at the point of completion, projected revenues would be sufficient to fund 90% of the expenditures. the decline from that point forward. at midcentury, it would be about three-quarters of an expected expenditures. that would be the low point at which it would.i. measured, that's traditionally done as a percentage of the program's taxable payroll and we show a deficit of taxable payroll over 75 years. last year's report showed 0.66%. on the s.m.i. side, we see the financial strains rising in the form of rising costs. costs were roughly 9% of g.d.p. in 2010 and we show them rising fairly rapidly and growing to 3.4% of g.d.p. in 2035.

and to increase gradually thereafter to 6% of g.d.p. i have a couple of caveats for those number bus before i get to those, just one additional point. this year's report issues a medicare funding warning. where we state any time over the next seven years there will be a year between gap between program outlays and dedicated revenues is more than 45% of program outlays. that is case for fiscal year 2011 and that funding warning has been issued in this report for the sixth consecutive year. now caveat about the numbers. there are a number of cases where it is stated pretty explicitly that actual costs and practices are to be higher than we show. the most obvious is the fact

that under current law, thrlt be a 29 -- roughly 29% reduction in payments. historically, congress and the administration work together to override that over the years. obviously that continued to be the case then actual cost and practice would be higher than we show. members of this subcommittee know better than anyone there is a vigorous ongoing debate as to whether or not the cost savings provisions will be implemented over the long-term. we as trustees are obviously not in position to arbitrate on that and to predict the political economy of the affordable care about over the long-term. all we can do is show current law as it is written. what the medicare actuary does is publish a scenario where payment reduction is being

overwritten and the affordable care act gradually phased out over time. the cost is higher than in the main report. 10% in 2035 rather than 6.2%. i know i'm out of time so i will wrap up. it is important for committee to know or the subcommittee to know that medicare projections are highly uncertain even if the politics are certain. there is a tremendous amount of variation in the projections in the long-term. it is a very difficult variable to predict over the long-term. bottom line is that the medicare program faces real and substantial challenges. thank you, mr. chairman . e. thank you. you're recognized for five minutes. >> i appreciate the opportunity

to appear before you to discuss the 2011 medicare trustees' report. i will focus my comments on changes that have occurred between the 2010 and 2011 reports and don the inherent uncertainty that -- and the inherent uncertainty around health care costs in the public and private sector. as you know, the trustees projections of financial health change for a variety of reasons. there might be legislation that affects them. there is almost always a failure of the base year actual amounts to equal what was projected the previous year for that year. there are changes in economic and demographic assumptions, and

there are continual refinement and improvements in the methodologies used by the actuaries to make the projections. the media and the public, as my colleague pointed out, look largely at the date at which the trust fund becomes exhausted to make a judgment about whether the changes have been significant or not from one year to the next. as has been mentioned, the 2011 report projects that the medicare trust fund will be depleted in 2024, which is five years earlier than was projected in 2010. it is worth noting that is still seven years later than was projected in the 2009 report which was the last one issued before the affordable care act

was enacted eight years longer than the actuaries' latest estimates for the date of depletion were before the care act was the long -- law of land. there -- that is not the case. rather small deviations of actual and projected performance and a few small changes in assumptions about the future were enough to move the estimated date of exhaustion five years earlier. medicare expenditures have exceeded and, since 2008. last year's reports projected that as the economy recovered this would turn around and we would experience small surpluses

in the trust fund in the time between 2014 and 2022. under the new projections, medicare spending is expected to exceed income for the indefinite future. a more comprehensive measure of the hi trust fund's fiscal situation is the actuarial balance, which is the difference between the program's annual and, and cost rates averaged over a 75 year period and expressed as a fraction of taxable payroll. the actuarial balance has deteriorated from -.69 to -.79 between the 2010 and 2011 report. the primary factor responsible for this is the decline --

expenditures were higher and payroll taxes were lower in the base year, 2010, than anticipated in the previous year. let me just say a few words about the inherent uncertainty about projecting medicare's expenditures. we all realize that there is a lot of change going on in health care, both in the public and private sector, and how that will play a out over the next several decades is uncertain, as the chairman has mentioned. the trustees' report projects expenditures and income based on current law and because current law assumes the implementation of a 29.4% reduction in physician fees schedule payments some have viewed this

as a relatively optimistic scenario. the actuaries have provided an alternative, as my colleague explained. it assumes that the physician fee schedule is increased each year by the medical economic index and, also, that the productivity reduction and payments for other providers is faced out. some have suggested this is the appropriate alternative projection. i think one can argue that, in fact, just as the trustees reports may be a little optimistic, this is a little pessimistic because over the

last nine years the update in the physician fee schedule has not kept pace with the medicare economic index. at times we have seen a reduction. i think the message we leave you with is that further legislative changes have to be considered by the congress. the sooner those are enacted, the less disruption there will be poor taxpayers, for beneficiaries, and for providers. it is essential that this is on the front burner of the congress. thank you. >> thank you very much. i think our witnesses for their testimony. before i get to my questions, i would like to welcome the newest member of the health subcommittee, mr. buchanan.

he has many medicare beneficiaries in his district -- we look for to is in sight. i would like to get a few things on the record. when did the medicare trustees expect the medicare hospital insurance fund to go bankrupt? >> 2024. >> what was the bankruptcy day in last year's report? >> it was 2029. >> in the course of one year, the medicare hi trust fund lost five years in solvency? is this something congress should be concerned about? >> i think it is definitely something that should be concerned about. as i note in my testimony, because trust fund balances or so low for several years going

forward, the change in the insolvency date is quite possible. >> i can tell you that is certainly alarming to me that during the course of just one year, the medicare lost five years of solvency and is expected to go back route, as -- go bankrupt, as you stated, in 2024. it does not take a great deal of creativity to imagine a 2012 medicare trustees' report in which the hospital insurance trust fund insolvency date moves again by several years in either direction. are you suggesting it is possible that we could see a medicare bankruptcy date within the next 10 years? >> it is very possible. the trust fund ratio -- that is

basically measure of the relationship of assets in the trust fund to annual expenditures -- that is expected to drop below 60 in 2015. less than half payments would be accounted for. once you're down to that level, you run the risk of trust fund depletion. that is very possible. it is all "-- also quite possible it could go the other way. >> it is estimated the medicare hospital and trust -- insurance trust fund is expected to pay more money than it will collect viet the payroll tax. is that correct? >> yes. >> how long has this been the case? >> 2008 was the first year. >> if you expect this trend to continue? >> yes, we do. >> are you aware of any program that would be financial

sustainable if it spends more money than it has, or is this a recipe for bankruptcy? >> our current projections would exhaust the trust fund because of the annual operating deficits, yes. >> i thank you. mr. stark is recognized for five minutes. >> thank you, mr. chairman. if you just help me for a minute with a personal matter. i had a nine-year old who was to be the bat boy for the democrats ball team. i have to go home and explain to him as somebody with a ph.d., like yourself, in computational chemistry gets published in the baseball research journal. can you help me a little bit? that is a personal matter if you want to take time later?

know f love to have hands n he can have chemistry and baseball. it would be greatly appreciated. the sluggish economic recovery, a drop in revenues, and an increase in spending? both factors called by the general state of our economy -- am i close? >> you are right on the money. this is a program that is sensitive to the strength of the economy, both in direct and indirect ways. when economic growth picks up,

wages of providers go up, expenditures go up as a result of that. when the economy weakens, wheat seed both induced enrollment of those -- we see it both induce a role but of those who have lost their jobs and a fall off in payroll tax revenues. >> some have suggested that we could save a good bit of money by allowing medicare private contracting. the republicans seem to think this would allow medicare to continue. then doctors charge whatever they want on top of the medicare payment. do you have concerns about effective private contacting on

access to care and quality of care? >> as a public trustee, i do not. as an analyst, it is an area that concerns me in that we -- if private contractor and were permitted and were not regulated, we could see access by individuals who are in tight provider markets began to have some problems. -- begin to have some problems. >> the affordable care act is going to expire in 2016. the report issued today shows that the reform in the affordable care act would add

eight years to the solvency. before i ask if you think that is about right, since i have been here, we have been about to go broke just about every year. the reason we do not, is that congress acts in one way or another to protect medicare, but going back, the question of the shortened solvency date caused by the economy in general -- is there any one area that suggest to us that we might move to extend the solvency of medicare?

>> there are tremendous varieties of measures that could strengthen the medicare program 's financial position and some basic decisions have to be made by the congress on the extent to which we should look to beneficiaries, taxpayers, or providers to contribute to that effort. some of them involve changes in the current structure. others involved incentives that might -- involve incentives that might lead to a reformed delivery system. we could talk for several weeks about the pros and cons of the

various alternatives. >> thank you. >> thank you. the gentleman from texas, mr. johnson, is recognized for five minutes. >> thank you, mr. chairman. good morning. the democratically controlled congress passed the health care over all that was supposed to control health care costs and extend -- i would say these bills failed. do you think those efforts are enough -- >> will the gentleman yield? mr. johnson? >> why? i wanted to ask a question. >> go ahead. >> ask me a question? i will not yield. i want to know if those efforts are enough to solve the medicare problem or did we not get it -- or did we not get deep into it enough? >> we have a deficit in

medicare, even if we assume the current law is sustainably implemented. i will cost or somewhat likely to be higher than what we share. we clearly have a remaining problem. >> notwithstanding that, the best estimates of the affordable care act are that they extended the life of the trust fund and where the affordable care act to be repealed, the date at which the trust fund would become 24pleted would move from 20002 to 2016. >> i recognize you are phd. you consult with medical doctors?

do they talk to you and tell you what their problems are? yes or no? >> we do the reports? no. >> so you are not consulting the medical community at all. doctors who played the system will ask for more than it really cost them because they know it is not going to get paid. you are probably aware of that. that is why i asked you if you consult with the doctors themselves. it seems to me that the doctors are part of our problem. i do not know that you have really considered it clearly. we need to do more to save medicare for future generations. i would just ask both of you do you have solutions for this problem? you talk about the problem -- what are the solutions?

>> again, i would be very careful to say -- as trustees, we have to be very careful not having a view. personally, i believe there are only so many levers you can pull. the things that drive problems are the growth of the beneficiary population, you have to look at the growth of per capita benefits that are paid by the federal government. if the get a tax for cutting benefits when you do that, no matter how you do it, whether you're talking about the affordable care at or medicare, we have to cap the per-capita benefits the federal government is state -- is seen. that has to be a component of the solution. we need additional cost restraints beyond what is proposed in current law. >> do you have a comment on that? >> i would agree with my

colleagues that there are a handful of areas you can't look to. -- you can look t. o. changing the number of people available for -- to qualify for the program, the payments to providers, the contribution from beneficiaries, in other words premiums, and the contribution from the taxpayers. those are easy ones to estimate the savings that might result from them. a much harder one is to figure out what a significant change in the structure of the delivery system might do to lower the growth of cost over the long run. >> thank you both for your comments. thank you, mr. chairman.

>> the gentleman from wisconsin, mr. ryan. we have a few more members -- [unintelligible] >> 5 minutes is not enough time to get into all of this. a couple of things -- it was said that we wanted to go away or something like that. we all represent around 700,000 people. our relatives are on medicare. it is probably one of the most important programs the federal government has ever had. we want it to work and we want to save it. here is our problem -- we have 10,000 baby boomers are retiring every day with fewer workers coming into the work force to pay for it. health care costs are going up faster than inflation you are telling us the trust fund is going bankrupt in 2024. the cbo says faster than that.

something has to be done. i want to ask you a couple of questions. do you both agree that you cannot say the savings in medicare is going to pay for the affordable care act and extend the solvency of medicare? you agree with that? a quick yes or no. >> i believe that. >> i assume you do, bob? >> from a unified budget standpoint, the answer is yes. >> we have the trustees and giving us these alternative scenarios for two years, which i find pretty amazing. i wonder if more realistic assumptions -- we find out that you cannot find another government program on one hand. that is double counting. we're not saying the cbo is doing the double counting. congress is doing the governor -- doing the double counting.

number two, we faced insolvency before. congress has always done something to do about it. if we keep kicking the can down the road and wait until insolvency is on the doorstep, the solutions will be that much more dire, that much more bitter, and people will be that much more affected. how many providers the u.k. will provide medicare benefits if they are getting 66 cents on the dollar for every medicare patient they have coming through the door? if you are telling us they are going to pay 66 cents on the dollar and then 33 cents on the dollar, if we may have a medicare program, but it will not work for people on medicare if nobody takes medicare. we have to be realistic about what is it necessary to save medicare. i would just simply say that the lessons we learned from the previous medicare pinches are

lessons we should take into the future. 1997 was an important budget agreement. it was a republican congress with a democratic president doing a budget agreement to extend medicare solvency, get the economy growing, produce budget surpluses, but this is the lesson we got out of that exercise -- price controls in medicare do not work. congress produced two separate bills to prevent medicare providers from dropping medicare. what i think our friends of the other side of the aisle got out of that as evidenced by the affordable care act is not the price controls do not work, it is price controls or not politically sustainable part of it it is seeing and knowing that access is being denied to medicare beneficiaries. we should just take it out of the hands of politicians. we should take it of the hands of congress. less form an independent advisory board and have them do

it the price controlling and circumvent congress. what this simply means is we are going to do hardcore price controlling which leads to rationing which will lead to medicare providers dropping medicare. that means seniors will not have access. we want to get rid of that. if we are going to extend solvency, it should go to medicare, not to other programs. we should not trade one government program to go to another. how many tons of we heard that about social security? sector -- rationing does not work. we believe that at the end of the day there will have to be a bipartisan solution. the sooner you do it, the sooner you do not have to it that benefits for anyone about the age of 55. people who have already retired under this program, do not change their benefits. they were made promises the government should keep. if we do this soon, we can keep

our promises to people who were 10 years away from retiring. it is very negotiable. it is very reasonable to debate how to fix it with a new system , birth rates, and design features. that is what the committee is trying to do do you think providers and medicare will keep -- providers will keep taking medicare if they are getting paid 66 cents to 33 cents on the dollar? >> you have highlighted a fundamental problem that we also highlight in the report. reimbursement rates under medicare are lagging very far behind what they are in the private sector. this could lead to substantial which rolls and access to care under medicare. anddrawals ial which roll access to care under medicare.

>> the same providers offer services to the elderly and disabled through medicare, low- income population through medicaid, and the working population through employer sponsored insurance or individually purchased insurance. i, for one, think that efforts to restrain medicare or medicaid significantly are doomed to failure unless we provide incentives for dampening the growth of health care costs in the private sector as well. you cannot have these huge differentials in reimbursements. on the other hand, i would argue that the fixation we have with comparing medicare's reimbursement rates with those

in the private sector are a comparison of average payments, or average cost, and most economists would argue that services provided, a good is produced as long as the provider can meet marginal cost, so we can have some differentials without destroying the market. they obviously cannot get too large. that is what you're concerned about. >> the gentleman from california, mr. thompson, is recognized. >> is it not true that whenever a new lot results in a savings to medicare part a that those savings improve the possible insurance trust fund finances regardless if the savings are used elsewhere in the budget? >> yes, that is true. >> my friend from wisconsin

raised that issue. that is out the accounting system works. that is out it has been treated in many on this budget bills in the past. >> correct. >> my friend also used the balanced budget act of 1997 which was passed under the republican controlled house as an example. that included $994 billion in medicare savings. to the $92 billion of that was used for a tax cut. -- $292 billion of that was used for a tax cut. i guess the other guys are critics. in the sheet here that was prepared by our side's staff. reporthe trusty's starting in 1970 and running

until 2011. i would like to get you to look at it and let us know if this is accurate. based on this, it has always been projected to reach insolvency at some point. as mr. stark mentioned earlier, congress has always addressed this issue by making changes. as a matter of fact, of the 40 years on this chart, 18 of those years the solvency date is less than it is today in 2011. the it is a problem because of the downturn in the economy. i would like to have someone give you this and get your analysis of its period -- analysis of it. also, the affordable care act

was an attempt to put in place provisions that would improve the quality and reduce the cost of health care. everything from hospital admissions to reducing hospital remissions to expanding fraud- fighting efforts. you're just the report recognizes that. can you tell us your assessment of the delivery system reforms in the affordable care act? >> once again, i will have to take off my chest the hat for this. >> all have to take off my trusty pet for this -- trustee hat for this. >> the cms actuary and the cbo did not provide savings for or

provided quite modest savings. if all the planets come into alignment and things work out well and some of the initiatives i discussed in might prepare statements come to pass, we could see significantly more in the way of savings. on the other hand, some of them may prove to be once the congress reconsiders or ones that do not work out as well as the cbo and cms have estimated. we are dealing with a huge uncertainty right now, but those are basic numbers or in our projections. >> i think the language in the report says that "major programs of research and development for provider payment mechanisms

intended to improve the quality of health care and reduce the quality of medicare." this includes the cost and quality of health care outside of medicare as well. that is important to note. cmf did a press release on your report. they say that without the reforms in the affordable care at, the medicare trust fund would expire in five years in 2016. the report issued today shows these reports added eight years of solvency. i would like to ask unanimous consent to submit this to the record. >> without objection. >> thank you. >> the gentleman from california, mr. nunez, is recognized for five minutes. >> thank you, mr. chairman. i would like to ask the witnesses about the question of insolvency.

i do not know how long you had been trusties, but when we look back -- trustee, but when we look back in time, we always knew we had an insolvency issue. i do not think anyone disagrees with that. there has always been a need to save medicare and say social security. but when you analyze the problem today, and he knows that we are locked into this budget by where it does not appear there is any fix in sight. what the major holdouts is are we going to deal with the and subprograms to solve the insolvency problem? i do not believe we of ever defaulted on our debt. we are getting very close to that if we do not get a agreement -- get an agreement soon. is the situation more serious and more urgent today than what it was when you looked back 10

years ago or 20 years ago? >> i think the answer to that is yes, both because the medicare problems and get is a larger fiscal problem and because as opposed to 20 years ago, the baby boomers start retiring. they are beginning to apply for medicare benefits. and so the exhilaration of burden that we talked about is a future problem 15 years ago is now upon us. this makes some solutions more difficult because the numbers of individuals who are receiving benefits is rising rapidly. >> i have a two-part answer for

you. one, we have a much more serious fiscal situation unify deficits are much larger than they previously were. secondly, we have an urgency that arises from demographics. each year that happens, we have more baby boomers going on the benefit rolls. there is a great bipartisan reluctance for people who are already dependent on the program. >> i would like to add a third issue to differentiate myself and my colleague. that is, we have enacted major changes already in the medicare program. in some sense, the coverage is barely there. we cannot get to that covered, opening up, and say cut provider payments even more. how can we sustain the ones we've already adopted? >> there is no question -- every

day of my life health care providers are coming in either to my district office or here in washington and complaining about the status of the health care system as it relates to the affordable care at, medicare, medicaid -- there is a problem throughout all these programs. would it be good policy if somehow this congress could move legislation that would take anyone debt is 55-years of age or older and keep them on traditional medicare? with that be a good goal for this congress to protect in? -- part take -- partake in? >> anybody that is over 55, keep them in medicare? >> if we could accomplish that? -- if we could accomplish that. >> i think it is good policy to

hold people who are near retirement or near retirement harmless as possible for future changes. having said that, it is getting harder and harder to hold on to people who are older than 55. five or 10 years from now if you ask us the same question, i would say i do not thing you'll be able to do that. >> i am believe that even older adults can learn new tricks. -- even old dogs can learn new tricks. would you talk about letting people 55 or older stay in the system and keeping the system unchains -- quite frankly, i do not believe that is appropriate policy. i think medicare should evolve in a gradual way.

we have the affordable care at innovation center. we have some centers -- we have some changes in payment mechanisms and things like that that will gradually change medicare. i think pushing those four words -- >> i think we agree that there should be gradual change. that is why mr. ryan put 455 and older in his plan. that allows people to deal with the changes. however, where i think we disagree is where this problem seems to be bigger than but -- then you both said earlier. it appears to be worse than it was 10 or 20 years ago agreed with me to act quickly to save medicare for everyone. >> the gentleman from oregon is recognized for five minutes. >> thank you very much, mr. chairman. i would just pose questions to

our panel not to answer now, because i have others i want to get to. if he would reflect -- i appreciate you talking about whether or not this is sustainable over time. we are going to take 79 million americans and freeze them in medicare as it is now. although, my friend from wisconsin, takes the reviled savings from the affordable care act and tells them -- assumes them in try to make his plan, but we will be having a situation where there is a huge population that will grow smaller over time, but millions of people 30 years from now -- and ever sickert, a smaller population -- when my friend asked it to be scored, assumed the general fund would pick up the gap. i would appreciate it if you two might reflect and may be shared

with the committee what the impact will be overtime? >> will the gentleman -- and >> i would like to be able to lock in what this means. we had not been able to get a good figure in terms of what that extra cost would be for an older, sicker population. although declining, it will still be millions of people. i do take modest exception to my statement that it would be rationing and price control. i think he knows the recommendation are just that and that they will come to congress enacted be voted up or down. i think it is good that we have that mechanism. we have seen political failure on both sides of the aisle on

things like base closings and repeated failure with medicare. we are already seeing some people try to walk back the ability. i have heard my republican friends decry the fact that providers right now are not getting enough money. yet, we cannot afford what we are giving them and they do not want a control mechanism. i am wondering, is there any reason why with the help to stiffen the spine of congress that we could not minute the best practices that are going on right now with medicare -- we could not make the best practices that are going wrong on -- are going on right now with medicare. is there any inherent reason we cannot make that behavior? -- mimic that behavior?

>> it is certainly a goal that we strive to achieve, but it is very difficult to figure out how to get from here to there -- how to get from miami to wisconsin. >> some people have figured it out, had they not? we are not all miami. we are not all texas. >> and we do not really know how to convince miami to mimic the behavior is of wisconsin, minnesota, some of the more parsimonious practice pattern states. >> that are more effective -- >> in many cases or more effective. >> i think we do know what works. i think there is bipartisan agreement, at least there has been until recent years, of some

of the experiments in the affordable care act -- dealing with unnecessary hospital remissions, being able to have more attention to primary care, dealing with waste, fraud, and abuse. there is a litany of bipartisan actions that can be taken to squeeze far more out of the existing medicare system, but people have not been incentive to do it. congress and both parties have all old -- have wobbled. i think we are setting our sights too low. i think we ought to be accelerating the reforms we talked about. yes, there is a little discipline. i do not think that is control, but we are not going to open the spigot and pay people for procedure after procedure after procedure, which is why doctors

are getting more money even though the reimbursement rates are more parsimonious. i think we ought to be more optimistic about this. i think there is a bipartisan consensus about how it could be done once we get out of this world we are in right now. >> the gentleman's time is expired. the gentleman from washington, mr. rogers, is recognized for five minutes. >> thank you, mr. chairman. i agree with mr. blumenauer. we must find a bipartisan solution to this. we need to be more optimistic. there have been some comments that have been made that sort of puzzle me a little bit. the question was asked earlier, why are we even paying attention to this issue? i think it is obvious from your testimony there are some major things you are expressing to all of us this morning.

some may be watching c-span and do not have a life. medicare is going bankrupt. you both agree with that. it is exhilarating, true? >> yes. >> medicare's dire financial status is drastically understated. would you agree with that? >> yes. >> i would say it is very likely to be significantly understated. >> i am a share of that. -- unsure of that. if we do not take full advantage of the initiatives in the affordable care at, if we do not encourage all the innovation that is going on in the private sector and the non-profit sector -- >> it was not understated just a year ago. >> excuse me? >> it was not understated just a

year ago. here we are today and we are accelerating the -- is that a yes? >> i am not sure what your question is. this report has warnings. >> it is a celebrated. is that not true? >> if yes. >> do expect that to continue? you are not short? ok. -- you are not sure? ok. massive tax increases? is that for the scenario? we must do something now. would you both agree with that? >> i would say that on the hi side, the application would be

greater general revenue requirements. >> ok. thank you. the thing i guess that is confusing to a lot of americans who see this health care bill that is out there and has been passed and implemented to some degree or another -- there is a $600 billion tax in this bill. $600 billion worth of taxes for people to pay for this. how can we get the economy going while continuing to attack small businesses? $523 million in cuts to medicare. no wonder people are expecting higher premiums and fewer benefits in medicare. i wanted to ask a specific question regarding the alternative scenario. it states that overall medicare spending is expected to grow to

10.3% of gdp -- that is a 10.3% over the trust the's report. growth of this magnitude of banks everybody. could you elaborate on what this may look like related to these important areas and other priorities like medical research and education? >> i agree that the main projection is a best case scenario. this would be pessimistic scenario. the reality is probably somewhere in the middle. if you take that with the scenario, and that is an unprecedented fiscal strain for the federal government. to% of gdp for one program alone is twice as much that any program has ever absorber. it would be over half of the

size of the entire federal government with respect to gdp. to have over half of our historic norms would be an unprecedented strain. >> public comment on this is all but for those numbers would be realized, this nation will have to address its deficit and debt problem. in my view, medicare will be one contributor to a solution. those numbers or hurt it. -- are horrific, but long before we face them, we have to make more fundamental changes in our revenues and expenditures across the board. >> the gentleman's time has expired. the gentleman from new jersey is recognized.

>> thank you, mr. chairman. what is the logical -- we learned in logic 101 -- it may not be true. our premises determine those things. i want to enter into the record, mr. chairman, the s&p indices concerning health care, health care costs, and bring to your attention, mr. chairman, that in 2010 medicare claim costs associated with hospital and professional services were patients were covered under medicare increased at a more modest 3.2% rate, much lower than the private sector.

i would like to ask to begin with what do you think attributed to the slowdown, to the more moderate pace of increase in medicare as well as the private sector going down, too, but not to the degree of medicare. why do you think that happens? but the view? either of you? >> my response to that would be that one factor is certainly the turndown in the economy, which has left some seniors and others with less income to pay their co insurance, their co- payments, and so on. it is conceivable that some even had to drop their committee -- drop their medigap policies.

cmf and the providers have begun to pay for overuse of services. many practitioners are working anew at their practice patterns. >> which is a major target of the health care act? >> it is a major change in attitude and behavior. it is going on throughout society. it is a good development. >> i would generally agree with that. certainly the overall state of the economy played a role. i would be candid in saying i do not know the answer. short-term fluctuations in the cost levels are very difficult to predict and to explain after the fact. my level of uncertainty as to

what rigidity that is very high. >> it is too early to tell if the health care at has had an effect on the cost we are trying to reduce. we'll never have a medicare program that is able to keep up with inflation and the rising cost of health care until we control in some way, shape, or form under a capitalistic system the rise of health care costs. we need to do something about that. we are trying to do something about that. one-third of the entire health care at dealt with medicare and medicaid and how we could save money in the process. much of it was not scored in the final analysis. in the report of 1997 brought

about some very interesting things -- the beginning of medicare advantage, the beginning of the process to start to privatize the system. now, we pay 12% more to these private plans. seniors are going to pay much more if we move to privatize the whole process under the guise of trying to straighten out medicare. look, all of these reports from 1970, as the gentleman from california pointed out before, now talk about the dire position in which medicare is in. everyone of those reports said the world is coming to an end as far as medicare is concerned. that did not happen.

as for my friend from wisconsin, this is what a bank account is all about. you take the money out of the account as you need it. you do not take it all out. it is very analogous to the funds in a bank account. when money is deposited, the money is used for other purposes until they are withdrawn. what is so different about what we do in terms of how we are calculating savings in the future? we need to take a look, mr. chairman, that not only the logic of what we say, but if there is any resemblance to the truth. this is not reality. >> the jim demint's time is expired. the gentleman from georgia is recognized for five minutes. >> i think our witnesses for helping us understand what are the financial operations of medicare. not the clinical side. as a physician, we are talking

about money, we are not talking about quality of health care where those kinds of things a person of 40 patients across the country. our friends on the other side of the aisle and a penchant for mischaracterizing our positive solution, i think. i love to touch on a couple of things mr. starts mentioned. he said our proposal was the voucher plan for medicare. you understand that our program is not a voucher program? it is a premium support program? >> the difference between premium support and vouchers has been explained by some as the payment not relating to the cost of the underlying enterprise. that is a distinction that i --

>> you supported the premium support program in the mid-90s. you would not have called it a voucher program, would you? in fact, you did not call it a voucher program at that time. you called a premium support program. mr. stark's also said are positive solution ends guaranteed benefits for seniors. that is not true. you know that. we save medicare for future generations. in our proposal it stipulates the program must be guaranteed. is that not true? >> to the extent that those details -- >> it is a guarantee program. that is correct. mr. starrs also talked about private project in -- talk about private contract think in the programs. with that not cause access problems? if not regulated, it might have

access problems. are you aware of any proposal that would put in place private contracting with that regulation? >> i think this is a matter of degree as where as existence. i am not. >> would in fact increase access for medicare for seniors in this country? is that not possible? >> it is possible, but not probable, i would say. >> i would beg to differ with you. there are individuals to understand the huge challenges with access right now the seniors have had at one of the ways to solve it you identified in your list of solutions. it is something that allows for increasing access. i want to touch of the medicare trigger. this is the sixth year in a row that trustees have said that the

excess general revenue for medicare funding -- when that trigger occurs, is it not the obligation of the president to propose to congress a solution to fix that problem? is that correct? >> if yes. >> have you seen any solution at this administration has offered? >> no. >> no. i think congress has waived the requirement. >> under the democrat control, they said do not worry about that. is that what they did? >> if yes. >> yes. i want to touch on this whole issue of medicare changing. you said there are significant changes to medicare through the

reform bill democrats put through. what has already been adopted in medicare as we know it -- would you agree with that statement? >> it transforms the program as all legislation -- >> medicare as we know right now does not exist under the democrat's plan already. is that correct? >> the question is what are referring to as medicare. >> medicare as we know it right now. >> it is and unmanaged care program. it exist after the affordable care act as it did before the affordable care act. >> the program right now has been changed significantly. would you agree with that statement? >> there have been significant changes -- >> medicare as we know it has

already changed. my time has expired but i look forward to submitting for the questions for the panel. >> the gentleman from new york, mr. randall, is recognized for five minutes. >> thank you mr. chairman for calling this meeting. i think it is helpful just to clear the air. we have objectives experts to have reputations to protect long after the elections are over whatever decisions we make that are going to cause any dissatisfaction with our constituents is much easier when the parties are talking together. they may not be happy nearly as an increase if the parties themselves have taken a different position. the fact that so many republicans got elected

attacking so-called "obamacare " for some democrats to get reelected. -- forced democrats to get reelected. the facts are not as important as appears to me. so. i just cannot believe that a nation that those so much to our asian population can spend trillions of dollars rebuilding the economy of afghanistan and iraq. this means we have to have reform. it may be painful. as long as we find each other, this is something you do not want to make. someone has this. as relates to medicare

insolvency, do you believe that the affordable care act goes in the direction of dillon with this in itself? >> the affordable care act extended through the direction. >> does it constantly request the preeti view what changes have to be made from the congress and the end of fenestration import it to protect the solvency? do you believe that we are not dealing with the problem at all and that we need a dramatically different approach? i do not have a problem changing it if it is bipartisan. i believe that an old dog can use new tricks. i believe that.

if they say this is moving in the right direction, that is not going to happen. if that happens at all, it is after the election. my question to you is that the affordable act bill allows us to deal with solvency if certain changes are made. do you believe that we just handed and out there? we know that this country has the ability to work together to deal with that problem. >> there are three things that come to mind. the primary engine under the affordable care act is these

annual adjustments in the reimbursement rates. in the last one before, the engine was powerful enough to account for basically the overall current course of cost projection over the long term. this is a little more reliant upon the advisory board. in order to hit the savings target, the productivity adjustments himself -- >> i am going to get the answer. my time is so restricted. i want to understand the premium report system more clearly. let me ask you about it. this anyone contradicted that he has a piece of the health insurance? it is to make a profit.

that is their job. if you are trying to make a project, the selection of people to be insured are based on the risk involved. if a person is more vulnerable when they are older, are they less inclined to get benefits without higher costs? no. this guarantees that you get something. you can only get what you are able to afford to get. is that true? >> that is true. the fact is that we are making major adjustments in putting the entire ability for people to get health care. it is in the hands of people that do not want you as a

client. i got a voucher. i got support. you cannot guarantee that i have enough to get it for my children. right? >> the time has expired. at witness can respond in a letter -- our witness can respond in a letter. the gentleman from florida is recognized for five minutes. >> thank you for holding such an important hearing. really afford to working with you and the rest of the members of the said committee. i also like to thank our witnesses for being here today. wanted go over one point. the medics wear -- the medicare trustee would be insolvent. my district was in florida.

it is a big issue all over the country. it is much bigger. one thing i do not believe is taking into account the reduction. when we project this out and look down the road, a lot of them will have to go out of business. we have another 30% cut that we are looking at. it does not take any impact in terms of the viability long- term. wouldn't you agree that these have been going to replace that would drive the insolvency date? we are looking at a problem a lot bigger.

>> the solvency issue relates to the hospital insurance fund. this is part b. that is not affected by solvency issues. the way this is constructed and is that it can never go exhausted. revenues are automatically given to the trust fund to make of the difference between projected costs and premium payments. >> it did affect the exhaustion of the trust fund. >> i have been here in the toe over four years. we have a 7 1/3 twice a year.

i do not know how anyone runs any business to allow these medical practices and have to look at a 30% cut every year. i do not know how this is part to the overall medical community. >> i think the principle affects of the override would be in the overall cost. under our projection, we see this cost. if you assume the override them, we are at 3% of gdp. it is a substantial cost if you assume the reductions are overwritten. >> they found that malpractice costs -- we could save as much as $55 billion a year.

do you think we should have malpractice reform? >> certainly, everything we can do to hold the arm this will make this better. if we can produce that level of savings, this would improve the financial al look. >> is this something you have personally looked at as a trustee? i can tell you about the sense of medicine. do you feel they need to to make sure they are covered? is this something you have looked at in terms of legal reform? >> not so much because of the jesse process. it deals of the congressional

budget office. generally, we do not tend to evaluate alternative policies with currently law. it would certainly draw heavily from the input of every one protect the panels. >> to you have any thoughts on legal tort reform and the impact it would have and your own personal opinion? >> this is something. i have a neurosurgeon. he said the malpractice is $200,000 a year. they are practicing a lot of defensive medicine. i need an area we can make a big change in. what are your thoughts? >> there are a number of studies tried to estimate the impact of

malpractice reform. by and large they come out saying that this is not a huge contributor to the rapid growth of costs. reform is certainly would be a significant contributor to lowering the gross by reducing the onetime level shift. i would align myself with his comments. >> >> authority think our witnesses for your update. >> what strikes me -- i want to thank our witnesses for your update. what strikes me is the report dating back to 1970.

what gems out is how much is really does check economic performance. and how this influences the ultimate insolvency. is this is something that is consistent? there are also a number of insurance. does it have a direct impact? >> that is an important contributor. congress has enacted significant legislative changes that have prolonged the life of the trust fund. >> i am looking at the late 90's. we had a. of robust economic growth. there is showing -- they had a year of robust economic growth. we have had a drop off of a number of years insolvency.

be greater safety for that type of practice system. this eludes me. the 37 states have already enacted the reform including the state of wisconsin. unless those 13 states that have not taken action is driving all this additional costs, i do not see it. study showed that the utilization practice of doctors in states that have this is a little different. is that what you found it?

>> i have not done any independent analysis. i have not come to that conclusion. >> a lot of this is already built into the affordable care act. we need to continue to move in here. we are expecting better outcomes. these are highly integrated. they are capable of producing some of the base results. a lot of what is in the act is driving that type of delivery system reforms to a more efficient and better outcome based system at a better price. the fact that studies have shown over and over that a large part of the health care dollars is going to customs procedures and things that are not working some range as high as $800 billion a year. they are going to various

procedures and tasks. they are not getting a good thing for the buck. the ultimate verdict in how successful we are is changing the way we pay for health care. it is opposed to the volume base payments that occur in medicare. would you agree with that? >> i would. there are things that are on track right now. i know this was brought up for criticism today. or is the work at the institute of medicine is doing in changing the fee-for-service system into a fee for value system. what happens in medicare will drive the health insurance market and how they reimburse with health care expenses. the concern i have with the plan that was just passed is if they would do away with all these reforms and create a voucher plan that ends medicare budget

out addressing the systemic problem have been the health care system, the rising costs and what we can do to been that cost curve. if we are moving forward, we are recording the quality outcome is. it is important. it will give us the long-term sustainability. would you deal with that? >> i am not sure what they have gone. i should be considering these issues. i think the affordable care at -- >> they do acknowledge some of those. it has the potential to move in the direction of providing better care at a reduced cost. as a former head, you realize that they are going to get a score. you all seem to come from missouri.

he had to see how it gets scored. a lot of this means the reform. >> this is right. i was criticized in this very room. >> thank you for a your testimony. >> the gentleman from illinois is recognized for five minutes. >> your report shows that it will now be bankrupt in 2024. americans will be forced to endure a massive tax hike in expenditures. can you explain what you mean by immediate? >> the way this works, of both on the social security side and on the other side is that the

amount of expenditure programs they can put out there is limited by what is on the trust fund. once the trust fund runs out, the program lacks the authority to make benefit payments. there is a lot of analysis of what has been done. a fairly common one is that payments will have to be delayed. it is by virtue of delay. >> this is the common understanding. this present moment in time, when insolvency happens, you immediately are prohibited based on the law and your understanding of the trustees from pain anything further out. your estimation is that would be a 17th term cut. is that correct? >> it varies according to year.

i think specifically is about 70%. then it becomes about 25%. >> when it became insolvent, it'll be flowing in from tax receipts. medicare would delay paying bills. hospitals would send the bill in. to wait five months. you see this of the intermediaries and other payers would be writing out the checks and transferring resources to the hospice or whatever and much delayed basis. >> that is not a hypothetical

cut it is not a hypothetical delayed. it is an actual delay in payment to the point of reaching the number. is that correct? >> this is very explicit. this can only be made from the trust fund. >> there is no other flexibility. if the revenues are not there, it and insolvency is declared, it will move forward. they do not have the authority to borrow in excess of the resources. >> and absent some change in the program, your prediction is that is where our nation will be in 2024. >> they are out there by the majority.

the end of medicare. it will and in 2020 for after some change. i yield back. >> i have a report from the actuary who says that that there is a reduction in expenditure. it is 53%.

there is an increase in the payroll tax. what we have seen here proposed is something that will put things much worse. i have watched this. it is clear to me that the decision to give doctors the right to set their own fees was a crucial error made in 1964. they wrote that they could have their usual customary fees. it set in motion a lot of what we are looking at today.

you know about the other day committee. most people do not know what there is. why is there no mention of the setting that is done? we do not have a schedule by the government. we have the committee recommending to us what we should pay. that is what we pay. how can we have control costs if we do not have the medical profession in some kind of direct negotiation with the government about what will be paid? this is a simplistic idea that never was going to be worth it. it only controls one thing. it led all the ability to raise rates by doing more of the same

procedure. i see in the washington post said this week many hospitals over use double ct scans. there are a thousand examples of over use of procedures in the medical care. you give this amounts of money for doing this. then there is the dune. they had had no control whatsoever. how do we get there. do not have the doctors at the table. >> i believe there is an advisor committee that gives as

recommendations. this is the ultimate decider. what they do is look at the relative value. this might be overpaid. many claimants are underpaid. what would happen if these changes were made. the hopewell is raised.

they made this suggestion. they believe they were overpaid. there is a robust procedure. they are being more frequently than is now the case. they have a respect to this. they can improve the reaction of payments much more.

the probably save some money. >> the advisor commission has made recommendations and analyzed this issue quite frequently. >> the time has expired. they are recognized for five minutes. >> i understand the value of the program, the importance of place in the lives of seniors. especially seniors back home in louisiana who have limited means. they depended on this for their life. i could go on and on about the quality and what we need to do to establish and strengthen a

the patients/daughter relationship based on high quality of medicine. this is not the purpose. we are here to talk about financial solvency. they have discerned respect of the county commission. we cannot double count. this is a real problem. we worked with many medicare patients. it is a huge disservice to medicare beneficiaries across this country. we have an obligation to fix this program and get it right. when i see this double counting, there is the reimbursement structure. this is legislative malpractice.

this is another example of where you are going to try to keep the lid on a boiling pot of liquid. it will not be in the best interest and meaning high- quality patient care. my question is this. we know we are headed toward 2024. as we know it ends. en if we did not correct it, it cannot be a payment mechanism. >> i would still say there would be a payment mechanism but it would not be able to pay. >> ok. before we get to that, clearly

it is not a simple situation where we get to the point and it stops. there will be other points of rationing. it is a situation. it will be after the date of insolvency. it is tiling the benefits that are laid out. providers may choose not to have as much care. they will have to wait a long time. it is a situation that up until that point, everything seems fine. >> that gives us the access problem. that is the other side of that

equation. the further we go, and it seems year after year we are seeing more and more problems with access, the do not have access, delayed access is our ration. >> there are two elements of this issue. one is the sudden withdrawals of benefits. there is another question of restraining our reimbursement rates under current law. does this have the effect of going out of business? this is sending we are wrestling with. >> the answer is clearly yes.

we are seeing worsening access problems. treating a patient who came in the emergency room, we weren't able to find primary care providers. and only got worse. we have an obligation to do with this. s. see these characterization's medicare is ending under current law. we need to take their heads out of the sand. we as the other ones to take their heads added the stand. we have to be honest with the american people. we had to be very reliable with this program and get it right. it is critically important.

>> thank you. the gentle lady from tennessee is recognized for five minutes. >> i thank you for allowing me to sit on this committee. i appreciate this. i would like to discuss the draft you have on page 5. there is non interest. medicare trust fund spending is expected to make up a rapidly increasing% of gdp. it will rise from 1.9% to 3.4% in 2025. they project that 21.3 trillion in general revenue will be

needed to pay the benefits. define it attry to find this level? >> that would be an enormous expansion of fiscal pressure. it is far beyond any one. even this understates the case. this is the best case scenario in which the payment rates are reduced by 29%. it to be significantly higher than this. >> given that information, if you are recognizing that it would have to come from the general fund.

would you agree that this would impact some of the other national priorities such as education or roads or some of those areas? >> absolutely. i make it generally is probably the single greatest threat in discretionary spending. >> given that, it is not had agreed going bankrupt. is it fair to say that it is bankrupting our federal budget? >> there is nesting go costs of our overall problems. they start taking this great

advantage. we are going to have to make some decisions about what it is that you will fund are not funds. do you think that if congress enacted policies that reduce spending by $15 billion over the next 10 years will be sufficient to address the financial crisis? >> no. i agree with you. there is a growing chorus about doing nothing and waiting for the delivery reforms from their health care to take effect. cbo estimates those policies were $14.7 billion. given that, it seems to me that we have to find more than what they recommend. would you agree with that? >> i agree with that. thank you. i yield back my time. >> with that, i would like to

thank our witnesses for your testimony and insight from the report and the export -- expert testimony we heard today. it has become clear that medicare faces real and substantial challenges. we can and must meet these challenges. they must act sooner not later. they can make further ones. i am confident we can meet the challenge that lies before us. it may seem like an insurmountable challenge. the current seniors rightly expect us to work together to work together to find a solution

to preserve the medicare problem fort generations to come. as a reminder, at any member wishing to submit a question for the record will have 14 days to do so. i as classicist to respond in a timely manner. with that, and the subcommittee is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

the committee will come to order. this morning we're going to go in an order which we normally don't have, which is we will have statements after our first two witnesses. we're really honored today to have senator stab know and congressman bass.

we'll first start with senator stabenow. he's a member of the senate energy committee, the finance committee, and the budget committee. she serves also as the co-chair of the bipartisan and senate manufacturing caucus and was appointed to the president's export counsel council by both president bush and president obama. including the retooling loan program for advanced manufacturers that is bringing jobs back to the united states and also want to make sure that i mentioned that she represents the state of michigan and i know that she's very proud of that. as a new senator, she was here a number of years ahead of me. she was a mentor it to new

senators and continues to serve in that capacity i'd also like to and alternative energy and commerce committee prior to being elected to congress in 2010. she served on the board of managers in jaffray, one of the leading producers of clean burning wood pellets. representative bass previously held the same seat in congress from 1995 until 2007. so we'll start with senator stabenow. we're grateful that the senator is with us today. >> thank you so much, chairman casey and vice chairman brady. i want to thank you for recognizing the importance of manufacturing in this country and having this hearing. i think this is a very, very

important hearing and i very much appreciate our friendship and working relationship and how you fight for pennsylvania. but i very much appreciate as chair and vice chair that you are both focused, i know, on manufacturing in this country. so thank you. we of course understand in michigan that this is a critical issue. i firmly believe we need to make things and grow things. if we make things here and grow things here, the jobs are here. so that's pretty fundamental philosophy that i operate under and i think it's one that makes sense for us. we are very proud in michigan in the last century to be the heart of american manufacturing and are right fully proud. for too long we've seen a situation where companieses are actually competing against

countries right now. that's what is happening. first started with japan and their huge investments in advanced battery manufacturing that then allowed their automobile company to be able to move more quickly in terms of hybrids and electric vehicles because they were funding that and investing in that. their government was doing that. but we're now seeing china. we all know that there are a thousand different challenges around china and germany has a very different strategy. they are competing against us because they want what we have had. robust middle class and a strong economy for the majority of their citizens. in the years between 1979 and 2009, the united states lost more than eight million manufacturers jobs and michigan

has lost more than three million in the last ten years. during that time, countries like china have been investing heavily in emerging technologies and, frankly, if they don't create it, they will just steal it from us. we have a number of different challenges, as we know, and as we work in a global economy. but they've certainly been focusing on renewable energy and we have all been watching that happen. in the next two years alone, china will invest almost $15 billion in advanced battery technology to compete with us. japan paid for all of the initial research for toyota for their vehicles and japan invested in solar industry. unfortunately, part of china's manufacturing strategy, as i indicated is stealing

intellectual property which is what we need to address in terms of fair trade, the ability to have doors open and to be able to have the rules apply on both sides of the door so breaking down international trade barriers is very important for us. we need to hold china accountable and devote additional resources to trade enforcement and we certainly that others have been able to have strategic investment in clean energy technology. president obama has challenged us to put one million electric cars on the road by 2015. we realize by investing in innovation we can create jobs in america and frankly get us off of foreign oil and address a number of other issues, including national security. so i would just urge, as we look

at the pattern for what we have done in just a short time in the last two years we invested two billion in the recovery act in advanced battery innovation and manufacturing. that unleashed tens of billions of dollars in private investment while other countries around the world are investing much, much more. we found by public private partnerships working together we are seeing new jobs and new industries develop. in fact, by 2015, we will have the capacity of going from 2% of the world's advanced battery manufacturing, we'll have the capacity to produce 40% of the world's battery technologies because of the public investment unleashed to work with the private sector. since 2010 in january we've created over a quarter of a million manufacturing jobs and that's the first increase in more than a decade. why? because we've begun to do a few

things. as my time comes to a close, i would briefly say that we have done a number of things focusing on clean energy, both advanced clean energy loans that we have done in order to make sure that capital is available. you mentioned the retooling loans that we did in 2007 that has allowed a number of companies -- one great company in michigan, ford motor company that we tooled a large truck plant to bring back the small vehicles, the ford focus electric and other ford focus options. they are bringing jobs back from mexico related to that production because we partnered with them to retool plants. so whether it's battery innovation, retooling plants, the advanced manufacturing tax credit which we dub is 48 c, we are in a situation now where we are beginning to see some changes. there is a 30% credit for clean

energy manufacturing for equipment and buildings and we passed two years ago called 48c and i would strongly conclude by saying, we should strongly invest in those things that have begun to work. we are seeing more companies, the advanced manufacturing tax credit has enabled countries in 43 states to be able to open and expand in new kinds of technologies. and let me just say that one final thing and that is, while china has five or ten-year plans, our policies are too unpredictable. we do things a year at a time if we're lucky. other countries are looking at five years, ten years, or longer. for our private sector to have the confidence to invest, and these are major investments to create jobs, we need longer term policies. innovation, fair trade, longer

term policies, and i truly, truly believe that if we make the right investments, partnering together in a global economy, where every single company is competing against countries right now, we will reinvigorate and create an advanced manufacturing economy that is critical for us as we move forward and have a strong middle class in this country. thank you very much. >> senator stabenow, thank you. i should have mentioned that your full statement will be made as part of the record and that applies to congressman bass as well. congressman bass? >> i would like to have my statement made part of the record. a state for the diverse economy and manufacturing sector. we have low unemployment, less than 5%. 4.7% last statistic. we have a highly educated,

highly skilled workforce and a lower tax rate than 49 other states in america. we have small government and we have an economy that benefits from those factors. i hope that my perspective as both a manufacturer and state could be useful in this discussion. we have large employers employing more than 5,000 people in the defense industry. in fact, 11% of the total output of our economy is directly associated with manufacturing. but it hasn't always been that way or put it this way, the output hasn't been the same. my an says stores settled in the state of new hampshire in the mid-1700s. and their children built the phoenix mill in new hampshire, which was a manufacturer -- a textile manufacture.

they took the sheep and started making clothing. throughout the next 200 years, the economy evolved in the state as a manufacturing economy in textiles, in shoes, in the '50s. new hampshire was one of the leading defense contractors in the country. in the early to late '90s, new hampshire was number two in the nation for high-tech employees. where are we today? as senator stabenow so articulately discussed, it's one of my passions, my new life here in the u.s. congress. all in all, we survive because we have an environment where we create the ability for manufacturers to thrive in an environment that supports entrepreneurship and believes that capitalism is not a dirty word, where the need for a good workplace, good enveern minute tal controls and access to products, where that is balanced with the need not to tie down

our business community to the extent that they are spending unnecessary sums of money and labor, trying to meet regulations that are not necessarily in the best interest of anybody. i ran for congress in 1994 because -- or the tipping point in my company. i went to the xerox machine one day. this was in 1994. there was an enormous placard that explained chapter after chapter about how i needed to do this or that in order to copy because the toner might harm me forever. i had been using this machine for ten years and felt fine. i couldn't believe -- i asked the xerox guy and he said, we have to put that up there. it's part of the rules and we're going to have to read it. something is wrong here. something is wrong. and we owned a manufacturing facility that was in full

compliance with osha. then mosha appeared. now, it was in a state that starts with "m." mosha's regulations were different than osha's regulations. we didn't know what we were supposed to follow. it was very perplexing. this is not good for manufacturing in america. now, i'm in as favor as anybody of a safe workplace but we have to apply a level of cost benefit to all of the inner relationship between government and manufacturers. like many of us here, i watch occasionally shows on tv. there is one that i recall that is called "how it's made." it's really quite extraordinary, the level of sophistication that we have in manufacturing and every one of those little shows is about american manufacturing and how diverse we can be. if we can keep our tax rates

competitive globally and balance it so that the consumers and working americans are safe, yet we can compete with other manufacturers around the world, we will stay ahead of china and we're well-educated and pro productive from chinese workers but we need to have a good competitive workplace. we need to be able to trade and we need to be able to continue to have a well-educated workforce. we don't need the government to tell us how to succeed in manufacturing. i've done it and i did it without any help from the u.s. government. thank you very much. >> congressman, thank you very much. as is often the case, we usually don't have a lot of questions because i know you're busy. but -- unless congressman brady, our vice chair has questions. i just wanted to thank you for your testimony.

if we have any -- i'll speak for myself, i'll submit them. but i know that you have places that you've got to get to. vice chairman brady? >> no, i agree with you. thank you for holding this hearing and thank you for this live testimony that we need to hear as we look at how to revive this economy and we keep a very strong, important part of our sector manufacturing moving forward. i want to thank senator stabenow and senator bass. >> lee keep to my opening so we can keep things moving in the right direction. first of all, i want to thank you everyone for being here to discuss a critically important issue of manufacturing in the united states of america. and the subtitle for our hearing is why we need a national manufacturing strategy. but i'm pleased to hold this hearing along with vice chairman

brady to discuss the role that manufacturing plays in the economy and the act that congress can take in revitalizing the sector. manufacturing has been a path way to the middle class for millions and millions of american families. whether it was steel or cars or clothes or furniture, the people who made these products were paid good wages with solid benefits at the same time. but in the past three decades, more and more of these jobs have moved overseas to developing countries with abundant supplies of cheap labor. the unfortunate reality is from unfair trade practices, such as loose intellectual property

rights and a lax environmental protection in other countries. when we lose these jobs overseas, we lose jobs which we need. and we also jeopardize u.s. leadership and research and development as well as innovation which created the opportunities in the first place. the numbers tell a worry some story. manufacturing employment peaked in the united states in 1979. 19.6 million workers. today, we're down to 11.7 million people employed in manufacturing. again, that's 19.6 through 11.7, a decline of 40%. just in those three short years. the last ten years have been tough for manufacturing overall. from january '01 to may 2011, this past month, the united states lost 5.4 million

manufacturing jobs. just in those ten years. including 285,000 in my home state of pennsylvania in those last ten years. most of these losses occurred between february '01 and february '09, 4.6 million u.s. manufacturing jobs disappeared it in that eight-year period. in the past year and a half, manufacturing as a sector has gained strength. that's a little bit of good news, and has regained the jobs lost. since the end of 2009, manufacturing has added 250,000 jobs, approximately. the important progress, to be sure. but we need to do a lot more in the months and years ahead. this hearing is about how we build on the recent progress and lay the ground work for future growth in manufacturing. it's clear we need to take

actions that have both an immediate and long term benefit. just over the horizon. and the starting point should be a national manufacturing strategy. not just a set of policies here and there but a real strategy. while other countries including germany, india, and japan have laid out a strategy, the united states has stood silent. the u.s. needs a development -- i should say needs to develop a comprehensive national manufacturing strategy built from the input of small and large businesses, labor and other key stake holders in this strategy. it must be updated regularly and we must respond to new challenges and season new opportunities. this will allow us to effectively coordinate our resources and maximize our effort. but there are other steps that we could take, as we discussed

at our joint economic hearing, on the life sciences industry, we should make permanent the research and development tax credit to give companies the certainty that they need to make long term r and d investments here in the u.s. and it's time to crack down on china's currency so american companies and workers have a fair shot. the under valuation provides a significant subsidy, as much as 40% and a competitor a 40-yard head start. it would be fair in that instance and shouldn't allow the chinese to get ahead with 40% currency. currency ma nip plags is causing our workers' jobs and it needs

to be stopped. we need to stop talking about it and do something about it. we must help workers that have lost their jobs based upon unfair foreign competition and we need to find new strategies to increase employment. almost 24,000 people receive the help that taa provides. taa strengthens the safety net protection for our workers and needs to be extended before we consider any trade agreements with south korea, colombia, and panama. earlier this week i introduced legislation to extend trade adjustment assistance for five years and we need it. finally, we must continue to invest in the so-called stem disciplines. all of which, i should say, and all, are very important to our education system so that our young people are prepared for the high-skilled and high-paying

jobs of the future. so these are a few of the concrete steps we can and should take. manufacturing is the heart and soul of our economy, still even with all of the losses. still the heart and soul of our economy. even though our manufacturing employment has declined significantly since the 1970s, the u.s. remains the world's manufacturing leader, producing one-fifth of manufacturing products worldwide. we haven't done enough to support and protect our excellent manufacturing companies and workers. it's time for that to change. and changing means charting a new manufacturing strategy which will strengthen our economy and help create new jobs and new opportunities. and i believe that hearings like today can build a consensus bipartisan. we saw that today with our first panel, that we can build that

consensus on the core elements of the comprehensive strategy to support manufacturing and strengthen our middle class. today's hearing is a first in a series of hearings that the joint economic committee will hold to determine the best strategies for revitalizing manufacturing and rebuilding that base. we're fortunate today to have with us a distinguished panel of experts who bring with them deep knowledge of manufacturing and a valuable perspective on the steps that we can take to re-energize the vibrant sector and this vibrant sector of the american economy. we look forward to our panel's testimony today. we're grateful for their testimony. i'll be introducing our panel in a moment. i want to hear from vice chairman brady. we're grateful for the hearing that he held on the house side and we're grateful that he made the journey over to this side of the capital today and we're

thankful for his opening statement. >> thank you for calling on this important topic and appreciate the distinguished panel for being here as well. the manufacturing has changed. manufacturing productivity in america has soared. what took 1,000 workers to produce in 1950 now only takes 184. today u.s. manufacturers produce two-thirds of what our country consumes, down from 80% three decades ago. many consumers goods, as you know, that were manufactured here are now imported. today, 9% of the shoes are brought in. during the same time entirely new manufacturing industries have arisen in america, such as in computer chips. today chemical products, food, computers and electronics, fabricated metal products and machinery are the top five manufactured products. while shrunk the

workforce over the past 40 years, manufacturing remains an important part of our economy. u.s. manufacturers produce about 12.5% of our gross domestic product and employ about 9% of our workers. that translates into 12 million manufacturing jobs and nearly seven million related jobs, many of them in small businesses. by transitioning the high-value products, america leads the world in manufacturing output and as the world's largest manufacturing economy producing 21% of global manufactured products. china is second at 15% and japan third at 12. however, china is quickly becoming a contender the top spot. manufactured goods account for more than half of what america sells to other countries. we rank third in the world as an exporter following the chin dma. as the economic recovery struggles, manufacturing growth

is recently stalled in many parts of our country. in light of these dramatic changes, the issue of this hearing is whether congress should adopt a policy for manufacturing under the modest fabric of a national strategy. it's a timely question. my concern is that while often well intentioned, an industrial policy can move into a plan of central planning which requires the invisible happened of the free market with the invisible hand of the government. and it can result in the undesirable, economic stagnation. industrial policy has repeatedly failed. old firms and capture industry and protect themselves at the expense of the consumer and ultimately economic growth.

the view of business as it moves, if it keeps moving regulated, if it stops moving, subsidize it. the chairman of the council economic advisers charles one does not have to be a sin to forecast the surest way to protection matters is an existence under the rubic of industrial policy. the likely outcome of industrial policy much both protecting the losers and picking the winners is that the losers would back the subsidies for the winners on the latter support of protections. as we listen to testimony today from distinguished lawmakers and business leaders, my thought is that congress should raise the competitiveness and opportunity for all economic votes in our country. one, to ensure businesses do not bear higher costs, congress

should adopt a plan to reduce federal spending relative to the size of our economy, reform our programs to make them sustain blee solvent and bring the federal budget back. two, to increase competitiveness around the globe, congress should reform our corporate taxes. the united states is the second highest income tax rate in the world. congress should reduce the after tax cost to investment by most commitment and shortening the appreciation schedules for building. congress should move to a territorial tax system and until then congress should act now to allow u.s. corporations to repat tree ate standard products to invest in new jobs and stability here at home. farmers and service companies, congress should immediately approve the three outstanding free trade agreements with colombia, panama, and south korea and seek more opportunities to open growing

markets to american workers. and, fourth, to reduce unit costs and keep americans congress should repeal laws that drive up costs, such as the new national health care law and unnecessary federal regulations. to help erase the disadvantage for u.s. manufacturings, compared to the global competitors, congress should act now to reform our tort system to produce those excessive costs and frivolous lawsuits. i believe adopting these economic policies would benefit u.s. manufacturers, their suppliers and workers far more than in the national manufacturing strategy. final point. lawmakers and policy makes need much better information on trade flows, on production network and global supply chains to better reflect the marketplace of today. for example, statistics failed to account for the trade in value among two or more countries.

our bureau of labor and statistics can track a job gained or lost in a local pub but not in trade. we're using strar ohio statistics that don't reflect the changes occurring in this fast growing global marketplace. accurate, timely, and real world data is a bipartisan goal. i'm convinced we can all work together towards. i look forward to hearing today's witnesses and again i think chairman casey for holding this important series of hearings. >> vice chairman brady, thank you very much. unless there are other statements from our members, we can move to -- i'll introduce each of the witnesses and then we'll go one by one. let me start on the audience's right, with dr. mark zandi. ice the chief economist of moodys analytics where he directs the resnch and consulting services to business, governments, and other institutions. dr. zandi's research includes

macroeconomics, financial, and regional economics. in addition, he conducts regular briefings on the economy. he is frequently quoted in national and global news outlets. dr. zandi received his ph.d. at the university of pennsylvania. i will stop and pause here for a moment. we're proud of that. and received his botch lor degree from the university of pennsylvania as well. we're thankful that you're here, doctor. mr. alex brill studies the impact of tax policy in the u.s. economy. he was formerly the chief economist to the house ways and means economy and in congress and at the cea. mr. brill worked on a variety of policy issues, including international tax policies, including

international tax policy and u.s. trade policy. he graduated with a bvpt .a. in economics and received a masters for boston university. we're grateful you're here. >> my wife is a massachusetts native. so i'm glad to be here. >> the national ceo of manufacturers. the largest manufacturing trade association in the united states representing small and large manufacturers in every industrial sector. he became the national association directors in january of 2011. he's a lidding advocate nearly 12 million americans employed directly in manufacturing, educating the public and policymakers on issues that affect this critical sector of the u.s. economy. he previously served as chief of

staff to a congressman a governor and allen. mr. timmons graduated from the ohio state university. welcome, mr. timmons. finally scott paul. scott m. paul is the director of the alliance for american manufacturing. which was launched in april of 2007. aam is a nonpartisan, nonprofit partnership established by some of america's leading manufacturers enunited steel workers to explore common solutions to challenging topics such as job creation, infrastructure investment, international trade and global competitiveness. mr. paul serves as a staff member to the late represent jim johns from the state of indiana and former representative peter barker from the state of wisconsin. and as the chief foreign policy

and trade adviser to then house democratic whip he received a b.a. from pennsylvania state university as well as an m.a. from george town. we'll start with dr. zandy. >> thank you congressmen for the opportunity to be here today. i am an employee of the moody's operation, but these are my views i'm expressing. so you know i'm not an egg head. i did start my own company and grew into a pretty good size small business and sold it to the moody's organization about five years ago. so i've always been a business person as well. first, manufacturing plays a vital role in our economy in the business cycle and in the

economy more broadly. that's clearly evident in the current economic recovery. manufacturing has been key o the growth that we have experienced over the past two years. just to give you a few statistics, manufacturing has accounted for over half the growth in gdp over the past two years. in terms of wages and salaries, it's about one-fifth of the growth, and in terms of jobs, one-tenth, although many of the temporary health jobs that have been created in the recovery are also on the factory floor. one other interesting point, manufacturing contribution to this recovery at least so far has been greater than in any other economic recovery since

world war ii. so this is very important to our current economic prospects in terms of job creation and growth and output. manufacture's role in the economy is key for a number of other reasons. it's very important to middle income america. there are no better jobs for middle class americans than manufacturing, just to give you a few more statistics. the average wage and salary is just under $50,000 a year. that's the average across all industries and occupations. the average in manufacturing is over $58,000 a year. just for context, the highest paying industry is in mining at $90,000 a year. the lowest is in the hospitality industry, just over $20,000 a year. so manufacturing jobs are very, very important to supporting

middle income households. we need these jobs to help support the middle class. it's also important to recognize manufacturing's role in many smaller parts of the community across the country. more rural areas. particularly from pennsylvania, your home state, senator, all the way across the country. ohio, indiana, illinois, iowa, wisconsin. and then from michigan in the north all the way down to alabama an georgia, that region is very dependent. and these economies are small. these folks that lose jobs in the communities are stuck in a sense. it's very important to revive and support manufacturing

because it's key to their well being. i should say going back to the recovery, growth in these economies quiet strong. finally one other point about the role of manufacturing, it's vit vital. this is the fountain of our growth and living standards. manufacturing, productivity growth has been 3% over the past decade compared to about 2% in the rest of the economy. more importantly than that a lot of what is produced in manufacturing goes to supporting productivity growth in the rest of the economy. for example, my business is economic consulting. i build a lot of models. i rely on sophisticated telecommunications equipment and other kinds of computer technology, data processing and i couldn't do it without a very

productive manufacturing base. point number one is manufacturing is very important. point number two, and i'm not going in detail, there are in my view a number of things that policymakers can do to help support manufacturing in opening up global trade. you mentioned the chinese currency. that's vital to address. nothing is more important than your economic address. they're fot in line. that's a significant competitive advantage for all manufacturers. and other businesses as well. also policies to lower the cost of doing business. the cost of labor, the cost of capital, going back to corporate tax reform. the cost of transportation and distribution. this goes to our infrastructure, which is sorely lack iing and manufacturers are very energy intense. we need to focus on trying to

provide lower cost energy sources. using the natural gas resources that are clearly evident in many parts of the country and is quite cheap and can fuel the manufacturing firms along into the future. i will be very happy to discuss a range of policy options with regard to all of those things. i think you have a very important role in supporting the manufacturing base. that's vital to the long-term economic future. thank you. >> dr., thank you very much. i should have mentioned your full testimony will be part of the record. you were very close to the five-minute mark. that's good. >> thank you very much to all the members of the committee. thank you for the opportunity to be here this morning and discuss the manufacturing sector, my perspectives on sound fiscal policies to promote economic growth. i would like to address two points in my remarks this morning. first, while manufacturing unemployment is and has been in

decline, productivity growth in the sector is robust. second, policymakers should establish broad economic policies that permit the u.s. economy to evolve. manufacturing, a wide range of industries including automotive parts and food production has long been a significant driver of economic growth in united states and abroad. total manufacturing output declined during the recession and has yet to fully recover. true to its reputation, manufacturing labor productivity increases 4.1% over the last four quarters. manufacturing employment was hit particularly heart. nearly 2 million jobs were lost in the 8 months ending december of 2009. manufacturing employment has

been declining in the u.s. since the peak in 1970. in light of this, we should not expect a sizable increase in employment in this sector. even as the economy recovers more fully and output increases. the explanation is productivity growth. while the able to produce more output with less labor input can reduce employment and manufacture i manufacturing, in short the manufacturing sector today is evolving similarly to the agriculture sector a century before. the downward trend in manufacturing employment prompt some to conclude the government should give special attention to this sector.

the significance and importance of manufacturing in the united states economy is undeniable, but it's critical to recognize that manufacturing is but one sector of a large and ro bust u.s. economy. the role of mollsy makers is to establish broad and stable policies that permit the u.s. economy to grow as markets dictate. given that objective, policymakers should not seek narrow policies for a single sector. instead, we should improve the u.s. business environment as a whole. pursuing such structural reforms will benefit the manufacturing sector directly by improving our competitiveness and reducing cost and impediments and indirectly by encouraging growth across the entire economy, and thereby increasing demand. it's important to recognize the

myriad distortionary not neutral policies that economist. one is the creation of the congress' department manufacturing initiative and the establishment of www.manufacturing.gov. a web side address name which i consider to be an oxymoron in a free market economy. the policies that favor manufacturing over other industries go beyond dedicated websites and agency initiatives. one such is tax brackets. section 199 allows for producers of manufactured goods to claim a deduction of approximately equal to three percentage points reduction in the income tax rate. one way to reduce the distortion and mitigate other harmful deductions would be to significantly reduce the u.s.

corporate tax rate. replacing it to perhaps 25% would both level the playing field between manufactured and nonmanufactured production and improve the general competitiveness of all u.s. corporations. corporate tax reform is not the only necessary change, just one critical step to go a long way towards achieving a more neutral fiscal policy to the long-term benefit of the manufacturing sector and the economy at large. i believe we need sound business policy for all industries. >> thank you very much, chairman casey. i really appreciate having the chance to speak to you today about manufacturing in the

united states. i truly believe in the power of manufacturing. not just for families, but for our country as well. back in 1930s my grandfather left the farm and stood in line for six months at a local manufacturer waiting for a job at that facility because he knew then what so many manufacturing employees know today. a manufacturing job paves the way to a middle class. it did so for my family at that time. we represent about 12,000 members of all sizes, and we're the voice of 12 million americans who work in manufacturing. it's safe to say we're all frustrated with the pace of the economy recovery. a recent "washington post" poll found a majority of americans actually think the recovery has yet to begin.

manufacturing can lead to recovery in the months ahead. that number pales in comparison to the 2.2 million jobs lost during the recession wchlt a slightly brighter picture cannot be taken for granted. after months of consistent job gains, manufacturers lost 5,000 jobs. so clearly we have a lot of work to do. i ask that each of you focus on a very basic and fundamental question. will this policy and every policy you're deliberating help the country create jobs and compete successfully in the international marketplace? today it's 18% more expensive to manufacture a product in the united states than it is in other industrial economies. other countries are racing ahead and adopting progrowth policies and leaving the united states behind.

for instance, the corporate tax rate. the united states is moving in the wrong direction as other countries have reduced their rates the united states is standing still. we currently have the second highest corporate tax rate in the world, behind japan. regulations stifle jobs and economic growth. there's a trillion dollar job plus wait. then there's trade. the "wall street journal" reported columbia is looking to increase trade ties with china. noting the agreement is the deal we want more than any other. the trade minister said they can no longer sit waiting.

manufacturers are waiting for action. there are are 120 other free trade agreements being negotiated around the world. the u.s. is only party to one of those. we're seating our market share to our competitors. there are so many other policies that are causing us to standstill. there's also policies that are actually turning the clock back. excessive new regulations continue to mount. once these rules are on the books, communities across the nation would be in violation of the clean air act. these new roles could cost as many as 7.3 million jobs by 2020 and add to 1.1 trillion in

regulatory costs. our competitors aren't trying to hamstring the economies this way. they're looking for ways to take our mantle of economic leadership away from us. we ought not to be unintentionally helping them do so. i can't recall i've ever met an american who claims too much. we have to take that broad support and turn it into action. whatever policies the administration ultimately decide to adopt, they should be designed with a specific purpose of making the united states the best place in the world to innovate, to manufacture and to do business. american manufacturers are unmatched in their resourcefulness. manufacturing is poised for a renaissance that can lead to a robust economic recovery.

our government must simply enable that to happen. thank you so much. >> thank you, members of the committee. i want te thank you for inviting me to testify today. i first ask permission to include supplementary materials into the record. >> they will be included. >> thank you. amm is a partnership formed by the leading manufacturers and the united steel workers with one goal, strengthening american manufacturing and therefore our nation's economic and national security. in an increasingly intense partisan climate, we believe our approach can identify appropriate avenues for cooperation. i will say the idea of a manufacturing tragedy is hardly a radical concept and a ro bust strategy has been at the core of american economic policy for all but a few brief periods of our history. today's growth of public policy to boost manufacturing is the

exception, not the rule, dating all the way back to our founding fathers. indeed, alexander hamilton constructed america's first industrial policy in 1791. i encourage you to read it. a policy that continued until the end of world war ii. globalization and economic exports and production have helped to steadily erode manufacturing as a percentage of our gdp, private sector employment and other key measures. the idea is not a partisan one. president reagan adopted a flurry of measures for a trade relationship with europe in japan in the 1980s. relative to the dollar in a managed way had a positive effect in lowers our current account balance over time. ore technology spurred their development and commercialization.

requirements for certain infrastructure rimts to boost domestic employment. more recently, president obama and congress worked together to provide loans and breathing space for the domestic auto industry, which they needed to rebuild and thrive. the effort wasn't perfect. but it was a necessary step to stabilize one of the support structures for domestic manufacturing. not a long term effort to grow manufacture's job capacity. one considers no matter how innovated or competitive individual manufactures may be, there's some problems that simply cannot be solved on their own. as recently articulated by jared bernstein on the center of budget priorities. research and development can be expensive and hard to capture profits.

firms often need assistance in applying economic innovations to the production process. manufactures often face barriers to accessing credit for entry expansion and innovation. we need a ro bust manufacturing strategy because the fate of the industrial sector of our economy is too important to be left to a gaggle of competing and satisfying theorys of why it's been declining. the decline of manufacturing is not inevitable or desirable. high regulatory costs or inefficiency. let's look at germany. germany's global shares of manufacturing outputs and exports have held steady over the past decade while america's have declined and china's has

risen sharply. average manufacturing wages in germany is $48 an hour. in the united states they're $32. germany has a strategy for boosting manufacturing focused on skills, technology, investment, demand and centers. labor business, government and collaboration. aggressive trade policies that allow it to successfully compete. germany is a world leader in manufacturing and solar production because it wants to be and stake holders work together to make it successful. it matters more in germany than it does here. what does america need to do to create more manufacturing jobs? im summarize these recommendations included in my written testimony. first, we have to deal with chinese currency manipulation.

the benefits of gdp to employment would be extraordinary. second, we need to counter china's other cheating as rare earth minerals and the simple truth is when we act, when weapon stand up and enforce trade laws, we get results helping companies all across the nation, including those in pennsylvania hean in texas. second, we should retool the exposition. we should make tax changes. as well as a number of members of the dias here. what we don't want to do is offset a corporate tax rate reduction with reductions and deductions for manufacturing. young estimates such an approach

could give manufacturers a $48 million bill. and while well should eliminate dupelative recommendations, winning a race to the bottom is something the united states doesn't want to engage in. sixth, we need to invest in infrastructure and establish a national infrastructure bank and finally we need a skills and training infrastructure that is far more advanced than it is today. thank you very much. >> thank you, mr. paul. everyone was close to their time. you were actually under time. pretty impressive. we're grateful for that. i'll start the questions. our members of the committee know when their turn will come up. i wanted to start with you.

i was glad you walked through recommendations because i think today we get a sense from everyone who has spoken from a microphone. there's more analysis than with could do. there's ways toe impruf the picture of manufacturing. i'll ask other witnesses as well. but one of the points you made, and you were able to make part of it. when you start on page 6 with the recommendations the first one you make is, and i'm quoting, first pass legislation to allow american workers and firms to seek relief from the effects of currency manipulation by china and other countries. using our economisting trade laws. unquote. later in the paragraph, you say

that america would see a significant boost in gdp, up to 1.9%. 2.25 million more jobs and $71 billion annually in deficit reduction. and by doing ha? >> i'm sorry. let me turn on the microphone here. a number of economists. it extends. alan greenspan mentioned it. china's currency manipulation is one of the the most harmful policies out there preventing not only manufacturing growth and other industrialized and industrializing countries. not only affects the united states, it affects countries like brazil. it becomes a vicious cycle that

is hard to get out of. i will say a year ago china valued what they want. it still remains grossly undervalued. somewhere between 0 pk and 40%. we have tools within our trade laws that we can deploy, that we've deployed on subsidies. that we've deployed against dumping with a couple of tweaks we could also apply to currency manipulation. and it could certainly produce results. but it would at least give our industries, our workers, a tool and trade laws that they don't have currently to deal with this unfair currency manipulation from china. a desired approach, and i'll be candid, would be for the administration to negotiate with china i haven't seen that

willingness. we need to see congress step up to the plate. there's bipartisan legislation i would want to pass in the house of representatives. i think it's something congress should do immediately. >> i'm glad you focused on that. i think sometimes when people here folks like us in washington talk about china currency, i guess it can sound like, i don't know, a congressional complaint, pointing a finger at a country. just as you and so many others have stated, if it's not the key thing to do, it's in the top two or three. the evidence is irrefutable. you said as much as i and many others are working on legislation, we codo a lot right now.

this administration can do a lot more to aggressively enforce the law. let me say for the record if your testimony, and you were referring to the economic policy, correct? if china appreciated their currency at a market based level for the next two years, america would see a gdp increase of 1.9%, 2.25 million jobs. and a $71 billion deficit reduction impact. election say thing wrong by a little bit. if we got a fraction of that from one policy it would be dramatically significant. we'll get to more questions about this and other recommendations from the other three witnesses. i wanted to make that point.

>> i think the policy will be to blame china. it is one in a plethora of challenges facing american manufacturing. many of them home grown, unfortunately. that's what this hearing has already revealed. it was a leader in the g20 to encourage to wind down. and begin to get their financial house in order. that was the outline in the discussion that we wished we had listened closely to that. actually, i have 1.5 million fewer workers than when all the stimulus began.

manufacturing struggling in four of our key reserve board regions. 6.5% this quarter. the stimulus missed my view by a mile. now we have 13.5 million people still without jobs. so i disagree with the assessment that stimulus has succeeded. so my question to begin with mr. timmons, listening to your manufacturing members. to reduce the cost and regulations and barriers that would allow them to make private business investment, that allows jobs to be created. what is their view?

>> i think if you enact legislation, it is a jobs bill. that's when you take out the cost of labor. it's an important distinction. our energy costs, our regulatory burden and our tort burden. we can reduce the costs in barriers on our own. we can't schismly blame other countries. let's say china. the policies do make a difference.

those are things, though, that are obviously more difficult for us to deal with. not things we should ignore, but the things that we can deal with. the other areas that i just mentioned. taxes, energy cost. regulation in particular. as well as opening, acting on the three pending trade agreements. and enabling the president to negotiate other trade agreements around the world. >> congress is looking at policy, you mentioned trade. as you know it's not enough to simply buy american. we have to sell american all throughout the world. i fine the world tilted against the trade agreements. take one way trade into the united states and create a

two-way trade and create jobs and sales. how important is it to pass trade agreements that level the playing field and seek more opportunities so the manufactures can compete and win those areas. >> it's critical that we have a trade policy. one that is reducing barriers and opening markets. as others noted and you noticed yourself the pending agreements before congress are lock overdue. unfortunately by delaying the implementation at the pending agreements, we're disadvantaging our ability to advance our exports and more concerning is

the lack of tpa. the lack of the ability to create new agreements going forward. vetchry i hope to get the agreements that are pending. i'm concerned we don't have the tools for the new open markets. >> thank you, mr. chairman. thank you for coming in today, panel. this phrase of uncertainty may be overused. it's a term that i continue to hear as i am in my district talking to our informers a lot of them are saying they're making more money. often times they will talk about the debt.

they tl are concerns that have been discussed in washington. in my area, there's a lot of concern about what's happening with the epa. we have a large products industry in my district. all those things are m coing together. they're saying they're creating uncertainty. they're not taking the risk they may normally take. not from the business side, but from the government side of things is abilitying our willingness of manufactures to expand and grow. i'll throw it to the panel as a hole. want to take a stap? >> yeah, i think there's something to that argument, yes.

i think that american businesses in aggregate are in very good financial shape. we have to make the distinction between very large companies and smaller companies, that would be well. but in their totality, they're profitable. profit margins are wide. they did an admirable job getting the cost down. it's no longer a question of can businesses hire more. it's a question of willingness. part of it is we don't forget that quickly. policy uncertainty played a role. some coto fruition in health care reform. i'm not speaking to the merits of any of the policy itself. just the fact that we've gone through these. health care reform, financial regulatory reform. we didn't nail down the tax code until the end of last year.

cap and trade immigration policy. card check. i do think that the policy uncertainty is fading. there hasn't been major legislative initiatives in the last six months. do i think the one thing, and i speak to a lot of business people in my work, the one thing that makes them nervous is they can't construct the narrative in thab mind as to this how congress and the administration are going to come to terms on the debt ceiling and ultimately on our debt situation. they're not going to fire people. but they're going to be slow to hire people. that means potentially higher interest rates, potentially higher taxes. massive changes in government programs. those make things very nervous. >> i think we're seeing more

manufacturers asking current employees to work overtime or they're asking for temporary workers instead of engagements in long-term hiring. also what you reference as the health care bill itself. what will it cost to hire this new employee? are you aware of the proposed legislation? in paper manufacturing we use industrial boilers. at a time when we're under immense competition from china, which i think is unfair competition these are far fwov already chinese standards. in the end they're going to drive american jobs over seas. we're all taking in the same water and breathing the same

air. descending the jobs to manufacturing where they have far less standards than we do, it doesn't make sense. it could severely harm the paper industry. it's good that there's a bit of a delay there. but there are several other regulations coming down the pike. i've already mentioned the ozone regulations. there's potential regulation of carbon dioxide from the epa. the recent decision by the nlrb to cite boeing and tell them where they can locate a production line. all these factor into a business's decision on whether or not to do business. are they going to immigrate or evaporate?

i don't think anybody in government wants to see businesses evaporate or to immigrate. our yob is to deal with the tax code, which will expire the end of next year and deal with the real la toir overreach we've seen from so many agencies. >> i would agree with that. i yield back the remainder of my tim time. >> as we talk about manufacturing policy, i will level the playing field as opposed to getting involved in specific programs. we heard testimony before. i think one of you gentlemen mentioned the japanese policies on advanced batteries. for every success story that a government can point to like that, there are more and more failures. i remember when i was a kid i thought the japanese company was involved. more recently heavily invested

in plasma tvs versus leds. every time there's a success story, there's a lot more failures. the government simply doesn't have the information or the proper motivation available to make decisions on where investments are properly made. i'm a landscape level playing field type of guy. one of the things that seemed to be consistent akrsz ul all your testimony was the importance of any government policy to allow more business to be more efficient, to lower the capital and labor cost. in order to encourage it to grow. you mentioned specifically something that i'm familiar with, having been in the housing industry about people being stuck in a particular location. is there anybody who diskbreas with that? good. like i said, i'm new here.

i'm city trying to figure out how to find things we can agree on. as we sit here and say the free movement of labor and capital should be the goal of all government policies, is anybody here that wants to defend what the nlrb is doing to boeing? i'll take your sims as support for the fact that it's absolutely wrong. what's happening is the government is telling the business where it can do business. as we talk about the manufacturing policy wharks can we do to encourage the labor and

free-flow of? i'll throw it open to the panel to see what to do to accomplish what you have suggested. i want to turn your question. in a pe kul your aspect of the united states is that we have a lot of interstate competition for jobs. i'm not saying it's unique in the word, but it's pretty unique. through incentives, either positive or reducing regulations between states. ul matly we have to compete with mexico and china and other countries they will have lower regular costs. this is an economic development

strategy. it doesn't mean the government telling you where you can put your factory. it doesn't mean that at all. it does mean some sort of a national national strategy and acknowledgment. the federal government will match that in a way to provide insentdive. that's what other countries do. i think the way you articulate is exactly right. i think that would define the national manufacturing strategy. policies to help facilitate this free flow of capital labor. let me moe kus on labor for a second and give you a couple ideas that may help with respect to that. first is reforming the

unemployment insurance system. manufactures have very high unemployment insurance costs. many states had to take on loans for the federal government to pay for their ui. and this bill is coming due. the cost to manufactures will be quite significant. i would also make broader changes to the ui system. a couple of times it's done so well is they have a work share program. so manufactures don't have to lay off workers. they can distribute the paying among all the the workers by cutting back hour ls. so they don't lose very skilled workers and laborers in a recession.

we should reform the system to allow unemployed workers to get the training. so the ui program is a really good place to work. second, immigration policy. i think the hidden gem in our economy is the university system. it's going to take 100 years for anyone to recognize what we've done with the university systems. if any foreign student comes to the country, gets a degree by the university of wisconsin, they issue them to stay. third, thinking outside the box for you.

# there's a really interesting noouchlt that i've observed among manufactures and universities. manufactures are saying, listen, i have a big skill mismatch problem here. my workforce is old, it's aging, it's going to retire. the young folks are not interested in learning the skills. the companies are saying i'll give you money. you take the money. you hire faculty. build a lab, build an office building. just let me have an input into your curriculum process. this solves a lot of problems. it would be helpful in addressing the job skill mismatch. it's going to take work and with rmt to universities that are very sensitive about seating any kind of economic freedom. i'm there.

i understand that. this would be a good way to solve a lot of problem. >> i know we're running low on time. but i wanted to ask you again about parts of your testimony, on dos and don'ts. we'll start with the dos. you mentioned great universities. i'm glad you said penn. when you mentioned ohio state, i wanted to make sure penn state was in there, too. >> that would be piling on. but thank you for the reference to ohio state. that won't come out of the chairman's time. >> can you go from the dos and what we should do in your testimony?

>> i focused on labor in the previous remarks. we can do things to facilitate, to low e the cost of capital with respect to lowering the cost of transportation and distribution which is so important to manufacturing in. also energy, as i mentioned. i would focus on two things. then i'll stop. i don't want to take up too much time. it needs to be considered in a comprehensive way. so that we can bring down the marginal rates. i know there's a lot of debate about how the corporate taxes are. it's almost irrelevant to me.

it's a plus if we can lower them. we can do that by addressing the swiss cheese in our corporate tax code. the other thing is going to small manufactures. one of the beauties is there are a lot of small manufactures tucked away that are very productive. they're very competitive. they're in lancaster or pittsburgh or ohio, wisconsin. all the forced product companies are not big. these are small companies. there's been a lot of discussions about these companies not getting a loan. that's been an issue. i'm less concerned about that now. it's starting to improve. but one thing that worries me is the lack of equity capital.

we don't have investor taking an equity stake in the companies. there's a lot of reasons for that. i think there's a role for government to play here. helping finance indirectly through different means to provide equity capital. don't try to pick winners and losers, but let the professionals do it. let the marketplace do it. >> anyone else? i talked about the importance of corporate tax remarks. i would like to endorse dr. zandi's comments about the values. it's an opportunity where we can improve the labor markets in manufacturing and elsewhere. with regard to your comments

earlier about capital, i think it was an excellent point. we nood need to pursue strategies to facilitate them. that would include inbound investment. lowering barriers to encourage foreigners to invest in the united states. but we have to recognize the benefit to invest abroad as well. there are a number of concerns that i share with regard to china and their activities. china is a large customer for u.s. manufacturing. and we will all be better off if we're facilitating inbound investment and permitting u.s. investors and others to appropriately invest globally. >> your time is down to 22 seconds. >> i also want to point out that he was talking about a skills

curriculum at universities. we're really pleased that the president endorsed that the president endorsed the skill certification system that we set up. it involves community colleges. i think it's very important we don't overlook the importance of community colleges that can help us with addressing our workforce issues. comprehensive tax reform, corporate tax rate reduction is at the top of our list. also an energy policy that enables us to utilize domestic resources. that's going to require some active engagement by congress and the administration to undertake. i would suggest they ask really hard and poignant questions, as well as provide the proper oversight to the regulating agencies. we grew to require manufacturing facilities to impose -- or to

purchase hundreds of millions of dollars worth of noise equipment, to accomplish the same goals that are achieved through those five cent phone pieces of protection equipment. the real question is who had the time to come up with this in the first place? >> congressman, i'll have him jump ahead. >> thank you, mr. chairman. i have one last question. i've heard across the entire panel today a consistent message of corporate tax reform. i think you used the word comprehensive. mr. timmons, i'll put this to you. how critical is it when with talk about tomorrow rat tax reform that it goes beyond the

"c" corporation level and moves to the "s" corporation? >> thank you for asking that question because it is critical. when there's discussion to raise individual rates at the end of 2012, that will have a huge and direct and negative impact on manufacturers. the corporate tax rate is clearly a competitive disadvantage. raising rates would be a disadvantage for us as well. >> mr. zandi, you had the same position? >> yes, in a sense that i think we need comprehensive reform of the personal income tax code as well. all these issues need to be considered in a broader context. >> the reason i ask the question is it seems up here we have two debates. we have a debate about corporate tax reform. then we have a separate debate about individual tax reform.

the message i'm trying to get out is there's an area in between really it's in terms of what it does. it gets taxed as an individual. what i'm hoping we can do is have an understanding that corporate tax reform includes small "s" corporations. zbli think it's important cutting across businesses and individuals is looking at the tax expenditures and the tax code. the credits and reductions that make it complex and creates bad incentives, and the strategy should be to scale back or eliminate as we can so that we can raise more revenue. everything that we need to. >> i just add the notion of a corporate tax where a small large corporation and a large small corporation face completely different tax systems is completely illogical.

the high tax rate for many individuals who are many business owners is a distortion. it's a distortion that's taxing and discouraging labor as well as the supply of capital. i would also note that addressing these issues separately while not ideal, doesn't disadvantage our smaller businesses. the customers of our small businesses are often large businesses. while we should work to reduce the individual marginal rates to help s-corp. partnerships and self-proprietors, the advantages of a corporate tax reform are good. >> i don't want to be the skunk at the garden party here, but i have a slightly different perspective. >> sure. >> i do think we need to look at the effect of among manufacturers. they vary widely, from 0% to

somewhere in the mid-20s to in some cases a little higher. i don't think i am burdened by economics training in saying i do believe that target of tax assistance can be ineffective, for instance in industries attempting to'ing u bait, you often need public incentives to have them thrive. the tax credit which senator stabenow mentioned had a great deal of up take, and really helped to establish battery facilities, wind turbine solar panel, i think we should encourage other energy and development, too, including nuclear, but the point is that for the sake of an elegant economic corporate tax system, we would make a lot of sacrifices. i think it makes sense to target tax relief for manufacturers that are actually making things in the united states instead of overall income, and the last thing i would add briefly is i

think it misses the larger debate, which is virtually every other country we're competing against has a value added tax system with rebates for exporters. the united states almost exclusively among industrialized countries does not have a system like that, and i'm not saying we need to adopt a system precisely like that, but it puts our exporters at somewhat of a competitive disadvantage. >> that brings us full circle to where i started, every time you sit and give the example of a successful government policy encouraging a particular industry, there are four or five that failed miserably. we give tremendous incentives to various green energy segments. my fear is we are siphoning capital and creativity from what might be working. we sit here and encourage wind. my concern is by doing so, we're drawing resources away from something that might be more

productive than wind energy. that's part of the overall debate. to the first point regarding the effective tax rate, that's what dr. zandi was getting at because of all of the loopholes, incentives and subsidies in the tax code, you end up with small companies paying a higher rate than large companies and end up with some industries paying higher rates than other industries. what dr. zandi and folks like myself have been encouraging is a system that does away with that so the effective rate is the rate. >> a quick question. >> i am out of town. >> can we make that in a moment. we want to keep moving. >> that's fine. >> thank you very much. >> i can speak three days or three minutes. >> senator stabenow was here earlier. >> i would end there. you know, you're two women senators. >> i have a long introduction but i'll give it another day. you get an extra minute.

>> all right. well, i wanted to thank all the witnesses. i'm sorry we had a hearing in judiciary on intellectual property which is a piece of this, making sure wire protecting all the things we make, but i believe we are going to get out of this downturn by making stuff again, by exporting to the world, by thinking again, and so all of the focus i think is a good one. it is the way my state of minnesota has been able to, we are now 6.6 unemployment, significantly we low national average. a lot of it has to do with manufacturing. i suddenly realized this year i could visit some of our factories on the weekends because they were going through the weekends. a lot has to do with exports. we have a huge history with cargill and 3 m and medicine tron i can and other companies with export markets that expanded into smaller and medium sized businesses because they

think this is the way to go, and it is just the ag community as well, which is now doing quite well, exporting all of the world from pork to sugar beets. i want to focus on manufacturing. we had increase of 17.3% over 2009. and the sector recently reported 12 month job gains of 7800, out pacing the nation, so i think i'll start with you, mr. timmons. i know it is not that rosy all over the place, i am well aware of it. but one of the things i noticed, i was at agco in southern minnesota, employing nearly a thousand people there, they can't find a welder in southern minnesota now. i spent a lot of time in technical schools. 96% placement rate out of alexandria. tech is no longer your grandpa's tech school, not just fixing

cars there, learning how to run computer systems that run assembly lines at boise, cascade and other places, and i would like to see a greater emphasis. scott brown and i have a bill, innovate america, emphasize two year degrees and how businesses and manufacturing could work with two year community and technical colleges to figure out what their needs are literally within a year, get kids into those programs as well as workers that lost jobs. could you comment on the need for workers trained and where there's actually the openings? >> music to my ears, senator. if i could divert a second, mr. chairman, you did ask what can be done to help manufacturing, and one of those things is to ensure all elected officials spend time in a manufacturing facility and see real people in the real world doing real things, and how it's done, and i bring this up because senator

cloeb char is a perfect example. she visited many of our manufacturing facilities in minnesota and they have a very personal and good relationship with her. so thank you for your commitment to manufacturers. i would say that you're exactly right on. one of the things i hear from members around the country besides the big three that i mentioned already which are taxes, energy policy, and regulatory burden, is the lack of work force. there are jobs that are open and there are those that are not able to fill those jobs. i mentioned earlier, i think it bears repeating, we have a partnership with the administration, the president endorsed the national association of manufacturers skills certification program, which is a national set of standards to help potential manufacturer workers ensure they have the skills necessary for the jobs of the future and jobs that are available today. so i look forward to reading

your legislation and summary of that legislation. the issue is right on. we're working on that with a good public private partnership with the government is helpful in this regard. >> thank you. another piece of this obviously you focused on is exports of manufactured goods. i have some strong views on that as well heading up the export subcommittee of commerce, but having our embassies around the world making this a major focus, helping when companies are trying to get private contracts or government contracts in other countries, but also not closing the door on small and medium sized especially manufacturing firms that need help from the foreign commercial service, and senator lemieux and i got some help in that regard because it is worth its weight in gold. could you comment on small and medium sized businesses and their need to be part of this growing export market? >> small and medium enterprises are a fast growing part of our export platform in this country,

and in fact nam we have a loaned executive from department of commerce whose sole function is to help reduce barriers for export opportunities around the world for small and medium enterprise. i agree with you that's an important part of the puzzle as well. >> and dr. zandi, appreciate you being here as well. i know you see the export market as key. one piece of this is as we look at the export market, one of the things that becomes clear to me and mr. timmons mentioned this, we're competing in these markets against companies in other countries that sometimes are newer competitors, have new rules, they have been able to start fresh, and i am becoming increasingly concerned with some of our rules and regulations. a medical device where a lot of investment goes to europe now because china requires country of origin labeling. no one would have guessed this two decades ago. because the european system goes

faster, a third of that venture capital money has been going to europe or tourism because it takes so long to get the visas to come to america versus great britain, lost 16% of international tourism market since 9-11. not necessarily because we put the security rules in place but because we haven't adjusted in terms of how we handle the applications. so i wondered if you could comment about the economics of changing some of these rules and regulations because we no longerer compete in a vacuum. >> you make an excellent point. i think it is clear going forward the key sort of economic growth will be exports. that for the past quarter century, relied on u.s. consumers to purchase things we produce. that drove the growth in our economy and the global economy frankly, and that's one of the inflection points as a result of what we've been through, that going forward we can't count on that. we have to look to selling what we produce to the rest of the world, and we sell manufactured

goods to the rest of the world now. those manufacturing companies that survive what we went through i think have to be very competitive, have good cost structure and good market edge. i think we are well poised. but one thing that clearly would help in their effort to sell to the rest of the world is to be cognizant of regulatory costs and constraints. when we think about regulation, there are good reasons for regulation, but we need to think about them through the prism of what they mean. at the end of the day, key source of growth long run. >> thank you very much. appreciate it. >> wanted to make sure senator coal had extra time after i referred to her as senator stabenow. this panel is willing to be here all day. i know we have to wrap up. i want to pose one more question, give each of you a

chance if you want to add something. tells you how closely folks are listening. staff came warmup a great question. based upon part of your testimony, dr. zandi, mr. brill, part of your testimony, the question about the impact during the period of recovery that manufacturing jobs had, manufacturing as a sector contributed mightily to the recovery, half the growth, but in terms of the job gains, about one-tenth. is that what you said? >> that's correct. one-tenth. if you include the temp jobs in manufacturing, at mows, one fifth. >> just at that posing that or putting that along with this question or point that mr. brill made about productivity, pretty substantial productivity gains, the question i have is how much when you consider both of those,

when you consider the productivity gains with that one-tenth of jobs manufacturing contributing one-tenth of the jobs, what has happened with regard to wages? it seems that even though we've had pretty substantial up tick in productivity, i wonder how much workers benefitted from that. what can you tell us, if anything, about the way it -- >> senator, i can't speak to that specifically. what i can tell you, however, there is some research in this area, including some work by staff at the bureau of labor statistics that productivity growth in the manufacturing sector out paced wage growth in that sector.

that's true, legitimately something to be concerned with. it is unclear what the explanation for that trend would be. congress is certainly familiar and comfortable with the fact that productivity growth and wage growth don't necessarily move hand in hand, certainly not in the short run. however, in the long run there should be a strong correlation between the two, and over a number of years, we have seen a lag in wage growth. i would also note, however, that some of that may be attributable to labor policy burdens and rising compensation costs, healthcare costs, so we observed a decline in share of wages as a share of total compensation across the entire economy. workers are being paid more and more in nondollars, paid infringe benefits.

that could be a contributing factor. >> i looked at data in preparation. average hourly earnings for manufacturing have gone nowhere since the recovery began. there's measures of wages, but most timely consistent measure we have. so they've been flat. now, that combined with increase in output means profits are up. so if you look at profits in manufacturers, they returned to prerecession levels. most of the benefit of this improvement in manufacturing is in the form of jobs, some jobs. also come in the form of more hours, right, for people that are working. but most of the benefit, at least so far, accrued to businesses. let me say one other thing. that's not atypical in recovery. that's how it works generally. recession hits, businesses panic, they cut costs, cut labor, try to get margins up, get a little sales growth and goes to the bottom line.

historically with better profits and stock profits, businesses expand and take a risk. that's where we are now and it is not happening. that's the problem we have. that's why the recovery is not engaging, not just manufacturing, but across the economy. this is the crux of the matter. why aren't businesses doing that. my sense is they're going to have to. you can't continue to grow earnings and profits and maintain your stock price by cutting costs. that's done. they've done it. now they need revenue growth an opportunity. hopefully we'll see it. we just need i think a little luck and some really good policy making to make sure we nail down this uncertainty, particularly with regard to the deficit and debt limit. i think it will come together. >> we hear a lot about that across the board. i know we're ready to wrap up. unless the senator has any more questions? >> no. >> and our panel has anything to say before we wrap up, we're

close on time. anyone? and of course, the record is open not only for individual members to submit questions to be answered for the record, but if you want to submitditional material. >> mr. chairman, briefly. thank you for having us here. it is very important. one word about productivity and wages, this has been a long term trend dating back to the 1980s. unique in post world war ii period. one possible explanation that needs i think further discussion is the productivity measure itself and the degree with which intermediate inputs, particularly imports, seep into the productivity data and maybe skewing it slightly. some economists at upjohn institute and michael man dell, the chief economist in business week identified that. it is worth exploring more greatly. i think one thing that the session revealed is that there were some structural impediments

to growing manufacturing in this country, even after the acute nature of this decline in demand. the infrastructure which mr. timmons identis something that's critical. rebuilding the logistical structure is important, access to credit. those are the strong foundations for a manufacturing strategy. thank you. >> good note to end on. we need a strategy, we don't have one. one hearing did not a strategy make, but i think we've had a lot of good ideas here, and i think it is worth repeating as i said at the outset that this will be now one of several hearings we will have during the economic committee to best try to revitalize manufacturing. i want to thank the panelists for being here, especially those that traveled a great distance to be here. the record will be open for five business days for any member to

submit a statement or >> on today's "washington journal" house members react to

the president's plan to reduce troop levels in afghanistan. we'll speak with a member of the arled services committee. ohio democrat marcy kaptur, steve king. >> the c-span networks provide coverage of politics, public affairs, nonfiction books and history. it is all available to you on radio, television online and social networking sites. we take c-span on the road with our digital bus and local content vehicle bringing our resources to your community. it is washington your way. now available in more than 100 million homes. created by cable, provided as a public service. there are house yesterday debated changes to to the u.s.

patent system and application process. here is an hour of that debate. gentleman from texas, e chair: continue. mr. smith: mr. chairman, the foresight of the founders in creating an intellectual property system in the constitution demstrates their understanding of how patent rights hts htt th technological innovation from our intellectual property is linked to three quarters of america's economic growth and american i.p. industries account for over 1 1/2 of all of our exports. these industries also provide millions of americans with well-paying jobs. our patent laws which provide a time-limited monopoly to inventors in exchange r their talent help create this prosperity. the last major patent reform was nearly 60 years ago. during this time we've seen tremendous technological advancements going from computers the size of a closet to the use of wireless technology in the palm of your hand. but we cannot protect the technologies of today with the

tools of the past. the current patent system is outdated and dragged down by frivolous lawsuits and uncertainty regarding patent ownership. unwarranted lawsuits that typically cost $5 million to defend prevent legitimate inventors and industrious companies from creating products and genering jobs. . our competitors are busy developing new products that expandheir economies. according to a recent report, china is expected to surpass the united states this year as the world's leading patent publisher. 9 more time we waste on litigation, the less time on innovation. the average wait time for a patent approval is three years or more. these are products or innovations that will create jobs or save lives.

inadequately funding the p.t.o. harms small businesses. the bill allows the director to adjust the fee schedule and prevents congress fm spending agency funds on unrelated programs. this will allow the p.t.o. to become more productive, reducing the wai time. it will improve on the front end, which will reduce litigation on the back end. the patent system focused on giving the patent to the first inventor. this is similar to h.r. 1249. this improvement makes our system similar to the international standard that other countries use, only it's better. we retain a one-year grace period before they fil as well as the create act as well as research does not create prior art. there are some who think this

bill hurts small businesses and independent inventors, but they are wrong. it ensures that inveptors can compete with larger companies both here and abroad. those seeking protection here in the united states are taking a first step to protect their patent rights around the world. it makes the small business ombudsman permanent. they will look out for their interests and helping them. this bill protects small businesses and ipped inventors by reducing fees for both. this is a fair compromise and creates a better patent system for innovative industries. patents are important to the united states and the world. for example, during the war of 1812, american troops burned the canadian town of york. retaliat marred in the summer of 1814 to

put the capital city to the torch. a superintendent of the patent office delivered an i am passioned speech asking the red cots where the patent office was housed. and it said it could never be replaced. anybody who destroyed them would be destroyed. the british officer relented and the hotel was spared making it the only public building in washington not burned that day. american inventors have led the world in new technologies for centuries from ben franklin. but if wep want to foster creativity, we mustncourage today's enventors. now is the time to act. i urge the house to support the

act and i reserve the balance of my time. the chair: the gentleman reserves. the gentlewoman from text california is recognized. ms. lofgren: i have worked on the patent reform effort since 1997 and disappointed that here today i'm unable to support the bill as it exists. i did vote to report this bill out of our judiciary committee, but since that time, we have seen two unfortunate things ocr that have made this bill not viable. the first and exceedingly important is that the protections for patent fees s that all the fees would stay in the office have been removed. the regular appropriations process will allow for fee diversions in the future.

it has been the policy of the house, for example, not to divert fees from the office. however, fees continue to be diverted. in fact in this c.r. approved by the house this year, we diverted between $85 million and $100 million in files from the patent office. and that is the reason why the combill is defect tive. and if we are moving to a first to file system, there has to be robust protection for prior user rights, including prior use irrights in the grace period that exists under current law. sadly, those protections are missing in this bill. the manager's amendment talks about discsures only. it is a shame that other prior

art, such as trade secrets and the like would not receive the same protection. so i would urge that the bill, unfortunately, cannot be supported. i intend to oppose it, as well as the manager's amendment. and i would yield now to the distinguished ranking member of the i.p. subcommittee, the honorable mel was such time as he may consume. was was i thank the gentlelady -- >> i'm the ranking member of the subcommittee on intellectual property on judiciary and i too, supported on reporting the bill to the house floor. the problem is that the bill we may end up debating is not the

bill that we reported favorably from the judiciary committee. and there are reasons for that. i understand what those reasonsr but they -- if the amendment that is being offered as the manager's amendment passes, it will put us in aosition where substantial people who supported the bill will be unable to do so here's the equation. one of the primary purposes for which there was a strong alliance of people and groups and interests supporting patent reform was that in the past,

fees that had been paid to the tent and trademark office have gone through the appropriations process and over the last 10 years, almost $800,000 of those fees have been diverted to other purposes other than the use of the patent and trademark office. the effect of that is there has been a hidden tax on innovation in our country. and the united states senate passed a bill that would end that diversion -- they passed it by a vote of 85 to 4. we passed a bill out of our judiciary committee that would

end that diversion. and all of a sudden, we come to the floor and a manager's amendment is being offered that if it is not defeated, will undermine that unifying thing that has held the groups together and allowed people to support the bill. so i have to be in a position where i am strongly opposing the manager's amendment to this bill. i don't think the groups out there -- i mean, it's not often that i get to come to the floor and say i'm speaking for the u.s. chamber of commerce. the chamber of commerce would like for the diversion of fees

to stop. it's not often that i come t the floor and say that i'm speaking, i think, for the united states senate. they have already passed a bill that would stop the diversion of fees. it's not often that i come to the floor standing up for the bill that came out of our committee against forces that have taken it over and convinced or putting forward a manager's amendmenthat we simply cannot support. now, i understand how we got here. the operators would like to

continue the process. and they said we will object to this and we will raise a point of order and they came up with language that professes to solve the problem. the problem is, then, that that raised another point of order because the conessional budget office said, well, if you do it that way, you are going to do -- you are going to put yourself in a situation where we have to score this bill in a different way. and so then the leadership on the chairman's side then said, ok, we'll wave that rule and i'm -- waive that rule, and i'm saying if you can waive the rule, you are the people who have been so much worried about the deficit, if you can waive

the rule, why couldn't you waive the rule that allows us to take up the bill thate passed out of committee? so i need to be addressing my republican colleagues here, if they want to stop thm process over the way -- the way to stop the process is to vote against the manager's amendment. that's the simple way to do it. at that point, we can get back, hopefully, to a bill that does clearly not divert fees and that the whole population of supporters has said, we would support.

so that's where i am, mr. chairman i don't want to belabor this and take away time from people who want to speak, but i just -- it's not the bill itself that came out of committee that's the problem. it's if we pass the manager's amendment,e've got a problem here. i mean, we could tinker around the edges of the bill that came out of the committee and solve the minor concerns that we got there. but there is no way to tinker around the issue. either you support the diversion of money or you don't support the diversion of money and it's time for us to stop diverting -- stop this hidden tax that we have imposed on innovation in this country and only way to do that is defeat the manager's

amendment. and i yield ba. ms. lofgren: i reserve the balance of my time. the chair: for what purpose does the gentleman from texas rise. mr. smith: i yield three minutes to the gentleman from from north carolina, mr. coble. the chair: the dean of the north carolina delegation, mr. coble, is recognized for tee minutes. mr. coble: i thank the gentleman from texas and it was my belief that diversion had ended. let me make my statement and maybe we can get to this subsequently. a robust patent system is critical to devel a strong economy and it serves this goal by ending diversion of user fees to other agencies. ending diversion is essenal to a robust and strong patent system, it seems to me. this is not a new concept. it has been a controversial issue for many years but we are

at a point if we aren't doing something, the office will be overwhelmed. i answer, two words, bag log, pendency. the number of pending applications is around 700,000 and average time for an application to be reviewed is 30 months. this is unacceptable and the number of pending claims that should be, approximately 300,000 and the pendency time period should be approximately 20 months or 10 months less of what it is now. tents provide economic incentives for creators and if our system loses, it will be diluted and when inventors decide to find other production for their ideas or begin their marketingdeas independently to

avoid the costs and sometimes hassle for filing for patent protection. reducing the backlog depends on the office's ability to improve the performance of exercise. and 1429 in my opinion, an ending diversion, will provide that meeting certainty for the office to meet these goals and i yield back and i urge my members to vote in favor of the bill. the chair: the gentleman yields back the balance of his time. for what purpose does the gentlewoman from california rise? ms. lofgren: i would yield 30 seconds to the gentlelady from ohio who also has a unanimous consent request. the chair: the gentlewoman from ohio is recognized for 30 seconds. ms. kaptur: i thank the gentlelady for yielding to me,

ms. lofgren, and i thank the chair. i wanted to place on the record dozens a dozens of organizations that oppose this bill. they oppose the manager's amendment and what's amazing about these groups ithey range the vast ideological spectrum from liberal to conservative to moderate and they all represent people. thousands and thousands of people. such as the american bar association, the eagle forum, the american civil rights union and the christian coalition, the family research council action and friends of the earth. i mean, if one looks across this list, national association of realtors, innovation alliance, they have deep concerns about this bill and oppose it and i would like to place this on the record, madam chair. the chair: without objection and the gentlewoman's time has expired. for what purpose does the gentleman from texas rise? smith schmidt i yield five minutes to t