so i just don't want to overemphasize -- the advange of the v.a.t. i see -- i do favor a v.a.t. for those reason, but i see the main advantage is it keeps you from raising rates outside the v.a.t. it's not that putting on a v.a.t. gives you a competiti competitivenecompetitive advantage. >> let me answer the question of why other countries had a v.a.t. when you look back at history, what happened was ey had very inefficient cascadingretail sales taxes, and they -- t reason that they went to the v.a.t. was to replace those retail sales taxes with a more rational system, a v.a.t., is a more efficient sales tax. if you look at canada, and i've looked at that experience, it really was, we've got a big deficit problem, we need this revenue. i don't think that us adopting a v.a.t. on s own is going to have hunl competitiveness.

if we were to just take the system today and add a v.a.t. on, what would happen is over time, exchange rates would adjust and we wouldn't -- it wouldn't add to competitiveness. what happen ge said is exactly right. what the v.a.t. would allow us to do is buy down the v.a.t. in combination with broadening the bags would allow us to buy down our corporate income tax rate and that uld have a big competitiveness impact for us. and do have keep in mind that oe corporate income taxes also. it's not that they don't have corporal income taxes. they do. >> thank you very much. >> senator sanders. >> thank you very much. . . . these hearings are like a narcotic to me. i could be here all day. i get hooked on these things because they're absolutely fascinating and i appreciate the panelists that are here. as we mentioned the other day, i do applaud the panelists, but

they do have a perspective. and i hope someday we can bring in economists who have somewhat of a different perspective. i think dr. sterling made a point that you can't just look at one -- if you're talking about international competitiveness, for example, you just cannot look at tax rates. i live an hour away from canada, and i'm -- my canaan friends would be very impressed by the degree to which you laud canada today. canadian health care system costs about half of what our health care system does. by the way, do you think that moving to a single payer national health care system as they have in canada would help our economy? if we're going to talk about the canadian government and their policies. they have health care and spend half per capita than we do. how's the health care in canada should we adopt that?

>> i wouldn't necessarily say canada is successful because -- but they have a lower spending right -- >> right. >> they can keep a lower tax rate, which is an advantage. >> and everybody who understands the issue understands if we want to go to a low health system, we need to go to a single payer. would you suggest that? >> this is a budget committee. we always have a debate over what the health system we adopt. no matter what we adopt, it should be within a budget. >> that's not my question. >> you can't have an open-ended system. >> you talked about the canadian tax system and lauded certain provisions. should we look at the canadian single payer syem that provides health care to all of their people at about half the cost of the american -- >>'m trying to find the right words to wiggle out of this question the same way gene did. it's absolutely true there's a lot of waste and spending on health care in the united states

if we could eliminate that, that would be -- >> you wiggled out of it. >> i am not an expert on health care. >> but economically, you would all agree that health care is a huge burden on our economy, no one disagrees with that. canadians seem to have done substantially better. dr. lindsay, something we should look at? >> we should look at everything. what really decides competitiveness is cost effectivene effectiveness. i mean, the worst thing you can have is a high tax, low benefit system. if you have a state, for example n the united states with, you know, relatively modest taxes but ficiently delivered public services, those states are the ones that are gaining population and jobs. so i don't think you can look at anything in isolation. but we need to improve efficiency. >> and that's my foint. i think we look at -- f example, we can talk about canada.

again, i live an hour away from canada. when wall street collapsed here, their banking system did not collapse because of much heavier levels of regulation, right? >> senator, i -- that's something i do know something about. i would not wish the canadian banking system on america. >> all i'm saying is on these issue, you can't isolate -- if u're talking international coetiteness, not to talk about wanls or environmental protection or trade policy, they're all lumped together. i don't think anyone disagreed with that. the other point i wanted to make, not to talk about a canadian single-payer system, what i haven't heard dcussed, while taxes are enormously productive, everybody agrees our current system is not working, needs fundamental reform, we have to look at it within other contexts as well. for example, during the bush

years, we saw substantial tax reductions given to the wealthiest people in this country and yet we had perhaps the worst record of job perfornce at anytime since herbert hoover. so it's not quite so clear -- other factors may be involved in that. but under bush in eight year, we lost 500,000 private sector jobs. we gave tax breaks to the very wealthy, gentlemen, we lost jobs. dr. steriling? >> well, senator, there are a lot of facto involved. >> sure. >> the end of theush year, we went into a recessions. when politician pligss brag about the job growth they've had, 90% of what they've talked about is the influence of demographics, and what we've dodged for several decades is when we moved into -- after 2008 and we have all these people starting to retire almost at the rate we're bringing peoplento the work force, it's going to

dramatically decrease the amount of jobs. >> and i'm t arguing -- i'm just saying -- my only point was these things are complicated. >> as a matter of revenues, i have emphasized that it's something that has been hard to get into the budget calculus, but if we can figure out ways to get older workers to work, who i think are the largest group of potential workers, the most -- largest poolf underutilized human capital in our economy, people 55 to 75 to 85, it has a revenue effect right now we do not score. >> when we have such a -- when we talk about revenue. there are other reforms that can talk about revenues. >> that's what i mean i get hooked. we could go on for many hours. dr. lindsay, you mentioned it might be advantageous to eliminate the payroll tax. you jt said that a few minutes ago if i heard direct krektly. >> what i said was if you go to a value-added tax, you want to

roll everything into it. the value-added tax goes back to the competitive issue and how it plays out, if you go to the competitive advantage, why wouldn't you want to do it for all our taxes? >> because we live in the real world and as of today, to the best of my knowledge, social security is completely fded by the may roll tax. do you believe in social security? >> of course. what i'm suggesting is if you're going to take advantage of tax reform, you want to roll as much of the tax code as you possibly can into the most efficient tax you can. and obviously you would continue to fund social security with that new tax. i don't see where there's any inconsistency there at all. >> hold it, hold it, i don't have a whole lot of time.

so let me just ask you the questions, okay? my point is right now, we're having a major debate about the future of social security. >> yes. >> and social security is funded independent of the u.s. treasury by the payroltax. lumping -- let me finish -- lumping all you can -- you can certainly fund a retirement program for the eldererly in ways other than the payroll tax. i'm not arguing that. but right now the strength of the payroll tax in terms of protecting social security has nothing to do with the deficit. if you lump everything together, and there are guys around you that say well, eve got to make cuts. you will agree with me one of the areas that could be cut if you're funding a retirement program for seniors out of the general treasury could be programs for the elderly. is that a fair statement? >> this congress has cut social security any number of times, even though it's funded by the payroll tax. so there is no linkage between how a program is funded and whether or not it's cut. >> oh, i wouldn't say that.

>> '81, '78. those would be two good dpampls. changes in the tax on social security benefits, i forget which year it was passed. >> '83, i tnk. >> there are many, many times we have adjusted social security. >> adjusted social security, yes. >> we cut social security benefits without changing payroll taxes one bit. >> actually, we raise the payroll tax in 183 so it is now a viable program. i don't want to belabor the point. i guess i've run out of time. >> senator merkley. >> thank you. i want to have congratulate my colleague from oregon, senator wyden for bringing up this issue.

we have a very high marginal rate then tons of exceptions in terms of deductions and credits. a few years ago when i was in the state legislature, i nt to the portland development agency, i said, you know, oregon is 47th in the nation, in other words, one of the lowest states terms of the tax burden it places on business. is this a selling point in attracting business to the state of oregon? and the answer was no, it's not. i said well, we're 47th, one of the lowest effective tax in the country, why isn't it a selling point? well, we have a very high marginal rate and companies largely look at that marginal rate. they don't count on getting the exceptions and the deductions and the credits, so it's proved of little value in attracting business to our state. so i said well, wouldn't it make a lot more sense then for us to be 47th with a very low marginal rate and fewer deductions and

credits and wouldn't that prove more attractive? and the answer was yes, that would be ha mu would be a much better sell. i think the united states has a parallel problem. i would like you to comnt on this question of whether we become much more attractive to companies deciding whether to site themselves overseas. >> just a quick answer, absolutely. and that's what i wrote about in my testimony. you hear a lot of people saying well, you know, the statutory rate is really high, but once you take all of those credits and deductions and loopholes into account, the effective tax rate is really low. so we really don't have to do anything about the statutory rate. two problems with that. one is that if you look at effective tax rates, they're not

as low as you may think. they're not that much lower than the statutory tax rate, but most importantly, it's very individual firm specific. the statutory ra is an important factor, as you just pointed out. it affects location decisions, it affects financg decisions. it affects how much wasteful tax planning you do. it affects how much you invest. so it's a very important policy lever, and it does make sense to lower the corporate tax rate. >> anyone else want to comment on that? >> well, senator, i think we would all agree. i have somewhat tangential point, but a lot of the discussion we've had at this table have gone to issues like international tax which can be complex. but i would like to bring us back to where it's maybe all our testimony began, which is there

are a whole variety of tax changes that appeal to both sides of the aisle that are not -- when we have these deb e debates on taxes, remember, the entire revenue side of the budget and a quarter of the expenditure. we're talking about thousands of programs. there are so many things that cut across the aisle that both sides would agree, we don't need five educational subsidies, we don't need ten capital gains tax rates. we could include the burden as the tax deaf fit we're putting on them. senator wyden showed, you can start the narrow in which there's a consensus and build out to where there's not a consensus. to the extent we broaden the base and lower the rate, there's a certain point where that doesn't work because there's certain rate reductions that's hard to have finance.

that wasn't mean you can't go as far as you can. start whe we can agree and hold off on the issues where there's more controversy across the aisle. >> let me turn to another topic. when i was here in 1976 as an intern, there was a tax reform that addressed a lot of various exemptions, deductions, credits. and so folks from oregon were writing in with all their perspectives on could their home office be deducted and blah, blah, blah and so forth. a lot of anxiety over each and every one of those potential changes. but a number of changes were made. and in 1986, senator packwood led a major effort, a much larnler effort to do the same to simplify in large degree. but it appears to me between '86 and now, we basically have had a 24-year period where we haven't gone back. instead of having ten years of handing out credits and

deductions and okay, let's come back to some sort of sanity, we've had 24 years where we've been handing out complexities in the tax code without coming back. are we long overdue for this major top of discussion? >> yes, absolutely. i think going back to one of the issues i raised in my testimony, i think one of thehings that's driven that over the last 25 years is that you can dress up special eductions, exemptions and tax cuts which are more politically palatable instead of spending increases. you're using the federal government to direct resources to a certain kind of activity, but political they have looked to be tax cuts. going back to one thing that gene has emphasized several times, there's a challenge in the way we talk about these issues. and clarifying will be part of the steps towards addressing them. >> i would point out we took the

top statutory rate up from 28 to 39.6 over that same period of time and the two go hand in hand. reveing both is i think on the table. >> one final question. >> when i look at the number, what's increasingly happened over the years is congress has increasingly gone to what i call the giveaway side of the budget. both tax cuts and spending increases. the challenge always for a budget committee is you recognize there's the other side of the ledger and we've got to figure out a way to raise the importance of what that means. we can't let deficits as if they're free money when we do spending increases and tax tut kuts. . >> i think i'm out of time. would there be a possibility of one more question? >> yes, sir. >> okay, thank you. i've asked my team to help identify specific examples of how our tax code exports manufacturing or jobs overseas, andne specific example they have put forward is that when an

american company decides to build an overseas factory, if they take their loan out to build that factory in the united states, the interest becomes tax deductible. so essentially the american taxpayer is erefore subsidizing the financing of the overseas construction that then incentivizes the shifting of jobs overseas. is there a rational argument for this, or is this just a crazy thing to do to subsidize the construction of factories that compete with american factories. >> do you have an hour to get into this? and a lot of headache medicine? >> it sounds like we're going to have a follow-up discussion. >> yes. it's not -- it's not the case that all corporations are able to deduct all of their interest expenses that support foreign investment from the u.s. rate. we do have a system were

interest on domestic lending is allocated abroad so that you are not allowed to deduct 100% of your interest on foreign domestic interest to -- you're not allowed to deduct 100%. there are interest allocation rules. they're very, very complicated. we have a better rule that actually is on the books to be enacted, but we just keep pushing it out. it's called worldwide if you think -- fungibility. it's been pushed out to, what, 2028 now? >> if a firm can deduct interest on loans to build company

abroad, they generated themselves a negative marginal effect of tax rate, which means we're subsidizing their investmentabroad. the difficulty of this is understanding the extent to which this is happening to specific corporations. it's complicated. >> but it is happening. i mean, i have had people come to me from multifinancial counting firms who had clients doing this. ito troubled them they came to me. they would not divulge the compani companies, but they show med very specifically, companies from the united states developing a net margil

negative tax rate, and in effect being subsidized by american taxpayers to put jobs overseas. and i think this is a bigger problem than has been acknowledged. it is according to people who come to me from very large accounting fir, they believe a rapidly growing problem as people figure o this mechanism. just as a factual matter, earlier on, we were talking about canada's deficits so i asked to look into that, they were at 101.7% of gdp in 1996. they brought that back down to 69.7% of gdp. partially with the institutional of a v.a.t. it was not exclusively v.a.t., but they used a v.a.t. in

combination with other taxes. you don't see many countries that have exclusively a v.a.t. almost always they are hybrid systems, part income tax, part v.a.t. and there was an earlier question from senator whitehouse with respect to the competitiveness advantage. one part of a competitive advantage is those taxes are rebatable at the border. and so the example that senator whitehouse was giving is white accurate. we have our our taxes built to our products that we're trying to compete with foreign countries. they have a tax that at least partially is rebatable at the border, so when those goods come into this country, they haveless of a tax burden on them. that confers a competitive advantage. now, we have tried to counter that with dk and fisk and how many it rations. mr. lindsay, you would probably know. and the problem is, we keep

getting ruled ill leet egal on things we try to do to level the playing field. many of us believe we are on a course here that at some point we're going to lose our ability to try to make our people competitive. that is we're going to get ruled g.a.t. illegal, we're not going to be able to fix it and then we're going to fesace a 20%, 25 advantage going to the foreign manufacturer. so one of the reasons we wanted to hold this hearing today -- i mean, these are serious, serious matters for this country's competitive position. and i don't think we want to allow ideology of either side here to get us away from the practical reality of what we confront as a country. and that is a competitive position of the united states.

senator white? >> thank you very much, mr. chairman. i think you make an important point and my friend and colleague 23r6 oregon, senator merkley does as well. these international questions are enormously important. and i thank my colleague for making it. that was the one i wanted to ask you about and that's transfer pricing. just to kind of put this in a little built of context. senator greg and i went after the tax issue week after week for two years in order to get where we were essentially, a modernized version of '86. my gues is we cou have spent another five years working through the territorial and the international situation. and i think the -- we got to where were by asking the '86 question, which was how low would you have to get the business rate to be in order to get rid of some of what you're doingen in terms of deferrals and credits. that's how we got to a corporate

rate of 24% and junked a lot of what currently goes on internationally in terms of deferral reform tret krets. -- credits. transfer pricing takes this to a whole different level. and here's a question for you, dr. shueer. you can create paper transactions between subsidiaries of the same company to allocate expenses and profits to selected companies. what we found is people like ed kli fl ebarg, head of the koint tax commission said look, if all you do iebarg, head of the koin commission said look, if all you do inebarg, head of the koint tx commission said look, if all you dos is go to the transfer pri -- territorial pricing, it will be

a big problem. i appreciate the time the chairman is giving me. do you agree essentially wit that theory that pure territorial tax approaches as constituted today wouldn't do anything about transfer pricing, could make the problem worse, and if you do, what would you do about it? because that's where we bog down and a lot of my colleagues clearly are interested in this. i want to be responsive to this. if you agree with that theory, what would you do about it in order to bring folks together like you did in '86 and get stuff done. >> this is a tough one. going to a territorial tax system does increase transfer pricing pressures, income shifting pressure, but only to the extent to which the

repatriation tax is a burden in the first place. let me be simple. yes, income shifts incentives will go up with the territorial tax system. how much they go up is an en question, which, again, i guess i'm saying yes to you. and the question that i have these days is how much worse does income shifts and transfer pricing get if we go territorial and lor the rate to 24%? because the studies that ve been looking at and the studies that have been done in the past always look at territorial with the 35% rate. but if you're lowering the rate to 25%, you're taking some of the pressure off. of course, there's still 0, you know, there's still 0% taxes out there.

both solutions to the inrnational tax problem are not perfect. i like your solution quite a bit. i wrote a paper on it. it is elegant, because by getting rid of deferral, you get rid of the transfer pricing problem faced by with u.s. multinationals. that doesn't mean -- but there's -- there are two problems that we have and territorial has problems, too. but justto bring them up. what i worry about is, if we were to get rid of defeal and what we would be doing is going in the -- and i'm playing the two-handed economist here. okay? so if we were to get rid of deferral going in the opposite direction of other countries yes, we get rid of this transfer pricing problem with our u.s. multinationals. but we're still at, you know, this 24% rate. the oecd average is 25%.

are we going to lose headquarters? in other words, you're going to have foreign multinationals that are going to be able to enjoy our lower rate, okay, but not face worldwide taxation. so do we lose u.s. headquarters? and i don't have an answer to that question, but i think it's really important. >> chairman, you've given me a lot of time. and i think it's a really apopriate point as we wrap up. the whole exercise is about incentives for an economic renaissance that this country wants so much at this time. if you go to a labor union meeting oer a business meeting, you can get applause for a 24% rate, you're junking jobs

overseas to get red, white and blue jobs in america for incentives for bringing those kinds of operations back and having the headquaers you're talking about. mr. chairman, thank you so much for your time. >> let me just say, i used to be a tax commissioner. i used to be chairman of the multistate tax commission. i engaged in negotiations in the reagan administration on the question of multinational -- these multinational jurisdictional issues. when i was tax commsioner, we found some amazing things. i'll never forget, we followed transactions of a major grain company and found that one ship of grain changed hands eight times before it left the continental united states before we lost track of it offshore. i saw other examples, not in my tax work, but in conjunction with the revenue service where a company showed no profits in the united states, series of transfer prices, showed $20

million of profits in the cayman islands, with unemployee. i always said that one employee was the most efficient worker in the world to produce $20 million of profits and he actually produced nothing. the only thing he produced was tax returns and corporate statements showing they had periodic board meetings toeet the requirements of that. so look, these are enormously complex subjects, but we have an obligaon to short through them. i also want to commend my colleague senator wyden. i said this in another forum. there are very few members who have come up with such significant contributions, operating with just his own staff. not a committee staff, not a committee chairmanship.

and really sweep iing well thoughtout, bipartisan proposals. and he deserves krems credit for that, and i'm glad we pursued the questions here today. i thank this panel so much. you've been terrific and thought provokin provoking. the committee will stand in adjournment.

>> the senate luke into the constitution at of the healthcare law. >> tomorrow the senate budget committee holds a hearing on economic recovery. live coverage begins at 10 a.m. eastern on c-span. federal reserve chairman speaks at the national press club. watch his remarks live at 1 p.m. eastern on c-span. >> sunday on book tv's in depth, author and columnist r. emmett tyrrell. >> the latest, after the hang over. conservatives road to recovery. live sunday at noon eastern on

book tv on c-span 2. flu >> ibm and dell gave their ideas of how to save the country billions. this 50 minute event was hosted by the center for strategic and international studies. >> we are really going to dive in this quickly and not waste our time with introducing them

to you. that's why you are here. you know who they are. i don't need to do that. i am so glad to see a little gray on michael dell's hair. that's a good thing. >> i need it to look more distinguished. >> i know yesterday, you spent a fair amount of time with the president. he gave his state of the union speech and emphasized the need for a more effective government. i know these are private conversations. what is it that he told you. >> we need to get your mic made.

he usually has people to do this. roughly eight ceos will set the tone for the meeting. the president is going with the time. his key staff members are there. it was a good group. so we basically, if i could frame it at the highest level, we talked about competitiveness. what you heard in the state of the union. what is necessary from a competitiveness perspective. we found it was a bigger dialogue. we had a lot of different points of view. we expressed ours.

he and his staff were very responsive. we had three big points as you might expect. tax, trade. then we got into ways that the president was supportive of addressing the corporate tax rate. a lot of this was in the state of the union. michael articulated a proposal basically using what we've done in the past ten years.

if i could leave you with a little bit of a comment or thought, most of us the past couple years, there was a sincere and keen interest in addressing why the u.s. is not more competitive. that we might disagree on the details. but the importance of the country's agenda has moved way up. >> i agree with that. it was great to see competitiveness on the agenda. an again win interest in addressing some of the short term and long term issues standing in the way. we had a frank discussion about what that really means in terms of the country's out there. what it means for tax, trade

education. other nations advanced rapidly. we are global companies and still americans. we are interested in seeing real action taken against and maintain the standard of living we had in this country. >> we have a wonderful meeting, it was a warm glow.

the world is different now. two days later, you don't remember the meeting. what are you prepared to do to make this different. >> what i see is different is i think the imagine tuftd challenge has made its debt. the pressures are all showing up relative to compete gs nations. i think there is a real crisis in a number of states and various geographies. we are aware of these issues. if we take the action, a lot of

progress can be made and jump into action quickly. >> you are right we've all been to a lot of these >> what came out of me was not that two groups talk to each other but that two groups work with each other on tax and principles. there's a schedule and a work plan in place. there's a negotiation. and a start in place. this is the first time when it comes to corporate tax. there is real work under way.

teams at the table. we give a report and we go. we had statistics two years ago as well. this was a fair aspect. they get it. when we have an existing fta, that's the data. the data says the u.s. is better off based on these facts.

the ways to save money or be smarter, he told us in the cabinet meeting that morning, he instructed the cabinet to work on these elements to drive a smarter government. he got a whole long list of to dos. first he figured out why he wasn't moving faster. so i'm kind of where you are. we both have a little more gray hair than michael. we got out of school around the and are probably close in age. there is real work under way.

people doing work, negotiating. it's hard for business people. we could only help people with the analysis, facts and the stays and things we do for a living. scoring. i'll admit, i don't understand

it. you say we are going to take $150 out of your future budget. that's part of the dill ema. e knows that judas is the patron saint of all comp trolers. if you do the right thing now, you are right. instrument al in pulling in this support. by the way, you really ought to read it. it is really a good piece. the audience needs to get a little bit of familiarity what

it is you have done. you've each had experience with this. maybe you want a share of what you've done with your temperature. things like that. starting with you. >> if you think about all we are talking about. a lot of times people think these are complicated technical projects. all we are talking about is putting things together and sharing them. we are not working -- this is ibm taking what exists, putting it together to share it. at ibm, we had 84 data centers and went down to 14. you virtualize the environment and return and reduce the energy consumption. it's months not years of work. it is planning and putting together r things to together. it's extremely straight forward.

the report says the government has data centers. we'll go with the public data. we might have a different view of the 2000. if you take that, does the government need 2,000 data centers and 50 states. let's go to 100. everybody got their fair share. everybody got two. just share them and use them together. they share electricity and water, phone systems. i'll share this too. the first wave we took 84-14. i was the guy that happened to do it.

in our case it is 24% return. you could almost get it in a budget cycle. >> in about the size of this stage, something about the size of half the container, we could put 2500 compute notes. each could have let's say 30-40 virtual servers. we could put about 13 or 14 petabytess of storage. they use this and we supply the infa structure for the 21 of the top 25 large commercial organizations as well. the government can do it as well. there's enormous saveings.

really holding on to the stuff that's four or five, six years old when the rate of improvement is so fast is actually incredibly expensive, not to mention enormous power saving. when you do these and using the new power technologies, you actually reduce by like 95%. it is incredible saveings and productivity and efficiency andscale so you don't need all these small out posts. >> i remember y 2 k, we moved card punch readers in the defense department. >> thank you for being such a loyal customer. jo when i learned computer science, they didn't have those.

ibm sent tenial, which i believe is this year. that was made in like 1916 or something like that. >> you guys have written the book on this. what are your thoughts about what can be done with supplies. there are an enormous number of different supply chains. collapsing and using information to replace until assets are all thing that's have occurred in the world's best companies. saying do we really need hundreds or thousands of supply chains, that could be simplified and stream lined greatly. the government spends about $5 billion a year. this is only a 10% improvement.

when we went to one supply chain, we saved $25 billion on a lot smaller spend base. 10% is very, very conservative. again, why you need these hundreds of supply chains when you could pick ten again. it is probably a little simpler. there is real saveings. i made the point of the $25 billion. the estimates are quite conservative when you look at the 10% improvement. >> you've had to deal with it. you take a big beurocracy. you have tools that the government doesn't have.

>> we have management. i'm not being flip. saying the same thing. we can assign somebody. full time senior executive. linda, we say between 2006-2010, we need product tiff itd. she goes to work. there is somebody. by the way that can't happen in government. if you look at what states are doing today. they are assigning the operations. they have these huge issues. they are assigning individuals to go work these cases.

guess where they start sharing these things where they begin. when you think about the private sector, it can't apply the state level at the federal level. >> we are seeing this with the large university systems in the united states where the budget system poured them to do something they had not done. we are seeing it at the state level. a company like ours, we'll drive 10% productivity. we are going to do it with co-lab operation and invest and put those tools in and put the money out of the budget to allow

us to invest and grow and continue to provide value for our customers. well that cloud thing is a little dangerous. tell us what it is that we should be telling washington about cloud computing and its safety. >> to be clear, there are multiple ways to implement a cloud and secure ways to do it. they are different than going out to use a consumer cloud. if i was running national defen defense, if you would have to look at it differently. if you were sharing office work in a civilian agency, let me give you a definition.

the sharing of resources. now it is multiple ways to do it. it is based upon your environment. if you are dod or nsa, they are very real issues. if they won't, we have software that will se cure the environment. on the other side, i'm going to argue that a lot of the work that lends itself naturally to the cloud, which is the office

environment in the civilian agencies, there's not that same level. you can have some security and protection of pass words. i give you another that is very similar. every it shop called development and test. in the way it works, you have to take capacity. it can run in this environment. you can share in the environment to do it. we are doing it now and it is 50% less expensive. no security guess. it's behind the fire wall.

if they stand pack from it, not all things are the same. the national security is not appropriate. it is extremely sensitive. we did all this analysis in ibm. it is very, very true. that's about 40% what we do. 60% is very much legitimate work that could run in that environment and true productivity. i guess what i would say is that i think things can't go unchallenged. we are in a very difficult situation. if it was a normal time and life was moving on and things were great. you'd say fine but business as usual.

we have a final structure that is none sustainable. to sit there and not ask ourselves honest detailed factual questions about solving the problem, i think is not appropriate for any organization. i'll say that about my end i don't want to say too much about others. we are in a financial crisis we are talking about secure private clouds that is quite different. the other collective experience is if you stand in the way of the enormous improvements in technology that continue to come, you do it at your own

peril. you loose relevant vens and fall behind. there have been advances in our industry where you sort of add up the base lick opportunities that are pretty easily accessible. that's your trillion dollars. >> both of you have remarkable experiences as business leaders. you vented a new model. you had to convince an industry of something different. you did that. you led the way. you reengineered ibm and took it to a new company. both of you have been proven leaders. let me ask you to step back with some detachment. look at washington where the average political is in office for 26 months. people have to think you are going to be there for a long time.

you got to be on them. we have political appointees that disappear. how do we get that sense of lead leadership mandate in a government environment that has this foreseenor leaders. you have to have thought of this. [alause]

>> good morning. it is a delight to be with you. thank you for the invitation to be part of this important dialogue and i am honored to be here.

thank you for the sponsors. i just wish my wife could do with me this morning, the former miss bausch first lady of minnesota. she is a big part of my life. she gives me pretty good advice and keeps things on the road. when i was thinking about running for governor in 2001, i was winding up my time as the majority leader in the minnesota legislature and i have decided that i was not going to run for governor. gov. venture was an office and had not decided if he was quick to run for a second term or not. it could have an uphill for a republican in a deep blue of state. i came home to the suburbs and i said that i was not going to run. it was time to turn the page and to move on to the next chapter in our lives. she came across the living room

and e literally grab me by the lapels and looked me in the eye and said that i cannot quit. she said that i have to fight for everything that we belve in would get washed away if we do not get in there and stand up for our principles and our values. i thought, wow, i am rocky balboa and here is a tree and in she is giving me this into -- this inspirational speech. through hard work and good fortune, i was able to become the governor of the great state of minnesota, but not long into my time as governor, i had a big budget deficit and a state of the state speech and the schedule have become quite difficult and burdensome and i came home one evening about two months into my governorship and merritt was holding me to account for not being home enough.

there was a little tension in the discussion. i told her, don't you remember, your the one that told me to do this and you gave me that inspiring speech and told me to get in the race. then there was a pause. and sheaid, yes, but i never thought that you would win. [laughter] she says she just wanted to get out of my system. i share that with you because in our country, today, we have a sense where there are some question marks as to whether the future is going to be bright or not and whether the future for our children and our grandchildren is going to be brighter and better than the opportunity that we had. i believe that this is the greatest and most prosperous nation in the history of the

world and will continue to be in the future. but in order to ensure that, all of us in minnesota and across this great country have to make sure that we will remind each other what those things were, the values, the principles, the things that made this nation great and how we can apply them to the challenges and opportunities of our time. i refer to it as restoring american prosperity by restoring american common sense. i want to share with you just a few of those principles and reflections. i think those values and principles apply to the public policy discussion and then i will be delighted to take your questions and answers. as we talk about this concept of american common sense, people would derive their black perspective from a variety of different things.

not just from principles and documents of government, but from your personal experience. how you were raised, what your parents taught you, what you learned in faith, what you learned in community and in family. for me, my background was growing up in a small suburb, which was theome of some of the largest meatpacking plants and the world's largest stockyards. this was a blue-collar town with a lunch buckets and a gritty background to a -- to it. i have a wonderf neighborhood and a wonderful upbringing, but it was not easy. my mom died when i was 16. she passed away from cancer. my dad was a truck driver for much of his life and he got promoted to dispatcher and we thought we hit the jackpot.

at a very young age, and not only saw this massive meatpacking plants and stockyard's begin to shut down summarily and see the economic dislocation and were ready and uncertainty, but in my own family, i saw these challenges very dramatically at a young age. you learn some things along the way through that experience. just to give you one example of that, when my mom was notong from passing on, she called together two brothers and sisters and that they were not able to go to college, not because they did not have the capacity, but they did not have the opportunity. she pulled them by the bedside and said that whatever you guys do, promise me that you will get him to college somehow. -- get tim to college somehow.

i knew that the way out for me was not just hard work, but it was making sure that i had an education that was relevant to the economy and the future. that is one of the things i want to talk about today. let me start out by saying that the main issue for new hampire and for minnesota and for our country, beyond a national security which is the first priority and focus of government, but the main issue is the economy and jobs. all of the politicians at the state level, the local level and the national level, they say that in the jobs president, jobs governor, jobs mayor, etc.. but if we want to be able to ask d answer the question of what

we can do to make sure that jobs will grow in new hampshire or minnesota or our country, we should ask the people that provide the jobs. that is an important perspective. we need to listen to people that know what they are doing. this depends on asking the question correct please -- correctly. besides your fate, in addition to your famil wt brings you the most joy in your life? what brings you the most meaning? there is a series of things that people worry about or hope for that might be getting their health insurance premiums paid or how they would get a son or daughter to college or they might be worried about a simple thing like how they might get a

half a tank of gas in their car so they can get to the next job interview or maybe they are worried about a home repair that is critical, particularly this time of year when it is cold. what you will see is that it all depends on something. it depends on people having a job. for most of our fellow citizens, the best thing that we can do for them as public policy leaders is to make sure that we have an environment where we are doing those things to make it more likely that jobs are born to grow and that people who are entrepreneurs are going to take risk and start something and grow something and at employees and build a bill that -- ability of -- and build a building. we are born to grow not a government economy, but a private sector economy. when you ask the people who

actually do that, the people who are the engines of our small businesses and provide these jobs, there are pretty clear answers about what members of congress should do. as former governor, you have to keep my cost competitive. you cannot price me out of the market. you cannot do someing to make the burden heavier, you have to make the burden lighter. you have to give me confidence that the environment is going to be more encouraging, not less encouraging. as it relates to energy costs, as it relates to unemployment insurance costs, as it relates to lawsuits, all of those

things, together, add up a basket of costs that is the cost of doing business in new hampshire or massachusetts or minnesota or iowa o wisconsin. those costs are not a matter of rhetoric, right versus left or some political kabuki theater. you can see how we are doing. you can see how it compares. this country's costs are not competitive enough in a hyper competitive world. we need to have a great debate about the details of those categories that i mentioned, but the clear direction for our country as it relates to competing in this hyper- competitive global economy is to make this more competitive, not less competitive. principal number one is that if we want to grow jobs, listen to

the job providers. understand and implement those things that they say and grow the private sector economy and not a government and economy. the next one is hard. i know you have had only 1 cup of coffee. it is a little complex. i have been dealing with this for a lot of years. are you ready for this one? this is really important. here it is. we cannot spend more than we've .aken in - it is not that hard. but we have the government at all levels, particularly at the federal level, that have been spending money for a long time then they take can.

-- more money for a long time van they taken. they ke him. we had the wall street bubble. we had the housing bubble. we have the i.t. bubble and now we're goi to have the government bubble. need to hold our government officials to account. it has to live within its means. in my state, and generally, we are not under taxed. we pay enough in taxes. we have a government that needs to control its spending apatite and needs to get spending under control. people say that it is difficult. it is hard.

you have to understand the challenges that we are up agait. tell me about it. i came from minnesota to this breakfast. this is the land of hubert humphrey. this is the land of walter mondale. this is the land of jesse ventura. now it is the land of the united states senator al franken. if we can do this in minnesota, as frank sinatra would talk about new york, we can do it anywhere. we took the spending trajectory of my state which was 21% every o years for 40 years. that was the average spending pattern increase in my state. we got that down to a low over 1% a year during my time as governor. we were able to bring in government spending in a

historic way. we actually reduced government spending for the first time in a 150 year history of minnesota. of course, that is not easy when you are up again a culture that leans pretty hard the other way. there is a lot of hard work that went into that. including having the first government shut down in the 150 year history of my state. but the point was, we were not going to have business as usual. we will want to draw lines in the sand and we were going to get government to live within its means and we began to see a big change in my state. the unemployment rate is below

the nation average. the job growth rate was above the national average. since the crash, our unemployment rate is below the national average. we police had to get minnesota of the top 10 in taxes. in minneso, that is a big deal no governor ever did it. i did. these changes are possible. if we can do it there, we can do it anywhere. the first principle i want to leave you witis this. if you have a chance to go to policy seminars and stay up all night and watch cable television, i hope that you can do that. and there is great information available.

i know that many of you are busy and have busy lives. what you really need to know about government and government reform, you can get an abbreviated veron just by doing this. go to two weddings. go to one wedding where there is an open bar and the refreshments and the alcohol are free or perceived to be free. go to another wedding and they will have a cash bar and you will see two very different sorts of behaviors. if people think something is free,hat they do not have to be concerned about price or quality, they can consume it endlessly and only have to worry about the volume being provided. there is a myth created that the bill magically goes somewhere se and gets paid for and it is

" and " free -- is: " gosh region -- quote unquote free. >> someone asked who had a cash bar any more. as we change the systems, whether it's education or health care or anything else, whave to move in the direction of giving consumers or purchasers in charge of and responsible for decisionking. we have to give them good information about price and quality and performance measurements. we have to give them incentives to make wise decisions,

including financial incentives to make wise decisions as people provide service. we do not want the service to be a government monopoly where there is no accountability other than how much volume is provided. we then create the image or the myth that the bill goes somewhere else and disappears. like i said, that is too much of what we have in government right now. in health care, the answer is not to drag it into a state capital or washington d.c. and create a one-size-fits-all bureaucratically inspired staff and range of options that are limited model. that is not going to work. there is no notion that a government run monolith is going toe good. it is the wrong direction. i believe strongly that the

obamacare legislation takes the health care and the country in the wrong direction. the solutions that we have for that and for public policy more broadly is to say to consumers that you were going to be in charge and you can shoot -- and you can choose from a range of options. we will give you some guard rails and protection in terms of consumer protection. if y need financial help, we will give it to you directly in the form of a tax credit or a voucher or a stipend but you will be in charge of that decision making. to the providers of the service, we are going to say that we are not going to just pay you for endles volume, we want to pay you for things getting better, so in the area of health care, if i say to bill need for volume, what will i get? more volume. we have to pay for not just vome but outcomes.

minnesota has led efforts in this regard and we have an astoundingly good results. we said to our state employees that you can go wherever you want for your health care, but if you choose to go somewhere that is higher in quality and more efficient in terms of cost, you will pay less. if you go sewhere that is less efficient, you will pay more. guess where they go? 80% of our state employees migrated to higher-quality, more efficient providers and the cost of that program over five to seven years has been dramatically below theverage interstate. astoundingly good results. people are in charge and they have good information about price and quality. they have financial incentives to make financial decisions and it is working. let me close by telling you that our country faces a lot of challenges.

one is the federal spending issue. there is an opportunity to address it now than congress use ca order for them to spend more, they have to raise the debt ceiling that you may be hearing abt in the news. i wrote an op-ed in the washington post that was published sunday. it basically says not to raise the debt ceiling. the president has set this up as choice between defaulting on the national debt obligations and raising the debt ceiling. that is a false choice. in the country can pay its bills with the cash flow that we have in terms of the outsideebt obligations of the country so that if you take the issue of the fault of the table and what we have left is a debate about how to you prioritize and reform and reduce the discretionary spending that is left. we need that debate. it is coming. this nation is facing great challenges financially.

just because we followed grease into democracy, it does not mean we call them to the edge of bankruptcy. we need to stand up and look the american people in the eye and tell them the truth about how we got here and not just scare them. they are there. the answers are there. the question is, do we have the will to actually do it? it will not be easy. but if freedom were easy, everybody in the world would be free and they are not. if it were easy, everybody in the world would be secure. if prosperity were easy, everyone of rubble world would be prosperous. we have succeeded because we are a free nation. it sets us apart from much of the rest of the world for most of time because our people have the freedom to worship and to

associate and to dream and to invest and to take risks in ways and measures that most of the rest of the world does not know. it gives us a huge damage. but we are going to have to come together and put our head down and plow forward to a stronger and better future for our fellow citizens. settling the west was not easy. going to the moon was not easy. the heroism that we saw on flight 93 was not easy. winning world war ii was not easy, but we arehe united states of america. the people were given the task to help and they were frozen and fixed the problem, but it starts with engaged and involve citizens coming together and sharing ideas and holding public officials accountable for the results the results. that is why i am so glad you are here. thank you. i will be happy to take your

questis. [applause] >> i will give you my views on deficit-reduction. you look at a chart on deficits spending -- federal spending, if there is non- discretionary spending, that includes social security, medicare, medicaid, interest on the national debt and a few

other things. the red part is already over the halfway line on the pie chart. it is growing at such a rate that in 15 years, it will be over the 3/4 line on the pie chart. what is left in blue is defense spending. if we have as a goal, a nation that faces the security threats we face, to maintain our commitment to defense, the pie chart gets difficult to change unless you tackle head on the red part of the pie charts, the non-discretionary spending on the pie chart. there are a lot of things we can slow down and reform. the heart of the matter is being able to look the american people in the eye. we have a mathematical problem. it is junior high math. we can all see it. here is the commitment on

spendi. here are the revenues. it is not in dispute. what do we do about that? there are things we can all agree on. there is a reasonable dialogue in the country. on social security, we have to say, we have got toet this fixed. we have to get it fixed soon. here are some things we should agree on. as it relates to the cost of living adjustment in social security, not the whole program, i think we can say means testing is an ideal. amongst the suboptimal choices have in front of us, means testing, just a cost of living increase, is a reasonable step. what that means that in the future, if you are wealthy, your increase in social security will be smaller than if you are middle income, lower income, or poor. that will not solve the problem by itself. it will help substantially.

we now know the history of life expectancy is and how long people are living. i do not think you can chan the rules for people in the program. for a new people entering the program, we have to save the retirement age will be pegged to some reasonable correlation for life expectancy that is different from the way w do it now. we also have to give them the often -- the option of individual accounts if they want to choose that route. many in the younger generation would be comfortable with that. medicaid is a program that is growing at levels that are simply unsustainable. providing health care for the poor remains an important program for our country. the federal-state partnership needs to be fundamentally redesigned and overhauled. starting with this premise, let the states do it.

that the nation decide what we can afford to spend on this program. require the congress to come in every year to actually appropriates the money without a built in increase. block grants that money to the states and g rid of all of the micromanagement in the program. tell the only obligation or the money is to use it for health care for the poor. they have completereedom to reform its in a way that is suitable to their system. get the laboratories of the mark as the, the 50 states that compete an experiment with each other -- it the laboratories of democracy, the 50 states, to compete and sperry -- and experiment with each other. we have some dramatic examples of that when the federal government let the states do

that. medicare is a much longer answer. the short version is medicare was designed in the 1950's. it is largely a cost plus about him based system. if you have been historically a hi-cost provider, whether the results were good or not, you have been paid more. if you were in a more efficient ace, you get paid less. you have this weird upside-down in version in the results of the money that went out. in the mayo clinic, they get paid substantially less than places in the country where they have dramatically higher costs and worse results. all that we know about healt care reform in terms of consumers and purchasers been in charge, information about the quality of the market, centivizing providers, as we

have done in minnesota, medicare looks nothing like that. it needs to. ere is a lot under the hood of that statement. that is the direction we need to go in with medicare. we are going to have to slow down and prioritize what we do on the discretionary side. not all that the government does is of equal value. i said to the state, we are not reducing military veterans, national guard, or related programs. we will not reduce corps public safety programs. we will try our best to make sure we maintain our commitment to k-12 education. everything else got reduced cause it was not as high a priority as the rest of the stuff government does. another thing i did not talk about in the interest of time i will mention now. in a country of 309 million people is not going to be the world's biggest country. it is not, demographically.

if we are not going to be the cheapest place, we need to be more competitive. if we are not going to be the biggest or the cheapest, we have got to be the smartest. there is a whole agenda around and reforming our education system to make sure all of our citizens have an education or skills that is relative -- relevance to the economy today and tomorrow. the biggest factor on how a child will do in school is their parents. we cannot legislate good parenting. if you have some ideas, let me know. the second most important determining factor in a child's educational success is the quality and professionalism of their teacrs. there is an argument around the country about who is going into teaching and whether they are properly prepared as they enter that profession. before we let them into the

colleges, do we have some minimal expectations before we let them in. are we making sure they have subject mastery before we let them in? do we have a minimum expectations about what they know? once they enter the teaching profession, are we properly trning, developing, and supervising them so we can see who is effective and who is not? if we cannot make them effective quickly, how do we remove them from the profession? i will not go into the details of that. we were the first day in the nation to offer statewide performance pay for teachers and begin to change the mentality and culture firm, we are going to pay most of the money on the issue of how many years you have been around to where it went to pay the moneon whether students are learning. i do not know about you, b how many of you get paid f how

many years you have been around? i do not-teachers. we celebrate and respect teaching -- i do not bash teachers. we celebrate and respect teaching. there are some who accept the status quo and block some of these kinds of changes. our country cannot succeed with 1/3 of our children dropping out of high school and being unprepared to work in the 21st century. it is not going to work strategically. those of us who know that my stand up and loothese interest groups in the eye. i will not name them, but we know who they are. we are not going to put an adult organization in front of the interests of our children. [applause]

>> thank you for coming to new hampshire. nice to see you again. one of our biggest problems is getting the economy going again. as a busins owner, we deal with taxation issues all the time. the united states has one of the largest corporate tax rates in the world and our competitors have some of the least. what is your recommendation on how we stimulate the busess economy so that it picks up and we can hire people again? >> our tax rates in america are too high. if you compared the american tax rates to oecd nations, it is too high. it needs to be reduced. there is one other aspect of tax reform i would suggest we look at. we need toave our tax system be flatter, more transparent, and more simple and user- friendly. i would like to see a law

passed that every member of congress should have to complete his or her own taxes without a tax professional under penalty of perjury. [applause] i filled out a w-9 form. it was one half of a page, but came with a papal of instructions. it is so frightening -- it came with half a page -- can with a page of instructions. it scares people from being entrepreneurial. we get debate in the country about your marks on the spending side. i agree with that complely. but let's also expand the debate to the earmarks in the tax code.

we have a system where thousands of pages are dedicated to whether some interest groups got the right lobbyists to go down to washiton, d.c. and get this little thing in the tax code. let's lower rates for as many as possible. let simplify the system in the direction, and the spirit of what ronald reagan did in the early 1980's. let's also remember that the bulk of the job growth comes not just from our large companies that pay the couple -- pay the corporate tax rates. the bulk of t dow growth comes from medium and small -- job growth comes from medium and small businesses. they do not use or utilize the corporate tax rate. and if we are serious about inspiring large companies and large -- large companies and

medium and small businesses, we have to reduce the individual rate and create an exemption on business proceeds for individual returns. there are a lot of good ideas. all of them would be helpful and stimulus to of. the general goal is to get as many of -- all of them would be helpful and stimulus to give -0- imulative. i would clean out all of them and have them as a taxable for the country. next question? >> thank you for being with us today. you talked about health care an competition, particularly in the prescription drugs, which

people use when they get older. how you feel about the secretary of health and human services negotiating as they do in other countries? what do you feel about legalizing getting prescription drugs from select countries? >> thank you. good questions. on the issue of importation of prescription drugs from state countries like canada, -- safe countries like canada, i think we should be open to that. canada has a distorted system in that regard. their argument is, it cannot import from canada. we can report everything that we can import everything from communist china b we cannot allow grandma to get her drugs

from canada? congress has taken a run at that many times. th have never had the votes to get it done. on the issue of negotiating inspection drug prices, i do not think we want the -- negotiating prescription drug prices, i do not think we want the government to do that. i think the future should be about trying to empower citizens and purchasers and give them good information and let them make their own choice in health care. some people might want to choose a health savings account. some people may want to use a place like the clinic and had it back up with catastrophic care. if government is in bald -- if government is involved in some fashion, they negotiate that on their own behalf for their programs. >> tom horgan with the college

and university counsel. -- university council. congress is talking about states -- congress is talking about allowing states to declare bankruptcy. what do you think about that? >> the question is that congress is looking and allowing states to declare bankruptcy. as i said earlier, we are going to have a government bubble. we need to pop the bubble in a way that is least destructive and harmful. it is a bubble. it is not like general motors or chrysler or these other countries -- these other companies where you have management and labor running up money so high for so long that no reasonable assumption about revenues will allow the picture

to catch up with itself. it was reckless and now the chickens have come home to roost. you are going to see new york and new jersey, places that were particularly large in the nkrupt division that are going to have to reconcile this first. how does general motors do it? they run to the federal government for a bailout. we should not bail out the states. the politicians are like water going down hill. it goes to the point of least resistance. we have to make sure we give them the courage to make the tough decisions. do not bail out the states. forced them to reconcile their decisions and fix the mess. number to, if you are general motors or chrysler or these other countries, they run to a bankruptcy court. someone comes out of a room with a black robe pen gives you a do

over. we should force the system to sell their own problems. the federal bankruptcy laws allow municipalities to have that kind of restructuring. it does not allow the states. it is worth looking at or considering. i prefer that we do those stains that would force the states to fix their own problems. at the state levels, they have balanced budget requirements in 49 out of 50 states. they have to fix the problem if you do not bail them out. if they have no result, some creditor is going to get a court order saying you must pay. judges in the courts will start weighing in on tax policy and how to pay those bills. i think it is rth considering. ok. thank you for listening and

thank you for coming out this morning. [applause] thank you. >> you have to do one for him, too. put today's daten it. >> it is the 20 cents today, right. >> right. this one in is to mike. e -- and you have to sign my egg, too. i take this very seriously. with the date.

i will remember you forever. >> thank you. thank you for being here this morning. you are nice. >> will you sign my egg as well? >> of course. >> we appreciate you being here today. >> thanks, ken. >> a little tricky. >> they are a little slippery. hi, heather. how are you? >> i am well. thank you for coming. >> i was glad to do it.

>> good to meet you. >> the to meet you. -- goodo meet you. not an easy place to tackl.e e. have a great today.

>> thanks for everything. >> happy to do it. >>ou were worth the wait. >> how is life for you? >> terrific. >> thank you for coming in. quite happy to do it. >> it is a traditional day to come in.

a little snow. >> have a great today. >> i am back again. >> i enjoyed your remarks very much. [unintelligible] >> thanks. good luck.

>> one of the interns in my office introduced herself to you. hi. how are you? >> good. it was good to hear some common sense. i hope it catches on. >> thank you. take care. >> if you can just sign. i still want to go to heaven. die.t don't want to

>> thanks again. i appreciate it. how are you doing? good to see you. good morning. >> i wrote this because i am thinking about running for state rep.

minutes. >> this hearing of the senate judiciary committee will come to order. i want to thank chairman leahy for allowing me to convene this hearing. he is expecting to be sure. the title is "the constitutionality of the affordable health care act." this is the first hearing on whether the law complies with the constitution. i would like to thank the chairman and also my friend, the ranking member of the senate judiciary committee, senator chuck grassley.

after our statements, we will turn to the witnesses in seven- minute rounds. when judge benson of the northern district of florida made a ruling monday striking down the act, it must of caused concern across america. many americans who are counting on the provisions of that law are in doubt about its future. senior citizens were hoping you close the doughnut hole of that gap in medicare prescription drug coverage. they will wonder what it means, whether they need to return checks that were sent to them, or when the next check will be sent in the future. many americans will be in doubt, those who were 25 and eligible to be covered by their parents

and family health care plan may have questions, cancer patients who joined the high-risk pools may have doubts, small businesses who thought tax credits were coming their way might be asking members of congress what it means. i want those millions of americans to know they should not despair. they should reflect on the simple history of major legislation in america. this is not the first major law that has been challenged in the courts as to its constitutionality. let me mention two or three others. the social security act, the civil rights act of 1964, and the federal minimum wage law, all of those successfully challenged in lower courts but unanimously upheld by the supreme court. i think the same thing will happen with the affordable care act. for those who are keeping score, as to the challenges in federal courts to this law, make certain

that you know the numbers. 12 federal district court judges have dismissed challenges to this law. two have found it to be constitutional. two have reached the opposite conclusion. how is it possible that these federal judges, 16 different judges, who not only studied the constitution but swear to uphold it, can come to different conclusions? i think those on the judiciary committee understand that many people can read the constitution and come to different conclusions. it is not likely we will produce a national consensus in this crime, maybe not even agreement with those in attendance. if we serve the congress by laying out the case on both sides, i think this is a worthy undertaking. at the heart of the issue is article 1, section 8, enumerate in the powers delegated to congress. one side argues that with the passage of the affordable care

act, congress would be on that authority. the other disagree. within those powers as one described by one constitutional scholar as the plainest in the constitution, the power to regulate commerce. the threshold question is, the health care market in america, commerce? i think the answer is obvious. the supreme court will decide. over the course of history, the court has interpreted this plainest of powers through its application of the founder's vision to current times. whether it was roscoe still burn growing wheat to feed his chickens in 1941 or someone using homegrown marijuana to treat chronic illness in 2002, the justices from robert jackson to and in scalia -- anton scalia have made decisions on

precedents for courts. sometimes, lower court judges, many might be characterized as activists by critics, try to make new law. this has happened in florida and virginia. judges have ignored the precedents and created a new legal test distinguishing activity from inactivity, a distinction that cannot be found anywhere in the constitution or supreme court precedent. this is historic. i have had four opportunities to meet in this room and to interview prospective nominees to serve on the u.s. supreme court. they all stand with photographers and the cameras are rolling. they hold up their hands and take the oath. then they sit and answer questions, many times for days. the questions that are asked is whether or not they're going to follow the constitution, or whether they are going to be

judicial activists. that is the standard that should be applied as we consider the future of the affordable health care act. i believe if the justices of the supreme court applied the precedents, look of the clear meaning of the constitution, they will find this constitutional. when the act comes before the supreme court, i am confident they will recognize that congress can regulate the market for health care that we all participate in, and that it can regulate insurance. the political question focuses primarily on one section. even if congress has the enumerated powers under section 82 tax and pass laws affecting the health care market, and did it go too far in requiring that individuals who do not buy health insurance coverage face a tax penalty? returning to article 1, section 8, allowing congress to make all

laws necessary and proper for carrying into execution the foregoing powers, the supreme court just last year said the necessary and proper clause makes clear that the constitution's grant of specific federal legislative authority are accompanied by broad power to enact laws that are convenient or useful or conducive to that authority's exercise. the test is whether the means is related to the implementation of a constitutionally enumerated powers. is an individual mandate rationally related to congress's goals of making health care more affordable and prohibiting health insurance companies from denying coverage to those with pre-existing conditions? it is clear to me. the private health insurance companies could not function if people only bought coverage when they faced a serious illness. it is worth noting that many who argue the affordable care act is unconstitutional are the same people who are critics of

judicial activism. they are pushing the supreme court to strike down this law because they could not defeat it in congress and they're losing the argument in the court of public opinion, were four out of five americans oppose repeal. why is public sentiment not lining up behind the repeal effort? because a strong majority of americans do not believe their children should be denied insurance because of pre- existing conditions. they want to cover their young adult children under family plans. they believe small businesses should be given tax credits to cover insurance for employees. they oppose caps on coverage and cancellation of coverage when people need the most. with many parts of the world in turmoil abridging turmoil today over questions of freedom, we should not forget that the strength of our constitution lies in our fellow citizens to put faith in its values and trust the president, congress, and the court to set aside the politics of the moment and fairly applied 18th-century rhetoric to 21st century

reality. i want to recognize senator grassley. >> thank you. i appreciated it the discussion of some of the policy issues within this legislation. whether you agree parts of this bill are very good, parts are very bad, things that ought to be thrown out, things that ought to be put into it that maybe are not into it, are all legitimate issues, but the real issue for us today is on the constitutionality of it. i think we're very fortunate in this country to be under the rule of law, under that constitution. we are fortunate to be probably the only country out of 190 on the globe that degree in the principle of limited government, and that is something we not only appreciate, it is something we should worship and something that ought to be considered.

the american people are a very special people for that reason. i look forward to those issues. we agreed on the issue, we move forward. if it is not constitutional, we start over. all of the policies that are in dispute that my colleague mentioned would be continued if this is constitutional. if it isn't, then we will debate those issues once again. the florida judge ruled on the constitutionality of the new health loss this monday compared the government's argument to alice in wonderland. that reference applies equally to today's hearing. things are getting curiouser and curiouser. under our system of enumeration powers, the sensible process would have been to hold a hearing on the constitutionality before the bill passed, not

after. instead, the congress is examining the constitutionality of the health care law after the ship had sailed. like alice in wonderland, sentence first, verdict after. what has gotten us to this point? early in debate, republicans and democrats agreed that the health care system had problems that needed to be fixed. i was part of the bipartisan group of senators on the finance committee who were trying to reach an agreement on comprehensive health reform. however, before we could address some of the key issues, some democratic senators in the administration ended these negotiations. the majority took discussions behind closed doors. what emerged was a bill that i feel has major problems beyond constitutionality. republicans argued that instead of forcing it through the senate, republicans and democrats should return to the negotiating table to find common

sense solutions that both parties could support. the plea went unanswered. the majority passed the health care law without a single republican vote. when republicans identified specific concerns, such as the constitutionality of the individual mandate, we were told our arguments were pure messaging and obstructionism. throughout the debate, the majority argued that the individual mandate was essential for health reform to work. there are many constitutional questions about the individual mandate. is it valid to regulate interstate commerce? reality is that no one can say for certain. the nonpartisan congressional research noted it was on precedent for congress to require all americans to purchase a particular service for good. the commerce clause allows regulation of a host of economic

activities that substantially affect interstate commerce. no dispute about those decisions. it has never been before allowed congress to regulate in activity by forcing people to act. what is clear is of this law is constitutional, congress can make americans buy anything congress wants to force you to buy. the individual mandate is at the heart of the bill. my friend senator baucus said at that mark-up back in september, 2009, the absence of a requirement of a shared responsibility for individuals to buy health insurance guts the health care reform bill. the supreme court can strike down the individual mandate, it is not clear that the rest of the law can survive. the individual mandate is the reason the new law bars

insurance companies from denying coverage based on pre-existing conditions and the sponsors made the mandate the basis for nearly every provincial law. judge vincent's ruling that the whole law must be stricken reflect the importance of the mandate to that overall outcome. then there is the medicare issue before us. does the new law amount to coercion of the state? some of my colleagues on the other side of the aisle may even make the case today that even though i don't think that there really promoting that as a viable option for the states, if a state drops out of medicaid, the new health law states

clearly that none of that state's citizens would be eligible for tax credits, because people with incomes at medicaid eligibility levels can never be eligible for tax credits. the idea that the federal government could, through the medicaid program, drive the single largest share of every state budget seems very inconsistent with the objectives of a federal system of government. at this point, mr. chairman, i asked that the statement be placed on the record. i'm interested in hearing from the witnesses today. ultimately, we all know the subject of this hearing is finally going to be determined by the supreme court. thank you very much. >> thank you, senator. that statement will be made part of the hearing. i want to invite my colleagues on the democratic side to come closer. i ask now if this panel of

witnesses would please stand and take the oath. please raise your right hand. these where the testimony you're about to give will be the truth, the whole truth, and nothing but the truth, so help you god? thank you. let the record reflect that all the witnesses have answered in the affirmative. there will be given five minutes for an opening statement. we have seven-minute rounds. our first witness is john kroeber of oregon. he was elected in 2008. he has a national distinction in the fact was nominated by both the democratic and republican parties. he is a bipartisan attorney general from the state of oregon. he and others recently filed a brief before the sixth circuit in support of the constitutionality of the act. he served as a u.s. marine, a law professor, a prosecutor, a

member of the justice department's task force. he served in a multi agency emergency response team that investigated the 9/11 attacks. he received his bachelor's and master's -- pastors -- bachelor's and master's degrees. thank you for being here today. [inaudible] >> thank you. i am the attorney general of oregon. over the course of my career, i've taken a note to defend the constitution. i take that obligations seriously. i'm confident that the affordable care act is constitutional and will be judged constitutional. the region for that confidence is simple. there have been four primary arguments raised in litigation challenging the bill. i believe all four are without

merit. want to review the arguments and explain why i think they have no merit. the first is that the commerce clause by its own terms only regulates commerce. the argument is that declining to get health insurance is not commerce, but refusing to engage in commerce, and falls outside the power of congress to regulate. this is extraordinarily weak. it was explicitly rejected in a case where the courts held " congress can regulate purely intrastate activity that is not in itself commercial." that belief was dated and not just the majority opinion, one by justice kennedy, but in the concurrence from justice scalia as well. the argument is dangerous. the gonzales opinion provides the foundation for federal criminalization of our laws banning the home production and

home use of child pornography and dangers of drugs like methamphetamine. the prosecutor overturning it would be a disaster. the second argument that has been raised is based on the activity-inactivity distinction. in peru as verses united states, the supreme court spoke of the clause regulating activities. opponents have used this language to raise a novel argument that the constitution prohibits the regulation of an activity -- inactivity. it claims that declining to buy insurance is inactivity. there are three serious flaws with this argument. the distinction has absolutely no basis in the text of the constitution. second, the court recognized in both the wicker and carter

decisions the congress can regulate activities and conditions. i believe that would also apply to the condition of being without health care. third, people lack insurance because businesses don't offer it to their employees, insurance companies declined to extend it for pre-existing conditions, or individuals failed to select it and pay for it. some lot of choice, some because they cannot. all of these are action with real world and often very tragic consequences. the constitutional fate of a great nation cannot be decided by semantics and word games that label real-world actions as in activity. the third argument, steadied by some litigants and by some courts, is that the supreme court has never interpreted the constitution to allow congress to force individuals to buy a product. this argument is inadequate --

inaccurate. this was raised and rejected by the court in the weaker case. in that case, the. it argued that as the result of an act, he would be forced to buy a product, food, on the open market. mr. justice jackson wrote, "the claim was that congress was "forcing some farmers into the markets to buy what they could provide for themselves." this claim is identical to those raised in litigation. they would rather self-insure and pay themselves. justice jackson rejected the claim, holding that these kind of questions are "wisely left under our system for the resolution by the congress." again, strongly supporting the

constitutionality of the affordable care act. finally, critics claim the personal responsibility mandate interferes with constitutionally protected liberties. i find this argument odd because the constitution does not create or protect the freedom to freeload. right now, we have 40 million americans who don't have health care coverage. those 40 million people have the right to go to a hospital emergency room. hospitals are legally required to provide that care. as a result of that, they racked up approximately $40 million -- $40 billion in health care fees every year. the opponents of the bill claim that this cost-shifting is constitutionally protected. i suggest there is no constitutional right to force other people to pay for your own

health care when you declined to take responsibility for yourself. thank you very much for your time. >> thank you, general kroger. our next witness is a professor who is a renowned scholar of constitutional law. he served as solicitor general under ronald reagan from 1985 until 1989. he worked in the reagan administration as special assistant to the attorney general. from 1995 until 1999, he served as associate justice of the supreme judicial court of the state of massachusetts. he received his b.a. from princeton, a master's from oxford. professor, thanks for joining us today. please proceed. >> i should just add to that statement that i have two of my former students here, professor barnett, and attorney general

kroger. i taught him constitutional law. i come here not as a partisan for this act. i think there are lots of problems with it. i'm not sure it is good policy. i am not sure it will make the country any better. i am quite sure that the health care mandate is constitutional. i have my doubts about the part that senator grassley mentioned with the medicare -- medicaid compulsion on the states. that is something to worry about. the health care mandate, i think, really is -- i would have said a no-brainer. such indulge in brains go the other way. clearly, insurance is commerce. that was upheld by the supreme

court in 1944. there was a time when the supreme court did not think it was commerce. it has been ever since. if you look at the mountain of legislation, most noticeably some legislation, you see that the congress and the courts obviously think insurances commerce. health care, surely health care insurance surely as commerce, insuring something like 18% of the gross national product. if that is so, if health care insurance is commerce, then does congress have the right to regulate health care insurance? of course it does. my authorities are not recent. they go back to john marshall, who sat in the virginia legislature at the time they're

ratified the constitution, and who come in 1824, said regarding congress's commerce power, "what is this power? it is the power to regulate. that is the prescribed rules by which commerce is governed." to my mind, that is the end of the story. the constitutional basis for the mandate, the mandate is a rule, more accurately, part of a system of rules by which commerce is to be governed. if that weren't enough for you, though it is enough for me, you go back to marshall in 1819, where he said, "the powers given to the government imply the ordinary means of execution. the government which has a right

to do enact, surely to regulate health insurance, and has imposed on it the duty of performing that act, must, according to the dictates of reason, be allowed to select the means." that is the necessary and proper clause. the end -- he ends by saying that the regulation of health insurance, let it be within the scope of the constitution and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consistent with the letter and spirit of the constitution, our constitutional. that, to me, is the end of the story. i think that one thing about judge vincent's opinion, if we strike on the mandate, everything else goes, shows as

well as anything could that the mandate is necessary to the accomplishment of the regulation of health insurance. is it proper? there is an intellectual confusion here. something is necessary. this is clearly necessary. it is improper only if it bumps up against some specific prohibition in the constitution the only prohibitions' i can think of that this bumps up against are the liberties causes of the fifth and 14th amendments. if that is so, not only as obamacare unconstitutional, but so is romneycare in massachusetts. that is an example of an argument that proves too much.

thank you. >> thank you very much, professor pierre the next witness is a partner in the d.c. office in a law firm, where he specializes in constitution law. he was the deputy assistant attorney general of the dust is rigid justice department's civil rights division. he was one of the lead lawyers in the florida supreme court on behalf of president george w. bush in the recount controversy. he received his b.a. from tulane university. thank you for being here today. please proceed. >> thank you for the opportunity, senator. the individual mandate compels citizens to engage in -- and contract with a wealthy corporation, even though often, and crabs usually, it is to the citizen's economic disadvantage to engage in that health insurance when he is healthy and

does not need insurance. it is agreed this is unprecedented. congress has never before required a citizen to engage in contractual or commercial activity pursuant to the commerce clause. we have heard today this difference is a material. there's no difference between regulating inactivity and regulating activity. regulating someone who has decided to contract and has entered the commercial marketplace. under this reasoning, that means that because we can tell gm how to contract with its customers when they decide to buy a car, or how to contract with employees in terms of workplace conditions, since there is no difference, we could compel somebody to contract with general motors to buy a car or to enter into an employment contract. the gist of my remarks is this is not some semantic trick, something we came up with in response to the health care act.

it is a core principle that goes to the most basic constitutional freedoms and limits on federally enumerated powers. in the first place, insurance is commerce. that is not the issue. the issue is rather if inactivity is commerce. sitting at home and staying out of the marketplace is not, as. it becomes, as if you leave your house and decide to buy or sell services. then you have congress, which can regulate. the decision not to buy health insurance does not affect commerce, unlike the examples we have heard in terms of the plaintiffs in wicker. they were providing goods that would enter the commercial mainstream. they were providing goods that were the sort that congress was free to regulate under the interstate commerce. the decision to sit at home does not affect the insurance company's ability to contract

with a citizen. the rationale for the individual mandate is not that you're eliminating a barrier to congress. the rationale for the individual mandate is you are ameliorate in a congressional distortion of commerce. congress told insurance companies that they had to take people with pre-existing conditions. that is good for the patient. it is costly for the insurance companies. what we are constructing the american citizens to do is to ameliorate the economic harm that congress has visited on those insurance companies. this is not in any way within the traditional conference power. congress can tell someone not to grow wheat. what it cannot do is tell his neighbor that he has to buy some other crops to ameliorate the harm that congress has put on him by banning is weak. this is different in degree and

kind. it is without limiting principle. in the florida case, the more congress can distort in the first place the commercial marketplace, it can bootstrap that original distortion into regulating all sorts of things, all sorts of contracts, from credit cards, to cars, to mortgages that it could never get that in the first instance. it is also not proper. mr. fried suggests it is fine to compel people to contract. recently, the court said you could not force coal companies to provide health insurance contracts to former miners. it forces citizens to contract with a wealthy corporation to ameliorate the corporations loss of profit. that is proper, there's nothing that congress cannot do. what is the limiting principle that is being suggested here and elsewhere?

i used to call it the due process clause. it suggests that will limit congress's power. that is a restriction on the state's. they concede that the only limitation on congress's enumerated powers is the same as the limits on the state's plenary police power. the supreme court is clear about anything, it is that you cannot to obliterate the distinction between the limited federal government and the state government. if you do that and advantage commerce clause analogy, which eliminates that distinction, that alone shows you it is an abuse of the commerce power. thank you. >> thank you very much, mr. carvin. the next witness is randy barnett from the highly regarded georgetown university law center. he teaches international law. he previously served as prosecute -- prosecutor in cook

county. he has been a visiting professor at harvard law school. of particular relevance, he argued the commerce clause case of gonzales, which we have heard reference to. thanks for coming today. please proceed. >> thank you, senator. in 2010, something happened in this country that has never happened before. congress required that every person enter into a contractual relationship with a private company. it is not as though the federal government never requires you to do anything. you must register for the military. you must submit a tax form, fill out a census form, and served on a jury. of the nature of these few duties illuminates the truly extraordinary and objectionable nature of the individual insurance mandate. each of these duties is inherent in being a citizen of the united states. each is necessary for the operation of the government

itself. each has traditionally been recognized. in the u.s., sovereignty rests with the people. if congress can mandate that you do anything that is convenient to its regulation of the national economy, that relationship is now reversed. congress would have all the discretionary power of a king and the people would be reduced to its subject. the defendants of the mandate claim that because congress has the power to draft and the military, it has the power to make you do anything less than that, including mandating that you send your money to a private company and do business with it for the rest of your life. this does not follow. the greater power does not include the lesser. no one claims that the individual mandate is justified by the original meaning of the commerce clause. the government and those law professors who support the mandate rest of their arguments exclusively on supreme court decisions. given the economic mandates have never before been imposed on

people by congress, there cannot possibly be any supreme court case expressly upholding such a power. in my testimony in a forthcoming article, i explain my nothing in current supreme court doctrine on the tax power or necessary and proper clause justify the individual insurance mandate. rather than impose a tax on the people, congress decided to invoke its regulatory powers under the commerce clause. because the commerce power has never been construed to include the power to mandate a person must engage in economic activity in litigation, the government has been forced to rely on the necessary and proper clause. the individual mandate is neither necessary nor proper. it exceeds the limits currently placed on the exercise of a necessary and proper clause provided by the supreme court in the lopez and morrison decisions. the mandate is not necessary to "carry into execution" the

regulations being imposed on insurance companies. it is being opposed to ameliorate the free ride effect created by the act itself. congress cannot bootstrapped powers this way. in testimony, i explained by the individual mandate is improper because it commandeers the people in violation of the 10th amendment that reserves all powers not delegated to the constitution -- to congress by the constitution "to the states respectively, or to the people." apart from what the supreme court has said about congress's power, each senator and representative takes his or her own nose to uphold the constitution. each must ship -- each must reach his or her own judgment. after the supreme court relied on the necessary and proper clause to uphold the constitutionality of the second national bank in case you will hear a lot about today, president andrew jackson vetoed

the renewal of the bank because he viewed it as unnecessary and improper. therefore, he found it to be unconstitutional. he wrote, "in our power is so absolute that the supreme court will not call into question the constitutionality of an act of congress, the subject of which is not prohibited and is really calculated to affect any of the obstruction to government, it becomes us to proceed in our legislation with the utmost caution." therefore, regardless of how the supreme court may rule, each of you must decide for yourself whether the mandate is truly necessary to provide for the portability of insurance, if one changes jobs or moves. each of you must decide if commandeering that americans enter into contractual relations with the private company for the rest of their lives is a proper exercise. if you conclude that the mandate is either unnecessary or

improper, let president jackson -- like president jackson, you're obligated to conclude it is unconstitutional and support its repeal. even if you do not find that the mandate is unconstitutional, this week's ruling in florida suggests there is a good chance that the supreme court will. you might want to consider a constitutional alternative to the individual mandate sooner rather than later. thank you. >> thank you very much, professor. our final witness is the douglas g. mags professor at duke university law school, a partner in chair of the appellate practice law firm here in washington, he served as acting solicitor under president clinton from 1996 until 1997, and was an assistant attorney general from 1993 until 1997. he is a graduate of the

university of north carolina law school. we're glad you're here today. please proceed. >> thank you very much, senator. the coming together of the american colonies into a single nation was more difficult than we can imagine. come together as they did come in the summer of 1787, they created the greatest common market the world had ever seen. john marshall characterized the power to regulate the commerce of that nation has the power to regulate that commerce which concerned more states than one. the notion put forward by those who have seen these losses as it is beyond the power of congress to regulate the markets and to make efficient the markets in health care and health insurance that comprise 1/6 of the national economy. it is an astonishing

proposition. the arguments are essentially that it is novel and has not been done before, and that crazy things will be done if it is accepted. neither of those arguments pass muster. each of them are the same arguments that were made when the challenge was brought with the social security act of 1935. first, this is a regulation not like those in the cases of morrison and lopez, of local, noneconomic matter. this is of economic matters, as professor fried has put it well. it is a regulation that is critical to the provision that prohibits insurance companies from denying coverage to americans because of pre- existing conditions because a child is born with a birth defect. a lawyer is said to be someone who can think about one thing that is inextricably related to

another thing without thinking about the other thing. the excellent challengers to this legislation want to do that. there is no dispute over the proposition that congress can regulate insurance contracts and say you cannot turn them people with pre-existing conditions. you cannot turn down people because children are born with birth defects. that being the case, and the fact that judge vincent agreed that it is necessary and essential for the act to operate and to provide a financial incentive for people to maintain coverage generally, those provisions are inextricably interlinked. mr. carvin says the provision that prohibits insurance companies from denying people with pre-existing conditions, he calls that a congressional distortion. i think most americans are now assured that when they change jobs, they will not lose

insurance. if they have a child born with the defect, they will lose insurance. they think of that as the regulation of the market, which congress has ample authority to make effectively. the fact that something is within the commerce power is does not mean it is permissible. is this so intrusive that it should be carved out of the commerce power? the answer is, it is rather on remarkable. -- unremarkable. only if you go to work and earn taxable income to the penalty provisions apply to you. if you go to work, one of the things you find out is the government takes a 7.5% from you and your employer for social security, 15% if you are self- employed. they take additional taxes for medicare. then, for coverage after you're

65, for coverage before you're 65, 2.5% financial penalty if you don't maintain coverage. it is extraordinary to think that something that gives you more choice, that allows you access to the market, is somehow so intrusive that it has to be carved out from the commerce clause. of course, it has not been done before. every new act of congress is something that has not been done before. that mode of reasoning is found to be indefense of. will it lead to an expanse of congressional power? it will not. congress -- the liberty clause as prevent anyone from forcing americans to eat certain vegetables or go to the gym. what about the fact that this is something that provides an incentive to buy products in the

private market? i never thought i would hear conservatives say there is something intrusive about buying products in the private market and about having a single government provider. that is the sense of their government. is there a precedent for doing that for any product? not at all. this product has characteristics that would limit the application. it is a market that no one can be assured they will not tender. you never know when you're going to be hit by a truck and have thousands of dollars of expenses and medical care, which you're guaranteed to be provided by the act. if my teammates the super bowl and i had not provided for a flat screen television, i cannot show up and expect them to provide it to me. with health care, no one can be sure they won't need it.

94% of the long term money injured have use medical care. at the end of the day, it does not remarkable that this market is when congress is using a market mechanism to encourage participation. the attacks against -- the attacks against it are reminiscent of those made against social security. the supreme court rejected the idea that if you could set the aged 65, you could set it at 30. at the end of the day, i think what the challenges to judiciary review is one we've seen before. step back from that precipices and say, we will not stand in the way of social security. at the end of the day, i think the supreme court will not stand

in the way of something that is less intrusive and respect the autonomy of america. thank you. >> thanks mary much, professor. we of been joined by senator patrick leahy. i would like to give him an opportunity. >> thank you very much. i think senator durbin for holding this meeting. i thought this was an extremely important one and a very timely. i must say i have no doubt about the constitutional authority. professor barnett, the law school we attended. we should look at our oath of office. we do. i can remember vividly taking that oath.

i repeated to myself all the time. i think most of us do. we had arguments on the constitutional issue. during the senate debate, i talked about those arguments. i responded to them. the senate voted on the constitutional issue. it formally rejected the constitutional point of order. it said the individual requirement was not constitutional. we voted on it. we voted the act was constitutional. two courts have ruled it is not. two have ruled it is. we all know ultimately it will go to the supreme court. professor fried -- we have all profited by the testimony saying that we're not going to question the policy, about the pot --

about the constitution. i appreciate that. it was not novel. it rested on a centuries work of building on our safety net in this country. the opponents continue their political battle by challenging the law minutes after president obama signed it into law, within a few days. they wanted to achieve in courts, but they were unable to achieve in congress. this was debated for over a year -- most of the year, countless hearings, countless debates on and off the floor. millions of americans have access today because of the

affordable care act. parents would have children in school and college they could keep on their policy until there 26 years old. if you have a child with juvenile diabetes, they cannot be reduced because of a pre- existing condition. there are a whole lot of things that eliminate discriminatory practices. making sure a patient's gender was no longer contingent of pre- existing conditions. think about that. we're talking a gender being a pre-existing condition. we have added important tools. taxpayer dollars lost to fraud and abuse in the health care system. senator grassley and i may have disagreed about the health care bill itself. we agreed on going after fraud and abuse in the system.

senior citizens would now pay less for their prescription drugs. i realize there was it -- the realize they're looking for a victory they could not secure in the congress. that is happened many times over the course of this country. i would hope that the independent judiciary will act as an independent judiciary, and will be mindful as the justice was when he upheld the constitutionality of social security 75 years ago. " whether wisdom unwisdom resides is not for us to say. the answer to such inquiries must come from congress, not the courts." i agree with that.

mr. chairman, i will have some questions for the record. compliments to you for doing this. this is as important a hearing as being done at this time. >> thanks a lot. we appreciate that during much. i would not invite my former professors to ask me to judge my performance as a senator. i will not ask the chairman to issue another grade to professor barnett. he had that chance once before. i would ask you to comment about one of the statements made by professor barnett. it relates to the question of whether this is a unique situation where we are imposing a duty on citizens to either purchase something in the private sector, or face a tax penalty. i would like to ask you to

comment generally. specifically, i'm trying to go back to the case involving roscoe fill burn. he objected to a federal law that imposed a penalty on him if he grew too much wheat. he argued before a court that the wheat was being consumed by him and his chickens. as a result, the law went too far. i think the net result of a law is that he faced a penalty -- or complied with the requirement, and had to make a purchase in the open market to feed his chickens. is there an analogy here? would you like to comment on this notion that it is unique and the law requires a purchase on the private market? >> charles? >> i told professor barnett -- i

taught him constitutional law. that case can be distinguished only if you say, after all, mr. filburn didn't have to eat, and his chickens didn't have to eat. that is an absurd argument. i think mr. dellinger pointed that out. that is like saying, if you could make a commitment that you will never use health care, but you will never visit an emergency room, that you will never seek a doctor, then you should be free not to enter the system. that is silly. that is the first point of non- distinction. there is another point that is made.

i get a little hot under the collar when i hear it. that is that this turns us into -- from citizens into subjects. judge vincent also said that those who threw the tea into boston harbor would be horrified at this. let me remind you that the citizens of the early united states were well acquainted with many taxes. remember the whiskey rebellion. the reason they threw that tea in the harbor was taxation without representation, in parliament that they had not elected did this to them. well, the people elected a congress. in 2010, the change to the congress. that is why we are not subjects, why we are citizens.

>> professor barnett, you and mr. carvin have alluded to the activity-inactivity distinction. tell me what case you look to for president or what part of the constitution you refer to to come up with this approach. >> there's nothing in the constitution that says congress has the power to regulate economic matters. there's nothing that even says that congress has the power to regulate activity that has a substantial effect on interstate commerce. there is no former doctrine. as for the substantial tax, that is given by the supreme court. i have been operating reading my testimony is based on what the supreme court has said. the supreme court has referred to the congress's power and authorized congress to exercise its power to regulate the activity coming economic activity. that is what it says.

justice scalia had a concurring opinion. he uses the word "activity" or "activities" 42 times. that is a lot. that is what we're looking to. what we notice is the court has never said the congress has the power to regulate economic matters coming economic decisions, -- economic matters, economic decisions, or inactivity. it has never said that congress can go farther. next time and here's a case like this one, it could go farther. we know that. it has not done so until now. >> for the record, the other four witnesses have acknowledged explicitly that the health care industry is part of commerce. do you accept that? >> yes, i do. >> general kroger, how do you respond to the inactivity of the

citizen, not the overt act of the citizen? >> two things. most of the case law does speak repeatedly of activities. most bills are regulating activities. it has never limited the commerce clause to a formal category of activities and prohibited congress from acting otherwise. the case specifically cites the language in carter vs. carter coal. it is not whether there is an activity, but whether there is a condition that can be regulated. .

>> i think judge vincent's decision sweeps far beyond where it was necessary to go and takes on some completely unrelated provisions. and i think that the fact that two other federal district courts have upheld the constitutionality of the law will indicate his opinion will not have a necessary affect at this moment. the department of justice i think is considering whether to seek an appeal even though he issued no order to nonetheless clarify that only the individual mandate of the state. and of course everyone agrees what is also at stake is a provision that prohibits

insurance companies from denying coverage for preexisting conditions. those two are linked. and i think that aspect of it is indisputable. >> thank you very much. senator? >> professor, you've made it clear you're convinced there's no doubt the mandate and health law is constitutional, so would you see any need for congress to make any changes to the mandate in order to increase the chances that it would be found to be constitutional, make more certain it was constitutional? >> i see no need for it because it seems so clearly constitutional. you're wearing a belt. maybe you want to put on some suspenders as well, i don't know. but i think it's not necessary. i suppose it would be proper. >> ok, then, to any of the witnesses, some of you have discussed the supreme court's decisions that have given

congress broad authority under the commerce clause. that's the whole point here. but congress has never before passed a law that requires people who are not already engaged in an activity, commercial or otherwise, to affirmatively purchase a product or service. could the supreme court strike down such a novel provision as the individual mandate without overturning a single one of its precedents? >> yes, senator, that's clearly true. it is the defenders of the act who are seeking to extend the court's commerce clause jurisprudence passed what it currently is. as professor barnett pointed out, they've only suggested that activities that affect interstate commerce can be regulated under the commerce clause. they've never suggested congress can compel people to engage in certain activities to offset the economic effects of another part of the law. to get back to senator durbin's

question, they never suggested they can compel from feldburn to grow weed. they've never suggested again, as i pointed in my testimony they can require mr. filburn's neighbors to buy his crops to counteract the effects of limiting the wheat he can grow. i think those distinctions are loyally semantics and are relatively obvious to most people. >> unless you want to add. >> senator grassley, i think the very notion what is involved here is, quote, inactivity can be called into question. if you're sitting alone in the woods doing nothing, it doesn't apply to you. you have to go out and enter the national economy, earn $18,000 for a couple in order to be required to file an income tax return. only then do you have to pay a -- 2.5% penalty if you don't maintain insurance coverage and

since no concan be insured they'll need health care they'll be active participants in the health care market. this is in essence by no means a case of no activity. and i believe there's no case yet that's come close to holding the congress can affirm obligations when doing so carries out its regulatory authority over the national economy. >> the penalty may not apply to everyone but the mandate does apply to everyone. it's the penalty enforcing the mandate that might not apply to everyone. but the mandate that says every american has to have health insurance has to obtain or procure health insurance i believe applies to everyone. >> if i might just add one supreme court precedent which i always thought was very relevant is the 1905 decision in jacobson against commonwealth of massachusetts, massachusetts said every citizen had to obtain a

smallpox vaccination. jacobson thought this was an attack on his liberty. he was fined $5 and the supreme court said pay the fine. >> that illustrates the distinction that i'm talking about. massachusetts acted to stop the spread of an infectious disease pursuant to its power to protect the health and welfare of the state citizens. congress doesn't have that power. under mr. fried's analysis, congress could tomorrow require everyone to buy vitamins or vaccinations because in another part of the law they've required doctors, through perfectly charitable reasons, to provide free vitamins and vaccinations to others and this would be offsetting the fact just like the individual mandate is an offsetting the fact. if congress can do that, then i think we all agree congress can do everything that state governments can do today subject to the restrictions of the liberty clause. and if that's true, then there

is no distinction between the commerce power and police power. and again, i think we'd all agree the court has made clear that if there is no such distinction that means the commerce power has been exceeded. >> i want to go on to -- ask for a comment on a quote from the senator, center for american progress critical of judge vincent and so, quote, if judge vincent were to have his way, insurance companies will yet again be able to deny your coverage because you have a preexisting condition, drop your coverage when you get sick, limit the amount of care you receive, take more of your premium dollars from their profits, end of quote. i think that this group shares the same thoughts that many of the supporters of this legislation have used as a basis for the law as well as the basis for this hearing. that there seems to be no difference between law and

politics. and of course i think the supporters of that view think that the judge who rules on the law is unconstitutional must impose the policies as contained in the law. obviously i take a different view. i believe that a judge is obligated to make sure the laws that congress passes comply with the constitution. if congress passes a law that's beyond the constitutional power to enact no matter how popular, desirable the provisions of that law are for some people, the courts have an obligation to strike it down. number one -- and by the way, i wanted to direct this to the three people on the left. i'm sorry. not the three people -- jim cruege,, professor reid and dellinger. do you think it's personally attacking the judge saying the

judge must prefer particular policy results that the critic opposes? >> no, it is not proper. >> ok. and anybody can add if they want to but let me go on to the next one, is it fair to say judge vincent's decision aims to take away benefits of millions of americans are already seeing and putting insurance companies back in charge of your health care? >> it will have that effect. quite possibly he greatly regrets it. >> and do you think that judges should decide cases based on their best understanding of the meaning of the constitution or on whether they think their rulings would have good or bad policy consequences? >> the former. >> obviously it's good to have that understanding that we're a society based upon law and not upon what judges just happen to think it might be. >> you're right, it is.

>> always have to watch out for these tough chairmen. actually, on that last question, mr. fried, do you know anybody that disagrees with that, the left or the right? >> yes, i'm afraid i do. [laughter] >> and they don't admit it. >> do you know anybody that should disagree? >> not a soul. >> i thought you might go that way. mr. growinger -- mr. kroger, it's good to have you here. we always like having attorneys general here. we're fortunate to have two former attorneys general on this committee, senator blumenthal and senator white house. you represent the state of oregon. you said that oregon is a sovereign state, i'm trying to

summarize your testimony, in charge of promoting the health and welfare of its citizens. do you have any concern about the constitutionality of the requirement that individuals purchase health insurance? >> none whatsoever. >> thank you. now, as attorney general, were you asked or did you -- on your own review, the legal basis for the affordable care act? >> yes, i have, senator. >> you think it intrudes on oregon's responsibility to protect the health and welfare of its citizens? >> senator, i think it greatly assists the ability of the state of oregon to protect its citizens. >> thank you. and professor fried, having been here actually from the time of president ford, when you were solicitor general for president reagan, i almost feel

like i should call you solicitor general, but do you believe the requirement in the affordable care act individuals purchase health insurance represent unprecedented extension of congress' authority to regulate insurance under the commerce clause? >> it is a new requirement. i don't think it's unprecedented. i think the language which i quoted to you from chief justice marshall at the beginning of our nation amply covers it. >> well, then, let me just explore that a little bit further. do you believe that there have been new limitations on the commerce clause by the current court or other courts that give you concern that the affordable care act is not a

constitutional regulation? >> there have been -- excuse me. >> no, go ahead. >> there have been limitations. i sat at counsel table with the prevailing argument in mother us -- united states v. morrison because i believed the relevant provisions of violence against women act were unconstitutional. and the court so held. but that was because the court found correctly that as despicable and criminal as it is for a man to beat up his girlfriend, it's not commerce. well, there's no doubt health insurance is commerce. >> and on the violence against women's act, did not the congress go back and redraft it based on the ruling in morrison? >> i believe they did but i -- >> or a version of it. >> i believe they did but i can't swear to that and i have sworn to my testimony.

>> thank you. again, one of the reasons why i enjoyed your tenure as solicitor general with president reagan. anybody want to add to this? here's your chance to disagree with mr. fried. >> i never pass up a chance to disyes with charles. it rarely happens. again, senator, i do think there's a fundamental difference in two respects. you are compelling people to engage in commerce. and what's the rationale? is it that by not contracting with insurance companies that somehow acts as impediment to congress? no. what it does -- to commerce, no. what it does do is prevent this free rider problem that congress created by imposing the preexisting condition. i call that a distortion of commerce. i didn't such that in an enormous sense. congress interferes in the private market all the time. what they've done is impose certain restrictions on

insurance companies and they therefore are compelling people to ameliorate that problem, so the individual mandate does not carry into execution the regulation of commerce, it corrects a distorting effect of the regulation of commerce and it seems to me that distinction is critical because otherwise, again, you could -- when you're talking -- if congress skis -- decides to limit what banks can do with mortgages or credit cards or car companies, then obviously they could conscript the citizenry to offset that. >> this is a repeating of your earlier argument. i'm only cutting you off because my time is running out. >> i was about to finish. >> thus your time is running out. and professor dellinger, if you can very briefly -- >> all i wanted to say, senator, i wanted to talk about the two quotes professor fried mentioned, one which refers to congress' pow tore use any ordinary means of execution. a mandate is not an ordinary means of execution, it is

extraordinarily. in gibbons versus ogden, judge marshall said the congress may prescribe the rule by congress to be coverage governed. nobody up here thinks the ability to buy health insurance is itself commerce. that's not what anybody thinks. that doesn't fall under this language either. neither one of those quotations directly apply to the situation we currently face. >> professor dellinger? >> yes, i would like to respond to what i think is one of michael carbon's best point, by disagreeing that this matter would stand for the proposition that where congress imposes costs on companies, it could then make up for that, fix that and going out and telling -- making people buy that company's product. that's not true because in this instance congress is dealing with a dysfunction in an important national market caused by the fact that companies have an incentive to deny coverage to people with preexisting conditions as a result of that they're not covered, in order to make that

market work efficiently, you need to encourage people to join the market so that they don't wait and order up their health insurance on the cell phone in an ambulance on the way to the hospital. that's a market problem congress can address and fix. it is unprecedented, quote, unquote, but only in the sense that the health care -- the affordable care act uses a market-based system giving people more choices than has been our previous custom of providing a single governmental payor as we did under social security and largely did under medicare. so the idea this is unprecedented is only one that it is a new use of the market-based approach, less intrusive, providing more choice. >> thank you. >> thank you, mr. chairman. >> thank you, senator durbin and thanks to all the witnesses for being here. i feel like i'm back in law school. but we appreciate the fact that each of you are giving us the benefit of your expertise and

your opinions on a very important issue, no doubt. i was attempted -- tempted to say, mr. chairman, i wish we had done this before the law was passed, which we did not, as opposed to now but professor barnett you make an important point that congress' duty with a law like this does not end when it passes a law, indeed if in fact we are -- the opinion it does exceed either the prudential or constitutional bounds of congressional power under the commerce clause, we can repeal it. and i would just say to my friend, who's chairing the committee, senator durbin i know suggested earlier it's either this or nothing. i think they call that the fallacy of a false dichotomy. there's not just two choices. there's many other choices that are available to congress if this were to be repealed and replaced and i'm sure we'll talk about that a lot more. but let me just -- let me say,

i was -- went back to look at the federalist papers where federalist 45, james madison talked about the powers of the federal government being enumerated in specific and the power of the state being broad and indeed the heading for the federalist 45 is the alleged danger from the powers of the union to the state's governments considered. it was exactly this sort of relationship between the state government and state power and individual citizens and the federal government that i think is causing the most concern here because my own view is that the individual mandate is an unprecedented overreach of the federal government's limited and enumerated powers and i know lawyers can disagree and we do disagree and we usually do so in a civil and dignified way and that's great. by the way, mr. chairman, i

would ask unanimous consent to introduce a letter from the attorney general of texas, greg abbott. he was one of the 26 attorney generals who were successful in the litigation and recently concluded in the district court in florida. >> without objection. >> i thank the chair. so really i think what worries people more than anything else whether they articulate quite this way or not is i think a lot of people feel like the fundamental relationship between the federal government and the american people has somehow been altered in a basic and sweeping way, and whether they can say, well, that's a violation of the 10th amendment or it's a violation of the commerce clause or the necessary and proper clause, whatever, i think it depends on the individual and their background and expertise. but i just want to ask whether you agree -- let me ask professor fried this question. jonathan turley, a law

professor who testifies occasionally here before us said that if the supreme court upholds the individual mandate, it's hard to see what's left of federalism. you agree or disagree with that? >> i disagree with that. i disagree with that. i recall in the violence against women act, there must have been attorneys general from 52 states arguing that that act was constitutional. and it was thrown out anyway because it was not commerce and that was a correct decision. i supported it. i helped procure it, indeed. but i think the scare here is quite inappropriate. as i recall, the great debate in the senate was between this device and something called the

government option. and the government option was described as being something akin to socialism. and i think there's a bit of a point to that. but what is striking, senator, is that i don't think anybody in the world could argue the government option or indeed a single payor federal alternative would have been unconstitutional. it would have been deplorable. it would have been regrettable. it would have been western if not eastern european, but it would not have been unconstitutional. and it's odd this which is an attempt to keep it in the private market is now being attacked that way. >> you made a very good case that congress can pass some very bad laws that are still constitutional. >> yes, sir.

>> because time is running short and i hope we'll have a chance for a second round because seven minutes doesn't give us enough time. but i did want to explore professor fried, you did say while you're not troubled by the individual mandate, you are troubled by this huge unfunded mandate imposed on the states by the medicaid expansion and indeed there's a whole body of law that you are no doubt expert in that talks about the federal government's coercing the states and commandeering the states to pursue a federal policy that is beyond the federal government's authority to do. and i will have to tell you that one of the consequences of this in my state is a $27 billion unfunded mandate over the next 10 years for the medicaid expansion which is crowding out spending at the state level for education and transportation and other important priorities. and i just want to ask you to expand briefly on your concerns

in this area. >> the case that comes to mind is south dakota against dole which required the states, and that wasn't even a funding mandate, required the states to alter the drinking age p. and threatened them with a withdrawal of 5% of highway funds if they didn't comply. and the supreme court said, well, 5% is so little that it's not that much of a threat. implicit in that is, would you believe 10%, how about 50%? and the unfunded mandate here is huge. and that's why i said to senator grassley that i think there really is a constitutional worry about that . >> that was one -- if i can

just concluded by saying that was one of the basis for the texas challenge and i believe the other attorneys general in the florida case. i don't believe the judge got to that issue because -- >> he rejected it. >> i may stand corrected here. but i -- although we're focusing on the individual mandate, i am interested in your testimony with regard to the coercion or commandeering of state authorities and state budgets. thank you. my time's up for now. i hope to come back. >> thanks, senator cornyn. senator franken. >> i feel like i'm back in law school. >> i got it. >> i didn't go to law school. >> thank you, professor. >> attorney general kroger, mr. carbon said and then repeated essentially this in his testimony, a decision not to buy health insurance doesn't affect commerce.

is that inago -- is that an accurate quote? >> in the preexisting band, true. in other words, if you took the preexisting condition ban out of the law, the insurance company would be able to contract with its patients in the fact that some stranger to that transaction sat at home wouldn't affect that contractual relationship. the argument i'm making is that the preexisting ban enables congress to reach out and bring that stranger of the transaction in. >> without the mandate you couldn't have the preexisting condition, it wouldn't work in the law. but this is a question for attorney general kroger. a decision not to buy health insurance doesn't affect commerce. mr. kroger, when the uninsured in your state go to emergency rooms and can't pay their

bills, how much does that cost oregon hospitals every year? >> you know, senator, i've spoken to the c.e.o.'s of various hospitals around the state. the amount of charitable care, care of persons who don't have insurance varies from hospital between 3% and in some cases as high as 12% as the amount of care they're providing. the idea that being uninsured doesn't affect commerce is just factually incorrect. every american pays higher insurance premiums to cover that. >> i under the cost of $1.1 billion every year for oregon hospitals. how much does that -- do you know how much that costs uninsured -- costs insured oregonians in terms of higher premiums? >> senator, the different studies show between $450 in higher individual premiums up to $1,500 for families who are required to help carry that cost of the uninsured.

>> so this basically sounds to me like insured oregonians are subsidizing uninsured oregonians. >> that is correct, senator. >> so would you agree with the decision not to buy health insurance doesn't affect commerce? >> it clearly does affect commerce, senator. >> thank you. professor dellinger, my understanding is that when the supreme court decides cases they are interpreting the constitution, or if they are ruling based on precedent they are ruling based on previous supreme court interpretations of the constitution. is that correct? >> yes, sir. >> ok. i have to say that i'm confused and maybe it's because i didn't go to law school, by mr. barnett's testimony when he says no one claims that the individual mandate is justified by the original meaning of the commerce clause or necessary and proper clause. instead, the government and

these law professors who support the mandate have rested their arguments exclusively on the supreme court. first of all, i'm confused because i know of at least two scholars, jack ballen and akil amar who do think the original intent of the commerce clause supports constitutionality. are akil amar and jack balken no one? >> they're pretty esteemed. and so is professor barnett. but i may proceed. >> well, yeah, i'm sure akil amar and jack balken have made ridiculous statements, too. i'm sorry. i didn't mean that. >> it's ok. >> i did. i did. ok. anyway, see -- but to me, on this -- and i didn't go to law school but it seems to me that

there's a transive property, a equals b and b equals c and c equals d, a equals d. and since the courts are relying on precedence, they're relying on a supreme court that was interpreting the constitution, right? so isn't it true that by relying on precedent you're really interpreting the intent of the founders? >> that is true, senator franken, but i would also be perfectly willing to go back to the original understanding and find that this is fully consistent with it. in the following set, the framers did assume in 1787 that there would be substantial areas that were matters for local regulation only. and the national government would be limited to regulating only that commerce which

concerns more states than one. what happened over the ensuing two centuries is that the category of what affects more states than one has increased dramatically because of developments in telecommunications and markets, etc. we now have a single national market so that congress' authority to regulate that commerce which concerns more states than one is greatly vaster than the framers would have imagined, not because of any difference in constitutional principle that they adopted but because of the extraordinary developments in technology, communications, and other matters. >> like airplanes. >> which have made it common. yes. >> senator cornyn made this 10th amendment point. as i understand it, the 10th -- the way the 10th amendment was written, and if you go to the

federalist papers, it was written specifically to exclude the word "expressly." this is the 10th amendment. the powers not delegated to the united states or prohibited by it or reserved to the states respectively or to the people. now, i remember that during -- when they were writing this, some south carolina representative wanted to put in "expressly" which had been in the articles of the confederation and madison says no and madison writes in the federalist papers that if you put "expressly" in then every possible power of the federal government would have to be written in an encyclopedic way into the constitution and then that would be absurd. is that your understanding? is that everybody's understanding of the 10th? is my history right? >> it is mine.

yes. >> thank you. >> i'd like to welcome to the judiciary committee senator lee of utah and recognize him at this point. >> thank you, mr. chairman. i want to thank each of our witnesses for coming today, it's an honor to be here and interact with each of you. i want to oak something that's been -- oako something that's been mentioned but requests it again. i think it's important we do this as senators because i believe among the founding generation, the founding fathers, there was no understanding that was more ubiquitous than the idea what we were creating at the national level was not an all-purpose national government possessing general police powers, but a limited purpose federal government. and i think one of our jobs as senators is to make sure that regardless of what the courts say that we can get away with in court, regardless of how broadly we may exercise our power without judicial

interference that we take a second look and say, separate and apart from what the court says we can do, should we be doing this? is this consistent with our role as legislators operating within a government with decidedly limited powers. i also like the quote from justice jackson that was pulled out a few minutes ago. i think by mr. kroger, to the effect that certain decisions are wisely left for congress. the courts lack the authority to be a sort of roving commission on all things constitutional. we have to make a number of these decisions on our own regardless whether the courts are going to do them for us. i wanted to ask a few questions of mr. dellinger if that's ok, professor. do you agree, first of all, with james madison's assessment that mr. corn inquoted a few minutes ago, that while the powers of the federal government are few and defined, those that are left to the states are numerous and

indefinite? >> i do agree. and i think senator cornyn correctly cites federal list 45 or that proposition. as i said, senator lee, within the area of congress' authority to regulate national commerce, what has grown is the interdependencey of national commerce, not our understanding of the constitution. >> sure, sure, it has grown but they had interstate commerce then. they were interconnected. in fact that was the whole reason why we needed to be a union in the first place, right? >> correct. >> we couldn't survive. so they understood this interconnectiveness. it's not new and been facilitated by jet airplanes and the internet. >> but if you got sick in north carolina in 1787, it had no affect in utah. >> or in mexico. it's still a lovely place. >> it had no affect in pennsylvania. >> ok. but they were interconnected so

perhaps the changes we've had have been changes of degree, perhaps we're nor interdependent then than we are now but you would agree it's still accurate to say the powers of the federal government are few and define and those reserved to the state are numerous and indefinite. >> yes. >> and yet if this law is upheld, if this law is within congress' limited power to regulate commerce among the states, notice it didn't say commerce, it said commerce among the several states and before the nation. if this is within congress' power, wouldn't it also be within congress' power to tell every american, including you and me and everyone in this room that we must eat four servings of green leafy vegetables each day? >> no. >> why is that? what's the distinction? >> the distinction is that a regulation of commerce, to be constitutional, has to be a permissible regulation of commerce. and something which intrudes into the area of personal ataun my doesn't meet the standards. >> like deciding where to go to

the doctor and how to pay for it? i'm trying to understand the between the personal autonomy issue there and that presented by this law. >> the case about broccoli is a case that's covered both by lopez and morrison, that is you're regulating a local, noneconomic matter, what you eat and whether you exercise, and it is also governed as well, it is doubly unconstitutional because if government is well by the principle in cases like looksburg and vacco and cruzan to say an individual has a right to refuse unwanted medical treatment. you have a constitutional right to refuse -- and i think -- >> in that i'm talking about commerce clause. >> i understand that. >> let's keep our discussion limited to the commerce clause. >> if you talk about whether congress could require people to buy other products, what would be congress' legitimate reason for doing so? i think there would be many constitutional objections. >> i can come up with one right now. look, if we are going to make

sure everybody has health insurance and the government is going to pick up the slack behind, then congress could assemble a panel of experts, let's say your functional equivalent from the dietary council industry who would come and tell us if you eat four servings of green leafy vegetables every day you're 50% less likely to suffer from heart disease, cancer, stroke or a host of other ailments, that will cost the government less money. so it's a pretty tight nexus there. >> yes, but as the court said in gonzalez versus rage, that's a morrison and lopez matter dealing with noneconomic matters and the court said in gonzalez where the act under review is a statute that directly regulates direct economic activity, it casts on morrison's unconstitutionality. it's a direct result of commerce activity, not something that affects a commercial activity. >> let's change the

hypothetical slightly. instead of saying you must eat them, it says you must take the first $200 out of each month's earnings and purchase the equivalent of four servings of green, leafy vegetables to eat per day. this all of a sudden is economic activity. this is not lopez. where we're talking about noncommercial possession of firearm in a school zone or morrison, noner state act of violence. >> it seems there's two responses to the argument that would wholly stand for the proposition that congress can force anybody to buy anything. the first is that this is a requirement that you make a provision to buy something which you cannot ever be assured you will not use and cannot be assured you won't transfer the cost to others. i think it's distinguishable. secondly, the very form of that argument was used to attack the minimum wage and social security. >> social security was an exercise in spending power. >> the question is it the constitutionality of the

minimum wage law of 1936 you would be asking me, is it a regulation of commerce for congress to have a minimum wage of $5,000 an hour? and that has never been a legitimate -- is it a regulation of commerce to say if you buy one car you have to buy three cars? that form of argument, i think, was used against social security and used against medicare and congress in fact never abused that. they never set the retirement age at 25 as the opponents of the social security act said would be possible if you upheld a requirement plan for people over 65. so the very form of the argument i think deflects attention from what is basically a completely unremarkable regulation of an important national market. >> mr. chairman, i see my time has expired and i have a brief follow-up question, can i ask that and be finished? i was pleased to see in your written testimony you've become such a huge fan of justice scalia's jurisprudence and he's also one of my favorite justices on the court. you quote him repeatedly as a

source for the courts wickerby-filburn jurisprudence under the commerce law. is that the case it necessarily reflects his view as an original matter as a matter of first principles or are those views made in recognition of the fact he's bound by stare decises. >> that's a good question and i don't know the answer. it could be he's reflecting stare decises. he cast the critical vote for the position that sustained my argument and not yours. >> he couldn't have been more wrong, could he? >> thank you. >> thank you very much, senator chairman. i'm taking a different tact than mr. lee in terms of the practicality of these decisions. if you look at people who i think mr. kroger is well aware of this who already small businesses taking advantage of