long. i do not have an update for you. >> some people wrote in after you -- >> you forwarded them to me. i saw them, yes. >> do you have answers to their concerns? >> there were a couple. what was the specific concern? >> the state licenses that, for example, real estate, home health care are not recognized by other states so if you have someone who is p.c.s.ing, getting a real estate license in one state may not be that helpful. >> jeff, i'm not going to get into the transferability of real estate accreditation. i don't know it, i'm not an

authority to speak to it, obviously that was one example offered as programs that could be taken advantage of with my c.a. funds but obviously there's a range of programs you can benefit from and make yourself more attractive to employers through this program. i don't have an update for you. i think this is still with the secretary. i imagine we will have movement soon but i've said that before. and i'll keep you informed and personal readiness will have something on this and i'll make sure stars and stripes are aware of it. i promised gordon -- >> how are you looking at the wake of the bombings in uganda and is this a current update what role you may be playing to provide an assessment or what? >> i am not aware -- obviously, listen, our building is always

looking at potential threats anywhere and everywhere in the world and this is an organization that obviously has been fixed on our radar for quite some time. i'm not aware of anything being done because of the attacks in uganda. >> it was mentioned that the mexican authorities have requested d.o.d. to create joint intelligence centers. people are still operating -- [inaudible] >> do you have something about that? i don't from here but our experts in mexico i'm sure can help you out with that. tom? >> just briefly, does the departure of deputy secretary lend guidance to the military on disclosure? he's saying now the disclosure should be private and departs from the secretary's policy on april 1 in which he said those

disclosures should be made public. can you tell me why that is. >> yeah. i'm not as up to speed as you are, clearly, tom. i'd have to look at it. i don't really precisely what the secretary said april 1 in terms of disclosure, whether it needed to be made internally or there had to be some sort of public resource of people like yourself could go to to find out such information. let our team find out and we're happy to arm you with that. >> on the relocation to guam , it's reported our secretary of defense gates sent a letter to japanese -- >> didn't i answer this over july 4? didn't you email me on july 4 and ask you this and i give you an answer to this? you want it again? >> try this later? >> the letter, as i understand it, was spawned -- was basically a follow-up to their

meeting in sipping pore. they met in singapore and had a bilateral discussion at the end of which or following which the secretary sent a letter explaining the importance of japan's contribution for guam -- contra bution for the guam infrastructure improvements and to the movement of marines from okinawa. the letter addressed the implementations of japan's commitment to support the marines to guam under the 2009 guam international agreement. there's been no discussion between the two governments on increasing japan's financial commitments under the guam international agreement which are approximate, as i think you know, $6 billion. >> is this the kind of letter you're expecting a reply from the japanese government? >> i haven't seen the letter. usually correspondence is met with a reply. i don't know what the expect

ation was when this was sent, it was like hey, we had a meeting, here is my understanding, does it jibe with yours? we'll have to find out if there was a response received or if there was an expectation of a response when it was sent. yes, go ahead. [inaudible] >> the meeting here in washington, what is it about the confrontation, is it to decide a single specific plan by the end of august, or do you agree to provide several options -- [inaudible] >> no, i think this is all about working towards the august deadline, and it's still our expectation that that is feasible at this point. ok. thank you all. appreciate it.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp.2010] >> tomorrow morning, a senate subcommittee looks into the effect of oil disbursements into the gulf of mexico. witnesses include lisa jackson, the head of the environmental protection agency. on c-span at 10:00 a.m. eastern. the senate judiciary committee has postponed their vote on the nomination of e will hena kagan until next tuesday. watch coverage at c-span.org

and learn more of the nation's highest court in the latest book "the streak ." it provides unique insight about the court. available in hard cover and as an ebook. >> christina romert testified before the joint economic committee today on a report that says the stimulus act created about three million jobs. our coverage begins with questions from members and is a little less than two hours. >> i would like to ask a question about my home state of new york. i saw in your report you released today that the recovery act has created an estimated 206,000 jobs in new york state, and of course i'm very pleased to see that. new yorkers need every single one of those jobs. and along those lines, can you tell me how much private

investment in new york state has been spurred or sparked by the $100 billion in recovery act investments? >> let me first -- [inaudible] >> the state employment numbers. >> the microphone, they need to hear you better. >> i wanted to first say a word about the state's employment numbers, because as those were mentioned we say those are inherently uncertain than our overall estimates. we get just a few reports from the actual recipients. no one fills out a form about the unemployment insurance or tax cuts. it's only the direct projects and gives us one read on employment by state. what we try to do in our report is get estimates about all the effects on unemployment and that's where that larger number that you mentioned comes from. and we do the best that we can but it is inherently harder when you're trying to do it for 50 individual states.

in terms of how much of the leverage is happening in particular states, we haven't actually done that analysis. it was hard enough to get the overall level of analysis but that's certainly something that i think we would very much like to work on. i know the vice president's office is planning to do a follow on to our work, really the first step in evaluating these leverage provisions so i think looking state by state would be very interesting to the degree it's possible. >> that would be helpful but could you elaborate on what sectors or what areas are benefiting from this $100 billion in leverage? is it clean energy or loans to small businesses or manufacturing? could you elaborate which areas are benefiting and possibly give us some examples of some successes that have leveraged these dollars and helped communities employ americans? >> absolutely. so in terms of areas, one of the striking things is there are these leverage provisions

over a wide range of areas of investment but the biggest ones are clean energy, building construction, and economic development. and just some examps, clean energy, the 48-c advanced manufacturing tax credit, as one i mentioned in my testimony, that's where people want to build a factory, set up a company to make some of these new clean energy products, get some seed money from the government and do that. the president is going to be in holland, michigan, later this week to talk about an advanced battery manufacturing plant which is getting a direct grant from the government, being matched by private funds. and we have the loan guarantees that were passed in the recovery act, we've upped some of those. that's partnering with a lot of small business -- loans to small businesses, creating, you

know, businesses throughout the country. and then building construction. we know the buy america -- the build america bonds that were included in the recovery act have been wildly popular with a lot of state and local governments and they're being used to fund everything from schools, to community centers, to other kinds of infrastructure and those are being very, very widely used and quite successful. >> thank you. my time is expired. senator brownback? >> i understand you'll have a vote shortly so i'll pass to congressman reyes. >> fine. that's a good idea. >> thank you, madam chairman. i feel like in the report you cherry picked the economic studies and i think almost made up some of the comparative projections but what is more dispointing is that your own benchmarks aren't included. my question is why don't you have them in there? they were if in the first two quarterly reports. you can't say the economy was

worse than imagined because the republicans said your projections were rosy to begin with. so is the white house ducking accountability on the stimulus or simply hiding the test so we can't match it against the poor performance? >> all right. so let me be very clear. first on the numbers that we compare ourselves to, we are looking at the same range of estimates we've looked at in all the four quarterly reports. so that we tie ourselves to the congressional budget office, highly respected forecast -- >> is there a reason -- yours are not in here. you were front and center on what the stimulus would do and widely reported, members of congregated on the house floor and senate as well and now they're missing. >> no, they're the main goals the president gave was that he thought this act would save or create 3.5 million jobs and that's absolutely the marker we are looking at and comparing ourselves with. >> just to be clear, the white

house didn't say ever that unemployment would remain below 8%, that you would create $1 37 -- 137 payroll jobs, over 90% would be created in the private sector. you did not -- in the fact it was actually in the first two quarterly reports shouldn't have been there? >> it was not in the first two quarterly reports. that was in the report jerry burnstein and i put out during the transition. let me address it right now because we did -- the picture you showed is one that has even showed up on jon stewart. so let me explain what i think is going on. i think the most important thing to say, it has nothing to do with the stimulus not working. it says what the stimulus would say it would do and is on track. >> i disagree with that.

but back to sort of hiding the benchmarks. why? >> no one is highing a benchmark. the fundamental thing is about what i have control over, what you had control over in designing the act is what would the act do? none of us have control over is what was happening in the economy, what was going to happen without the acts and the -- >> actually, you did estimate. you did estimate originally what would happen without the act and comparing it against that it is still a failure. >> ok, so that -- >> i guess, again, your benchmarks to me mean something because it's not republican or democrat and come from the white house. they're no longer sided because obviously the performance has failed to meet them. why? >> no, i put disagreed completely. our benchmark had always been how many jobs would it create? and that's what we're judging ourselves against and what we estimate in every way possible and what we contract private analysts on wall street.

let me come back to what changed between when we made that prediction about what would happen to the unemployment rate, is the economy the track it was on, without the recovery act deteriorated? and i think it's important to realize -- >> but we were telling you that when we made that prediction. >> we were showing you those assumptions. >> if you look in the economic part of the committee, look in chapter 2 because we show you what other forecasters, the blue ship consensus, right, the 50 top forecasters in the country, what they were predicting. i think what you forget is we were getting a tremendous amount of information that first couple of months and the economy was turning in a way -- >> with all due respect we haven't forgot what your benchmarks are. and i don't know how really you can claim success when you failed on those three key features. plus, predictions, you would jump-start the economy didn't happen, that you'd restore consumer confidence. it is low today.

90% of americans believe the economy is in bad shape and - don't believe it's getting better. and how do you claim the stimulus works when you have businesses holding on to $2 trillion cash that they're not rehiring people with, they're not hiring new workers with, they're not making that investment or expansion decision, how that is proof positive that the stimulus has failed because those companies, eager to recover, simply face uncertainty, don't want to be punished. how do you stimulate by causing people to hold on and businesses to hold on to their own cash. >> congressman, i have to disagree fundamentally with your statement that it hasn't had an incredible impact on changing the trajectory of the economy. you can't look at the kind of pictures that the chairwoman showed that showed we were on a trajectory of losing 750,000 jobs -- >> last month not a single industry in america

statistically showed a significant increase in jobs. a little less than half a million people filed for unemployment and that was celebrated. how can these be signs of success after a stimulus of breathtaking proportion s? >> can we cite the number, we've added 600,000 private sector jobs since the beginning of this year. you're not going to get any argument with me, things are still -- >> you lost 3.3 million jobs since the stimulus passed. it's gone the wrong direction. and the federal government workers are the only ones so far that have had safe paychecks. >> i think you need to remember again how severe this recession has been and how it got dramatically worse before anyone passed any stimulus act. if you want to know from our forecast errors, most of them came from the last quarter of 2008 and the first quarter of 2009. before the stimulus could have

done anything the economy deteriorated rapidly. that's the main source of why we're not meeting that benchmark. can i also point out one other thing, which is while you like to talk about how we've missed our unemployment forecast, it actually turns out our g.d.p. forecast turned out to be remarkably accurate in terms of what we said the stimulus would do to g.d.p. even taking into account the baseline, because part of what's happened is a breakdown in the usual relationship between g.d.p. and unemployment. >> the gentleman's time has expired. i'd just like to comment to my very good friend and colleague that i have great respect for, you say we haven't seen any evidence of a recovery. that uncertainty is preventing businesses from hiring and that the recovery act did not help get the economy back on track. of course i disagree with him. but i was also very interested in reading the republican study committee document. this is from the republican

caucus in their committee on the budget. and i would just like to read a few sentences in there, and it seems to disagree with some of the statements from my respected colleague. and i quote -- it's from the newest global financial risk sovereign area that they're writing about. and i quote, the u.s. economy began to slowly recover in 2009 from the effects of a long and deep recession and a financial crisis. g.d.p. growth turned poffer in the latter half of this year. financial markets normalized and major credit markets began to function smoothly after an extended period of paralysis and turmoil. for most of 2010, economists have said a moderate recovery was well underway. that's just from the republican document and i'd like to give

it to my good friend and colleague. >> do they cite the stimulus for that because i specifically know 2 doesn't. it cites 1.3 -- >> the economy is improving according to the caucus report. we've been called to vote and i would now like to turn it over to the senator and thank her very much for chairing this committee while we run to vote. thank you for your testimony and here is the republican document. which basically says the same thing you were saying, dr. romer. thank you for your hard work. representative cummings. >> thank you very much, madam chair. i told you. i told you that they would say the sky is falling and that the progress that we have made the president and the new administration had nothing to do with it. i told you. you said something that

intrigued me, a lot really. but you talked about small business lending and how significant that would be. i'm going back to some of the things mr. brady was talking about. we had the deserve in my district about three weeks ago and had businesses come in and one of the things they said is it we could just get access to capital, they are -- one lady stood up and said i have opportunities at my fingertips but just can't get the capital. and so could you comment on that briefly. then i want to ask you about the whole idea -- this is the major question, a lot of people think that democrats, some of us, are not concerned about the deficit. and we are concerned about the deficit. you talked about how it's important to create jobs and do those things to spur on jobs. i need you to tell us about the balance that is dealing with the deficit and also creating jobs.

because i've got people -- and they're concerned about the deficit. but let me tell you something, they're trying to figure out how they're going to be alive -- although they're concerned about the deficit, they're worried about being alive to see the deficit going down. so can you answer those two questions for me? >> absolutely. so first on the small business capital, what you're hearing in your district is exactly what we're hearing which is as many parts of the financial system have gotten more stable, it's easier for big firms to issue bonds and get capital. we're still hearing it's hard for small firms, and that idea that there are opportunities at our fingertips and if she just can't get the loan to put them into practice. that was something chairman better than aingey talked -- chairman bernanke talked about in a peach. and we have the small business lending fund which takes a small amount of government money, lends it out to

community banks that do most of the -- small banks that do most of the lending to small businesses at very favorable rates and encourage them and get more favorable rates if they do more small business leing. it's a very winning proposition. it's very cost-effective and think it will have a terrible impact on getting more loans to small businesses. >> now talk about deficit versus -- are you concerned about the deficit? >> of course. >> and you are a professional. you've been doing this for years. i just don't want people to think democrats and this president is not concerned about the deficit. and can you kind of tell us about what you all are trying to do? i think you're trying to balance this thing out. >> absolutely. i mean, i can tell you how many times we've had meetings with the minute. -- with the president. he's deeply concerned about the deficit and he's concerned it's been a problem we've known about for a good 20 years that keeps getting kicked down the road and why he set up the

bipartisan commission and was convinced it was such an important problem. he also notes the only way we're going to solve if is it both parties come together and figure out a solution that we both can live with. so you get no argument from me that it's an incredibly important problem. i do want to say i think the health reform legislation was a major step in the right direction for all that we can talk about, quality and efficiency and expanding coverage, that bill was also a major fiscal action. it was a consolidation that will help slow the growth rate and any study will tell you the main source of big budget deficits in the future. that was an important first step. we absolutely need to do more. >> if i say to you don't increase -- don't say, for example, do unemployment benefits because i'm worried about, you know, the deficit. what's your answer to something like that? i'm just curious. >> there's two things to say. one is our budget had a very

serious plan, which is we knew the fiscal stimulus was going to be going off. we also had in our budget, letting the tax cuts for the highest income earners expire as they're set to do the end of this year. we mixed that with a group of targeted actions like extending unemployment insurance to have a senseable path. what was described as a glide path back down to a smaller deficit. it's important to have a plan and we have that in our budget. the other things -- so it's important to realize we are making consolidation because the fiscal stimulus is going off. that's an important point. the other point i made is that we do need to worry, when unemployment stays high for an extended period of time, what you worry about is some of those workers are permanently scarred. they drop out of the labor force, they lose their skills

and are not as employable as they were before. and one of the worst things that could happen is some of this high unemployment becomes permanent or structural because that obviously is terrible for the people involved and terrible for the productivity of the country but also terrible for the deficit. i think it is in fact shortsighted to say we can't do anything today to get the unemployment rate down because of the deficit when by not taking those actions today, you could make the deficit worse in the future by causing unemployment to be permanently higher. >> thank you very much. i see my time is expired. >> representative burgess. >> thank you. thank you, senator, for yielding to me. are you familiar -- this is a roundtable of the business council on june 21 sent to peter orzag, a list of things, the letter that accompanied it

is a follow up to mr. herzog's request to the roundtable and business council on pending legislation that could have a dampening effect on economic growth and job creation. surveyed our members to get their views and included a detailed description of government initiatives that will help with growth. are you familiar with this document? >> i am, need. on page 10 of the detailed portion, about the middle of the page, there was a paragraph citing a new source review. this is a complicated subject and know it's not the subject of our discussion today but let me use this as an example of some of the things that are happening at the level of the administration that are having an inhabitory effect on adjustment, certainly in my home state of texas. on march 31 of the e.p.a.

formally disapproved the provisions to the texas call find exemption rule that allowed facilities to use certain types of change in their equipment without going through permit review as long as these changes did not result in a net increase in emissions. we're not harping -- harming the environment anymore but had flexibility in implementing new equipment coming online in some plants like refineries that make refined product for gasoline that people depend upon in this country and need to have a stable and price secure source. it goes on to say, continued e.p.a. objections could delay startup of certain projects already under contract or extend the contract for major new projects. a flexibility permit can provide a single emissions cap in part of the entire facility in lieu of preventing each

individual unit built within. similar rules exist in other states and have not been challenged by the e.p.a. is texas being singled out or are there other states that exist that work under permit able planning and can they expect similar draconian policies to be enacted, like other states that do refining? >> i'm not going to try to get into the specifics of that particular rule. let me actually, though, the general issue of regulation, certainly as i've said, we've been talking to the business roundtable. i think probably the most important thing in that letter is the first sentence that said, "as you requested, here's the work that we've done." and what you're seeing is there's been a lot of business outreach. one of the things i'm at a loss in meetings with are meetings with businesses. >> i'm going to run out of time. and maybe we can get back to you in writing on this but this is a terribly important point

back home and the economy of texas has actually done a little better than in other state economies. we're not a basket case yet but we could be with this type 6 federal burden coming down on the state permitting process. we want clean air in our state. there's no argument about that. this does not increase the pollution burden in the state. we're simply asking for flexibility and right now you've got the governor of my state, governor perry in a pitched battle with the e.p.a. over this and it does no one any good to do that. and certainly is doing nothing to foster job growth. not even in my district. this is down in the houston-beaumont area but certainly will affect the economy of our state. you talked about the health care bill. i have to ask you, you don't really believe the health care bill that was passed is actually going to lower the cost of health care in this country? >> i absolutely believe it will slow the rate of health care cost, absolutely. >> it is a fantasy that really needs to be stamped out and rejected. we're through with the bill.

the president got what he wanted. let's be honest and admit we've driven costs through the roof. if you're really honest about what happened in that bill, we didn't include the doc fix in that bill because it was $300 billion to $500 billion. when that bill comes due, do you really believe the health care law that is the law of the land will actually reduce the cost of anything for anyone in regards to health care in this country? we turned tons of regulation over to the federal agencies. no one has any idea what those rules are going to look like. your business roundtable is concerned about the effect on jobs and job creation of the result of those rules. and if those rules become too confusing employment insurance will become a thing of the past. if you like what you have, you can keep it will become a hollow promise and the federal government will have the burden of health care costs the private sector is now unloading. it will be cheaper to pay the

$2,000 fine than it will be to keep up with the rules and regulations that are coming out of health and human services and the center for medicare and medicaid services. >> congressman, i just have to recommend that you read three wonderful studies done by the council of economic advisors where we went through the provisions of the bill, and our analysis based on outside studies is that it will slow the growth rate of costs by one percentage point per year. the other thing, i think we've lost sight of the fact, the reason it was as hard as it was to pass is precisely because it included some very hard things that will help slow the growth rate of costs, the excise tax on high priced plans is something health economists say can genuinely help the growth rate of costs. the independent advisey board is something or or -- >> again, my time sub. but richard foster, the actuary for c.m.s. came up with a figure that was available figure that was available before we