would you go first? >> so, i will start. i have testified previously about some loopholes, some of which may be characterized as a tax expenditures. that is converting when fund managers convert there are other examples including that some of the treatment that i talk before that banks used gone into extinction. i think there may be some low hanging fruit in order to generate revenue. >> just briefly, i would say in general i am always loot to characterize anything as a

loophole. that makes it sound like it is easy to get rid of. tax administrators know there is no free money hanging around here, that we could snap our fingers and put someone to work. if you want to look at expenditures on the tax side -- i have not looked at this in the last week or two ago, but the big numbers are going to be interest reduction and employer provided health insurance. people have written about these. these are significant sources of revenue. i think the distortion on health care choice is created because the deduction on health care insurance is significant. housing is hugely important, but i do not think it has to do it leverage in the financial crisis. you look where you can get the kind of money you can talk -- you are talking about. >> excessive leverage in the

financial sector. the very biggest bank and their use debt impose risk in the system. it is completely consistent with the broader assessment from the right and from the left in regards to to big to fail. we have tried to do with that in various ways. nobody is impressed. standard and poors said yesterday that they think the government would still have to support major financial institutions if they fail. >> mr. johnson is recognized. >> thank you, mr. chairman. mrs. olson, i in your testimony you talked about reform alternatives that you believe should be in the tax code.

one of the proposals as you mentioned it is the lower corporate tax rate. i in your view, what should that rate be and how far with that proposal go towards addressing the problem? >> mr. johnson, i am not sure what the optimal corporate rate is. we have to look at what the rate has fallen to in other countries around the globe and our major trading partners. that would suggest a rate of around 25%. that would include the state and local rate, which adds about four or five points to the rates. we have to take that into account as well. i think companies use leverage for a lot of reasons besides the interest deduction. lots of times companies find that equity capital is less expensive than taking into account the deduction of interest and the amount of deductibility of dividends.

i can bring the corporate rate down would go a long way towards eliminating the bias that currently exist. >> do you think the lower rate should also eliminate the taxation of dividends as a measure of improving the system? >> there has to be a connection between the two, i think. to the extent you need a low corporate rate -- you do not need to reduce the rate on dividends quite as much. if you have too high a rate of tax on dividends, the company will have a disincentive to pay dividends. >> that is double taxation is it not? >> yes. >> ok. the mortgage interest deduction -- does it have a role to play in the tax underwriting

standards or should we do something about that? could you elaborate on what tax incentives could reduce the cost of renting as well? >> the code currently provides several benefits for rental housing to try and create the supply of rental housing at reduced rents to moderate to low income individuals as section 42 says. it expands qualified to lower income families. section 142 of the code helps to finance lower cost. there are provisions in the internal revenue code to help benefit the rental bargain. i think i am fully addressing

your question here. >> well, i have run out of time. >> may be the chairman will grant an extra 30 seconds? [laughter] >> thank you, mr. chairman. >> mr. chairman, i think senator carper is on his way. i suggest that we continue. when center carper comes -- is he here? he is not here yet. >> and mr. neal is recognized. >> thank you, mr. chairman. the house has done a pretty good job this year in having a lot of hearings on how to revamp the code. it is important to a knowledge

today that unless the presidential candidates next year to get the issue in earnest, it is going to be very hard for us, if even having accumulated a great deal of evidence, as to how the code might be altered. i think insisting that we come up with competing products, or even one product. we have heard this problem before, but i want to go back to it. we held this hearing last year. one of the witnesses testified that foreign owned multinationals in the united states at a competitive advantage over u.s.-based operations with respect to certain u.s. investments. the witness stated the tax advantage for inbound investors arises because of their ability to erode the u.s. tax base

periods -- tax base. what are your thoughts on whether a foreign-owned u.s. subsidiary organizations engaged in earnings striplings other debt-financed u.s. investments have a competitive advantage over u.s. owned corporations and should some of the tax loopholes be modified to prevent this competitive disadvantage for u.s.-owned corporations? >> i am defer to the professor on that. -- i am going to defer to the professor on that. >> the possibility of foreign multinational owners in the u.s. is low relative to american firms. there are alternative explanations. it is hard to make money with the american multinational firms.

if the tax base erosion is the problem, you have to ask the question -- are they able to do something american firms are not able to do? i thought there were subject to the same regulations and the same rules american multinational firms are. i understand the source of concern, which is very low probability of foreign firms in the u.s. they are stripping all their earnings out. what i am less convinced of is the degree to which that represents. it is a puzzle why they are not more capable income centers than american firms. >> there are two ways to look at that. it shows that american multinationals are also very good at moving profits offshore.

>> thank you, mr. neal. >> thank you for holding this hearing today. a great panel of witnesses as well. i want to associate myself with the remarks by mr. levin with respect to mortgage interest reduction. i will piggyback on something mr. johnson said. you have rental owners that have the ability to not only take advantage of their mortgage interest deduction, but a series of other deductions that, in theory, would result -- would reduce if taken away their ability to keep rents lower. if in the tax code you took away deductions from rental housing owners, they would have to increase the rent. that is not a question, just a comment. the question i have is on the business side.

the report was released that stated that the debt to equity issue does not really apply to owners of businesses that are passed through it entities. preferential treatment with respect to the tax code on financing debt as we have heard on this committee, about half of american businesses are set up as pass-through entities. the administration has suggested changing the way that pass- through entities are taxed to the corporate side, attacked as a c-corp instead. with that had a negative affect on those pass-through into these today and continue to exasperate the debt to equity issue to the tax code? >> thank you, mr. tiberi.

the main point you are raising is that the corporate income tax itself at the simplest level is a tax on the return of income to the equity owners. >> right. >> it is an extra tax we noted on the panel. it is double taxation. if you were to take entities that are currently pass-through entities subject to a second level of tax and tax was on the return to equity owners, it would increase the relative burden on equities returned and, so, which favored debt financing by those entities just as we argued that was the case for a c-corporation. >> that is exactly my question. >> i agree with that. we should move in the opposite direction.

>> thank you. >> there are distortions in the past as through context. a lot of partnerships are very flexible vehicles from a structure in perspective. the interest deductions you can't generate by financing with them, the deductions can be moved around to one partner or another depending on which partner has the higher tax rate. it does not always match up with the economics. my preference would be to move towards a system where pass- throughs -- what are currently pass-through is and what are c-corps -- it does not make much sense to me. >> mr. thompson is recognized

for three minutes. >> thank you, mr. chairman. thank you to all of you for being here. a number of you mentioned a need to do tax reform at the whole idea of lowering the rate, which i assume suggest you believe that we should pay for any tax reform that we do. it should be revenue neutral. is that a good assumption? >> i think it is important for the country to size its budget so that there is a better match up between revenues. but i think that we have made a lawful -- an awful lot of decisions on the basis of our revenue constraints. >> revenue neutral? >> if you could just tell me if revenue neutral is the way we should be going.

>> i think it is the right starting point. >> thank you. >> if yes. i think at the minimum, mr. thompson. however, if you're taking on a broader tax reform, then you have the option of being either revenue neutral or raising significant revenue that does not hurt investments. >> i just want to point out that on the lowering the rate, if you do away with all the tax expenditures, it only gets you to about 28%. what i have been hearing most here recently deals with the debt ceiling debate. i am hearing from people all over my district. yesterday, a disabled vietnam veteran says if he does not get his social security check, he is living in his car. farm credit folks were here yesterday. if they finance everything from

grapes, to rise, to paris. they tell me it is devastating for agriculture. -- they finance everything from grapes, to rice, to pears. they tell me it is devastating for agriculture. what will be a priority before paying our debts if we do not pass the debt ceiling? >> i am upgrade that is not within my area of expertise. >> from your experience at treasury? >> my experience was on the tax collection side. >> can anyone tell us what the fiscal and that would be if the debt ceiling is not raised? how many years did it take for us to recover from the hit, even if it is just a few days, a week, or a month without raising the debt ceiling? i understand this is a fiscal consequences that will halt --

that will harm us forever. >> we do not know exactly. we have never done it. we should not do it. it would be very bad for the economy, particularly at this point in time. >> thank you very much. because of the discrepancy in the number of members, i will be recognizing two republicans for one democrat at this point. >> thank you, mr. chairman. let me express my support for moving along with tax reform. ms. olson, you mentioned that adjustments to the deductibility of interest would need to be considered with any moves towards capital investments. in recent years we have seen a number of efforts in -- and laws enacted to spur economic activity by increasing

accelerated appreciation provisions and moving towards more generous expensing for various types of assets. at the same time, we have the interest remaining as a deductible expense. talk a little bit about the distortions that will be created. could we see-tax rates and other kinds of distortions? thank you. >> the short answer to your question is, yes, we would see- tax rates. it is something you would do on a temporary basis when you're trying to spur investment. it does not have the same impact, but this dancing on a long-term basis is part of a fundamental tax reform. -- expanding on a long-term basis is part of fundamental tax reform. >> you create an opportunity and an incentive for arbitrage.

tax lawyers are very clever. they will try to design structures to take the fullest advantage. >> i would echo what has been said. it is exactly the reason one should move it not worse incremental efforts, but think about this in systematic waste so we avoid these types of situations. >> i agree, also. >> thank you. i yield back, mr. chairman. >> thank you, mr. chairman, for the opportunity today. let me just ask you -- we are talking about the debt ceiling and getting people back to work. in the environment we find ourselves in today, to you think raising taxes on small businesses and individuals make sense in terms of what is going on today? mrs. olson, i will start with you. >> on a near-term basis, i think

we need to be very careful with anything we do that would raise taxes. one of the most important things we can do for the country is to get things set so we knew where we stand for the long term. in 2001, we thought it was permanent changes dead at the most impact. >> i am talking about individuals and small businesses. does it make any sense to raise taxes on individuals or small businesses in the near future. >> to the degree that we want to take a shot at fixing our structural problems, which will have to raise taxes on some people at some point. >> let me get to the other issues -- debt and equity. i had been in business for 30 years and been involved in a lot of leverage transactions. i remember what happened in the '80s.

we get the s&l bank crisis in 90 and 91. now we find ourselves in this scenario. at the end of the day, if you do not have a viable financial institutions, you put everything at risk. what is happening, at least in florida, a lot of these banks or leveraged into one. they have taken such a hit to their equity, they have had to shrink all of the banks. you not only affect the company's try to create jobs, but you screw all of their equity. that is why it is so critical that you have to have these financial institutions. if you go back 100 years, we get into this try every 10 or a 15 years. mr. johnson, do you agree we need to take a look at the viability long-term of the financial and institutions? it is nice to talk about equity, but is -- but it is hard

to get equity for small businesses. >> when you go back to when we had a real free market system before the federal reserve was created, banks routinely at 30% equity. there was no risk adjustment in that calculation. they had big buffers against losses. they did not have to cancel loans. they did not squeeze out small businesses. we cannot go back to the system without deposit insurance. regulation has encouraged and allowed banks to hold capital for too long. we need to be discouraging debt and encouraging the equity, including with big banks and small community banks. >> thank you, mr. chairman. this is a historic hearing. this comes at a historic time for the nation.

i would like to know the opinion -- we received letters from more than 400 ceos about the pending potential of default of the nation's debt. the ceos outlined that even a technical default by in this case would have catastrophic events. 1979, this happened even under the well-intentions of congress. it resulted in interest rates that plague the country for the next 10 years. given what is happening around the globe as we speak with moody's downgrading ireland again today, what is your advice to the congress in terms of acting, giving the deadlines

that treasury secretary geithner has outlined? >> my advice would be simple. the same advice as christine laborde -- legarde. you cannot play games was something this serious. world financial markets are much more fragile than you might like to believe. >> i would echo that. what is worth considering is exactly why. it can become a broader manifestation of a system that appears broken to the rest of the world. that is where we run into significant problems. i think it is very important that this particular deadline is not ignored and taking -- taken seriously. >> is this not the equivalent of

knowing about lehman brothers with all the other nations we see in jeopardy and it, knowing what we know, is it not essential that we act now? >> it is essential that we act now. i would use the parallel of private sector actors. the government is very special. i take your point that is a very serious issue. >> i would use the lehman example. the situation in europe is getting worse. the result does not have control the situation. -- the eurozone does not have control of the situation. the u.s. has to remain a beacon of clarity. >> does the u.s. reputation as a entity but global and effectively -- this at supper? >> yes. >> we heard a little bit about

home mortgages and home ownership being a priority in our society and, certainly, in the tax code. could you reflect on the effectiveness of the home interest mortgage deduction? how effective has that been and in the alternatives in my proposed? >> i think it has had an impact and has put more people into houses. that is good. but if he were to take a step back and try to think about designing housing policy, it is hard to conceive that using a mortgage interest deduction would be the right way to accomplish that goal, particularly one that is not capped at a certain number. for example, a value on second

homes or super expensive homes does not make a lot of sense to me if the goal is to get lower class and middle-class people into houses. >> would you propose an alternative in our public policy in terms of encouraging home ownership? >> i think in the short worm -- short run eliminating the mortgage interest deduction would be beneficial. in terms of what the other policy rules or, i guess i am not quite sure what you are getting at. we do have a lot of people in houses, probably more than we need to pre it there are people who do move around a lot that would benefit from some kind of subsidy to renters. >> briefly i would say there is a bit of a puzzle. it has not been easy to find evidence of its effect on behavior.

maybe we like it. i can think of three reasons. one is we like it because homeowners create good citizens. it creates good people. the second is we believe the construction factor is important. it is something you want to spur. i think it is important to nail down which of those you really believe. we have had high levels of home ownership. it is not clear that more home ownership is good. we should understand that there are parts of the population to rent. >> we are not to let three -- directly encouraging home ownership. we are taking on very large debt burdens. as long as it is revenue neutral, we could reduce the mortgage deduction and encourage

people to buy first homes, if that is what you want to do. i think many did not understand the downside risk that they now see in many parts of the country. >> thank you. i yield back. >> hello, everybody. up here on the right. this is bigger than the senate. it is nice to be here with the ways and means committee. the tigers are in first place going into the all-star break. that is good to see. thank you to our witnesses for joining us predict -- joining us. what the main reasons tax reform has again become necessary as

the proliferation of new rules we have added to the tax code every year. if you add up the cost of these tax expenditures are the next 10 years, it is something like $15 trillion over the next decade. it is more no small amount of money. some are for corporations. pretty good policy, others less so. i think it depends on where you said, whether or not they make good policy sense. some lose more revenue than is necessary and do not deliver, but if it is the taxpayers that needed the most -- with those thoughts in mind, the tax treatment of debt versus selling equity, it is certainly something that needs to be examined closely. one of the keys when i served in the house, including the fellow

from massachusetts to my right, one of the key reforms we got was that congress, working with the reagan administration, partially cleaned up at least some of the preferences in exchange for lower rates. taking a couple of seconds in directly and frankly tell our committees, one policy change that would do more than any other that you think of to reduce the bias in favor of debt in the current tax code. let me say that again. take a couple of seconds and tell us what " one policy change do you think would be worth more than anything to reduce the debt in our current tax code. thanks. >> greater integration of the corporate and individual tax systems. >> say that one more time? >> greater integration of the corporate and personal taxes. >> i agree. but i will take a second to add

that 1986 is kind of like the holy grail in the tax academy. it was an amazing achievement that lowered the rates, and one of the keys to that was not focusing on one thing at a time but focusing on the system as a whole paul pierce and tackling a lot of different tax expenditures at the same time. i think that was part of the metric of that reform. >> of right, thank you. >> 1 version would be comprehensive business tax. >> i am sorry. would you say it again? >> the comprehensive business tax, and i think that is a very worthwhile way to go. >> oh right. >> i suggest to use the proceeds of a tax to introduce some deductibility for dividends, therefore equalizing the treatment of debt and equity. >> that is an interesting idea.

thank you. anybody else? all right. has my time expired? >> it has. >> ok, well, it was great. it was great while it lasted. thank you for those simple direct answers. >> thank you very much, senator corker. ms. jenkins is recognized. >> thank you, mr. chairman, and thank you for holding this hearing. think you all for being here. since 1945, household debt has steadily increased. in the last years, there has been some decrease in the combined debt for households, but the total combined debt for 2010 is approximately 120% of disposable income. in particular, debt has rapidly increased since tax reform back in 1986, which eliminated the deduction for interest on

personal credit, so my question for the panel, is this level of debt sustainable? why has household debt increased without the deduction for interest on personal credit, and what is the appropriate debt ratio for households, and how long do you think it will take us to achieve that? tom, do you want to start? >> well, thank you, ms. jenkins. you recited the statistics that we provided to the members, which i think, the first point shows that there is not an obvious link between our tax policy related to household debt and what has been going on in the household market. also though, it is a reasonable and sound economic matter for households to vote incur debt. it can be a matter of when you are young, if you are starting

out, you purchase a home, so you carry a large debt load which you pay down and to pay down the mortgage. you may borrow to purchase automobiles or to furnish the home, to buy other durable goods. it is part, we use the jargon in the pamphlet of a life cycle theory of consumption. what that does not answer is why has the overall debt load on households increased, and i do not have a good take on that. i will defer to the other panelists. >> ms. olson? >> i think i should defer to the economist. >> ok. >> just to add one factor to the mix here, which is the housing bubble, so as real estate prices were going up, people were able to increase

household debt with larger and larger mortgages to finance current consumption. i think with a housing bubble burst, we are seeing people deleveraging in significant ways. >> ok. sir? >> two things. the first is i think you are right to put your finger on the long term leverage in what will be a long term cost to deleveraged as we move forward. the reasons for it can be cultural, and they can be economic, and to highlight here in the context of the tax code is the absence of a consumption tax or a value-added tax, or alternatively, an income tax which does not favor saving. that is a piece of that puzzle. certainly, if you think about things that are within our demesne and our ability to control, a reason to think hard about whether the income tax we have no is the right one. >> thank you.

mr. merchant is recognized. >> thank you, mr. chairman. is it fair to say that the main take away from this hearing could be that a way to bring the equity and debt issue into focus is to devalue the value of the debt deduction in the code? by simplifying the code and lowering the rate, and making that deduction less valuable? also, i do not know if mr. -- i know that there were some hybrid instruments that were distorting the system, and could you identify what those hybrid debt instruments are? >> sure.

on the first question, the goal is neutrality, broadly speaking, and so you can either do that by eliminating interest deductibility, what you call luring the value of the interest deduction, or you can do it by allowing the deduction for the corporate entity, so looking at the amount of equity that a firm has an allowing in in pew deduction. if either of those approaches would achieve tax neutrality. so some of the hybrid instruments, i am thinking of things -- they all have trade names that the investment banks come up with, but i am thinking of things like feline prize was one of the first, and these are instruments that are part dead in part equity, and what they do is they get on the balance sheet or for the bank regulatory purposes, they look like they are equity, but they are deductible, so at one time, these were referred to on wall

street as tax deductible preferred stocks, but, of course, they are not preferred stocks. there is an ongoing obligation the banks have to the people who bought the security, so in a financial crisis, they cannot stick those payments, like you could with coat -- on stocks that added to the crisis. >> could you limit the tax preference on those specific instruments? or would that just -- >> that is hard, because then all you are doing is moving the line. you can move the line a little bit, but you are going to see lots of activity shifted to wherever you have moved to the line. neutrality would be a better solution. and failing that, the tax on the excess leverage that reduces the value of the interest deduction i think would be a very good short term solution. >> i would just under no sport -- underscore vic's point.

those that can capitalize on that kind of a line drawing. >> thank you. mr. bush sarah -- becera? >> thank you. in the three minutes i have, let me see if i can focus. i know we have been talking about the treatment of debt and equity for corporations, moving forward with the tax code, trying to reform our system of taxation and making this more competitive, but i think most is better focused on the congress today and are watching are still worried -- most eyes that are focused on congress to they are washington -- watching and are still worried. does increasing the debt ceiling have anything to do with reducing future spending by the federal government?

>> well, mr. becera, i am not an expert on the overall financial situation of the united states. the members of congress vote on outlays -- >> but in terms of future spending, spending next year, spending in tenures, if we vote in congress to increase the debt ceiling limit debate or before august 2, does that have anything to do with what we will spend directly in 2020? >> well, sir, as a simple statutory matter, the two issues are separate. >> ok. and i know you have had a chance to speak a bit about this come in with a short amount of time, let me ask mr. johnson a question. should revenues be part of the debt limit discussion? as we start to discuss how to

move forward and deal with our deficit and our national debt, if you want to have an approach that resolved the issue of our national debt, should revenues be part of that conversation? >> in any situation where a fiscal adjustment is required, such as in the united states today, i would suggest that you look at both revenues and expenditures, so, yes, i would definitely put them in there. >> the largest deficits in this large national debt in a way that is comprehensive long-term, the private sector, but companies that are trying to do business here domestically or abroad. >> of course, it is the best thing you can do for the economic recovery is so that they can understand the trajectory. that would bring down long-term interest rates and encourage investment and boost job growth. >> in the alternative, if we

take the country to the brink, and say august 2 we do not have a resolution to the debt ceiling, what happens in the eyes of the business community? >> we do not know what happens, but we do not want to find out. other countries that have played these types of games that usually ended up being burned. a technical default would have an impact on base interest rates for a prolonged period of time. why would you want to take that risk? >> thank you. >> mr. chairman, thank you. obviously, i have been sitting here listening to a lot of analogies, and a lot of the analogies have been between personal household debt and national debt. perhaps i look at it too simplistic, but people are loaded up on debt because they made money. inflation was driving values up, and people were able to make that leveraged investment and get a higher return.

i think our u.s. debt has soared out of control because it has been simply too easy to borrow the money and not make some of the difficult decisions that need to be made. i personally believe that if we do not take this issue serious and long term and figure out how to rebalance and get our country back on track, i think financial markets will say, hey, washington does not get it. they are just going along. the fundamental question i think we have got here is the impact of the interest deductions, and obviously, as we look at this trend over the last 20 plus years, it does not have that big of an impact, although in my sense of things, it is changing business decisions, and if, in fact, i am assuming everyone on the panel here would say, again, some want to increase taxes, some would want them revenue neutral, so two questions. one question. are we clear that the deduction

on interest is really not the right incentive as we move forward, and if it were a revenue neutral situation, what would you do with those tax dollars in another way? which you just reduce, for example, the corporate rate? when you eliminate the interest deduction and focus on the corporate rate? or what would you do with those dollars? so, you look deep in thought, tom, so we should start with you. >> well, i think you have ousted the broad question of how to undertake major tax reform. you could undertake a tax reform and maintain deductibility, the deductibility of interest. you could undertake tax reform. you could create preferences for equity. you could come as miss olson suggested, integrate corporate tax with the individual tax and change overall incentives.

i assume that is -- >> maybe i asked to of many questions. the first question is, should we keep the interest deduction, in your opinion on this panel? and it would you advocate we put one in? >> you know, sir, i do not advocate before the committees. i work with the committees, so i will defer to my colleagues on the panel. >> there are certainly good arguments for limiting the interest deduction, but you cannot come in my view, limit the interest deduction without taking into account a ripple effect. i do not think it dictates them. i think we make a mistake any time we think the tax rolls are the things that ultimately decide what people do. they have an impact on them, and if we're going to limit interest deductions, then we have to take a comprehensive look. we have to think about transition, things like a

comprehensive business income tax, set up a system that is more like the treatment of equities, so you would not have the deduction for interest on the business side. but on the recipient's side, it would not be taxable income. the switch should things along the way of the consumption tax. >> ok. another is recognized. >> thank you. an excellent panel. mr. chairman, i want to thank you and chairman baca is. this is very helpful. i think it makes sense for us hopefully in the future to have more joint hearings like this to the accord may be action in the house and senate, especially on something as important and crucial as comprehensive tax reform. mr. johnson, let me start with you. you have been an advocate, but he admitted earlier in your testimony, and coming out of the financial crisis, it was often difficult to be able to identify what excessive leverage looked like at the time. have we made improvements with regards to the passage of dodd-

frank, having a better ability of identifying excess of leverage when it existed, as opposed to a retrospective look back in identifying it? >> i made a point above the lehman brothers leverage. living with lehman's last six months, i think they knew what the leverage was, and i am sure they could have told you what the accepted leverage was, if that was the framework. taking on the question, which is do we understand the risks that arise from this kind of leverage, do we know who will be impacted, all of the small businesses and small community banks will be devastated the next time there was a problem, or italy were to run into problems today, no, we do not know. the panel, created from this purpose, it does not have this in any precise way. these risks are huge and impact their rest of the economy. they come directly and immediately from excess leverage. >> maybe starting with you, ms.

olson, based on the current tax code as it exists, we have really not gotten into the transition period for making these kinds of changes, but what do you think we should realistically be looking at in terms of tax reform? >> that would be determinedly part of the change that you make and whether it is very incremental or whether it is much more comprehensive, but even incremental change i think needs some transition period. >> the issue we have been dealing with mainly on debt, and increased debt in the tax code today. >> again, i think it would depend on how radical you wanted to be, if the changes are incremental, they could be phased in more quickly, but if there are more radical, that you would need a more long-term period of time. >> going back to the point of excess of leverage, it is married to a call to determine even how much leverage there is, especially when you are thinking about the derivatives and things

off balance sheet, but the point i would make is you do not have to get it exactly right to make things better. right now, the taxes tilted in the wrong direction. any move towards neutrality is likely to make things much better rather than worse. >> quickly, please. >> again, i would echo the comments that the scope of the transition has to mirror of the scope of the change, so you can imagine a narrow change, which i would not support. or you could imagine a broader change. >> thank you. >> mr. reed is recognized. >> thank you very much, mr. chairman. i guess i am the newest member of the committee, so i get the question. i find it very informative from the panel today, and i do want to focus on a very limited area, and if we could. one thing we hear, as we go from

a lot of younger folks, the college tuition that they are facing is going through the roof, and the loan and the debt associated with that commission burden, so i would be interested with anybody on the panel. do the subsidies, what impact, if any, do you see them having in regards to tuition that has been clearly demonstrated over the past few years? would anyone like to -- >> this does not give enough attention. what are you getting for this sort of money that you are paying, and questions are increasingly being raised about some part of the education sector, and there are rules in place. a high proportion of grudge with the default on a loan, then that institution is no longer to get

new loans for its applicants, but these rules seem to be not particularly effective right now, and perhaps we should consider on a revenue neutral basis shifting away from this loan structure towards an alternative way of financing. for example, using some form of grants to pay for themselves. >> any other comments from the panel? is the tax code itself, by allowing the deduction for student loan interest, encouraging higher tuition costs because of the inflationary effects of that policy. does anyone have any more information on that? >> some people have raised that possibility, some of the benefit of the numerous provisions that we have acted to benefit education may go down to the providers of education, but the economic evidence to this point could be described as.-- could not be described as anything

more than mixed. >> ok. >> i would just ago that, and not because i am in the higher education business. it has been very difficult to find this out, in fact because pricing in higher education is a very curious practice, and part of what we have seen is an increase in prices and then lots of discounting, but there is a whole market structure there that is complicated. i does want to echo the point that a big part of this concern is about something that did not exist 20 years ago, where you have very different. various different providers, and that is worth looking at. >> thank you. my time has expired. >> thank you. another is recognized. >> timing is everything. i am the last man on the totem pole, but thank you, mr. chairman. i appreciate your holding this hearing. between the house and senate on

a very important issue, debt and the tax code. while pressing the, we should be talking about the overall issue of debt. in three weeks, the u.s. will hit the so-called debt limit, which is like maxing out on a credit card. while an individual on a credit card can stop making future payments on the credit card once they hit the limit, the same cannot be said for the u.s. government. the spending that would be dealt with is with past obligations, not features spending. ford said oh, we just cannot stop paying out social security. we just cannot stop paying of veterans money or military pay and benefits to our troops at war, but if we do not increase the debt limit, that is exactly what will happen. funds that were promised, and in terms of social security, the people's own money will not be paid because we will not have the funds to do so.

could you imagine the social security checks bounced? it is a real possibility of congress continues to play games with the budget, if they continue, as was said, they refuse to work with president obama. the overall aim should be to create jobs and to the fiscal house in order, not to play games. that is why i so we president obama for continue extending the hand in negotiations to work to insure we can meet our obligations in paying their social security on august 3 while also working on long-term debt reduction for our children and great-grandchildren. but any debt reduction plan will require a shared sacrifice. seniors on social security, veterans to rely on their pensions, and the troops in battle should not have to lose their rightful benefits while others do not make that same sacrifice, and i will oppose a plan that does not involve shared sacrifice but makes

seniors and veterans and military families pay the bills created after a decade of fiscal irresponsibility. it is amazing that we have people in this room that support $1 trillion in tax cuts and two painful wars, but now, the veterans and the seniors and the troops that sacrificed so millionaire's do not have to. this president is trying to work out returning our country to a policy of fiscal discipline. last seen when president bill clinton was in the office. while ensuring we promote economic growth and stability, and i urge all of us to focus on this critical mission and to stop playing politics and the blame game, and with that, i yield back the balance of my time. >> mr. paulson is recommended -- recognized for three minutes. >> i also want to commend you for holding this, and in particular about this being an important foundation for tax reform, for economic growth, and i think we have heard from some

of our panelists about the negative implications about the treatment between debt and equity. i just want to go back to the design of what the tax system should look like, what the tax code should look like, what tax reform should look like, if we are going to promote economic growth and jobs. that should be the number-one goal here. obviously, this is a big issue, but we have to deal with growth. the last jobs report, that is pretty embarrassing. it is embarrassing when you think we have more graduates in minnesota that we have jobs coming out nationally, so knowing that that is the case, we want a tax burden that is going to promote work, savings, and investment. what should be the focus on that in the context of debt and equity? ms. olson? >> a consumption tax, and there

are many ways to get there, like a comprehensive tax that congress may look at to move in that direction. >> i largely agree with that. i think what we're aiming for, i think a lot of us agree on that the broad base of the rates is a place to start in to try to reduce the distortions in the code that lead not only to a reduction in the tax revenue but an incentive to engage in wasteful tax planning, from a long-term economic perspective, it is not encouraging long-term growth. >> and we have a lot that comes from panelists about lowering the rate and the context of helping small businesses, if there are any thoughts on that, because that is the driver of the economy, the small-business economy. >> the remarkable thing, of course, is the level of consensus. what the tax code would look like.

there is consensus on that, which is a notion of a consumption tax base coupled with productivity that can be achieved in a variety of ways. sometimes that is not the hard part. i think where we said, there is wide consensus. but getting there is the harder part. >> mr. johnson? >> i think you should focus on moving towards a value added system, and you can make that as progressive or not progressive as you want. you can generate more revenue or less revenue, with these vat systems around the world. everything is as much to income tax base as our system is not going to do that, and i think i would echo. this has been proposals put forward by my colleagues here. for example, what the imf has

about moving smoothly to a vat system. >> all right, i want to thank our panel and for those coming to participate in the hearing, and i want to thank mr. baucus and others for making this a joint hearing possible. this hearing is now adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

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>> my parents, we were scared to death, because the soviets were ahead of us in space now, and they had nuclear weapons. and my parent took us into our living room in minnesota and said boys, you are going to have to study math and science to beat the soviets. and i thought that was kind of a big burden to put on a 7-year-old and 11-year-old. [laughter] but we were o'bead i can't sons, so we studied math and science, and my parents were right. and we studied math and science and we beat the soviets, my brother and me, and the

benefits from the space program are unreal. i was watching a debate during this last campaign, and the republican candidate for senator stayed government never created a job. and i noticed that ironically the debate was carried on satellite. we built the interstate highway system. this is -- i just, you know, so now i know we're not going to get a big stimulus package. so i'm looking for different ways to -- different models to build jobs. you know, why aren't we retro fitting residents, businesses,

universities, buildings? in minnesota, we have our people in the building trades are just hurting, hurting, hurting. and let's put them to work. we have a company in minnesota, a big building, huge air-conditioning system. they are building the air-conditioning systems for the new world trade center. because they are such a big and successful company, they are credit worthy, so they are able to borrow money. and what they do is they just lend it to their customers and say buy our air conditioners and units and within three to five years, it will pay for itself, and then the rest is profit, and then -- why aren't

we doing that? we know we can pay for our investments in energy efficiency. if we get $2 trillion sitting on the sidelines, let's do it. let's do it. no -- you know, let's think of models like that. put people to work. and that doesn't cost anybody any money. it's just win-win. sell its product to industrial manufactureer, some kind of manufacturer, they borrow the money, and they pay it back, and they save the money in three to five years and the rest is gravy. everybody wins. people are put to work. on forclosureses, you think,

we've done this -- we haven't done this forclosure thing at all in -- we've done it in an idiotic way. we should be helping people. we should bypass the homeowners' advocate. any of us go back to our districts or to our states, we find people that are in the hamp program and they are trying to deal with their serviceers. you can't get the same person on the phone twice. can't get the person's name. they lose your paperwork. we should have somebody on your side working for you. this is what we should be doing rather than what's happening now in kong. it's very frustrating. i feel like i've gone on longer than i should. we -- i find the current

situation sad. i find that senate leadership has -- senate republican leadership -- they said it right after the election, their number one goal so see that president obama is a one-term president. didn't say tots put people back to work. they didn't say tots get our kids educated. they didn't even say to balance the budget. they said tots see that -- it's to win the election, the next election. this was immediately after the last election. i'm sure sandy, and know sandy didn't come here thinking you know what i'm going to do is i'm going to come here and get elected and then i'm going to work on the next election. that's not what the american people want from us. they want us to work together and they wanted us to improve

their lives. they want to make sure they are educated and that there are jobs. they want to make sure that we have the american dream. the american dream is to have a good place to live, make sure your kids are educated and to have health care. have a secure retirement that's the american dream. that's all it is. it isn't. and by the way, during the clinton expansion, median income went up. poverty was diminished. made more millionaires than ever. good for them. we need a totally different approach, and we need to not be playing high stakes game of chicken with the -- not only the american economy at stake but the global economy.

so i don't know. i'm sure i've repeated and i'm sure bob has told many of the jokes i did. famous for that. [laughter] >> nobody can do that. >> so thank you-all for being here. and thank you today. >> snaurt al franken. thank you. thank you very much. [applause] >> and thank you everybody for coming. it's been great. really appreciate it. [applause] dd [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

>> today on c-span, a house hearing on the t.s.a. and arnte security. that's followed by "washington journal" wlive your phone calls and live coverage of the u.s. house as they gavel until for

morning business. >> on today's washington journal, the president of americans for tax reform minor vill -- grover norquist. and representative raul grijal va. "washington journal" begins live at 7:00 a.m. on c-span. >> federal reserve fed chairman ben bernanke trourns capitol hill. you can watch live coverage beginning at 10:00 a.m. eastern time on c-span three and c-span.org. consumer financial protection bureau advisor elizabeth warren testified at an oversight hearing in may. she'll back on capitol hill thursday before an oversight committee. members will ask her about next week when they begin

supervising the nation's largest banks. ms. warren testified before a house subsidizing committee on mortgage forclosures. >> and we have seen very little accountability among the largest financial services and both before the crash of 2008 and after the crash of 2008. and i just want to point out that has been really hard on american families. it's been hard on directly when they've gotten their feet tapingaled in credit card agreements and payday loans and hard on them when they were doing sensible things on mortgages only to know they were going to lose their loans and people who did nothing to get involved in financial services but lost their jobs. and companies, small businesses they were working for, their markets have dried up, and it has also been hard on community

banks, credit unions who worked so hard day in and day out to work with their customers and be the relationship lenders and be there over the long haul and who are getting crushed in a financial turnaround that was not their fault. >> you can watch elizabeth warren live today on capitol hill on c-span.org. >> this weekend on c-span, live from salt like city, the nation's governors look at 9/11 and tomas friedman talks competitiveness and the economy. look for live coverage on saturday at 5:30 eastern and sunday at 1:30 p.m. eastern. the national governor's association. this weekend on book tv on c-span 2 and afterwards in hesitation kills marine major jane blair relives her experiences on the front lines

in iraq. and in eisenhower 1956 david nichols looks at the su ezz canal crisis. look for the complete book tv schedule at book tv.org and sign up for the alerts in your inbox. >> at the house oversight and government reform subcommittee, many question the t.s.a. about airport security and a report documenting 25,000 security breeches since november, 2001. security officials with amtrak and israel's airport also testified. this is an hour and 45 minutes.

>> good morning. the committee will come to order. like to welcome ranking member tierney and members of the audience here participating and those of you watching on television. today's proceedings are the second designed to the develop the status of airport security and the things -- first and foremost, we have learned that there have been 25,000 security breeches at u.s. airports since november of 2001, and i do appreciate t.s.a. in tracking and providing those incidents. we also are deeply concerned about the t.s.a. failing to conduct -- in order to identify gaps in security screenings. there were 87% of these

airports had not had these threat assessments done, and that number really has not changed. the t.s.a. also lax the strategy to -- this coming from a g.a.o. report that stays nation's 457 commercial airports have not quote been guided by a ewan phiing national strategy, end quote. also concerned about 900,000. 900,000 security badges at these 457 airports and the dangers that can lead to and the challenges that presents. we're also concerned about what's happening at our nation's airports. investigative stodse show a gaping security gap. and also what happened at dallas love field when breached or damaged almost 20 times in less than five years and air

traffic control show pilots were unsure what to do when a pickup truck crashed through a fence and drove. one pilot said tower, what's the protocall for something like this? the tower responded just hold position, end quote. at l.a.x. there's the eight miles of fence built in stages over the past decade yet no one consisted as standard. we will have spent nearly $500 million on what i call the whole body imaging machines machines yet there are parts or gaps in this security that don't work. i happen to believe there's a better, smarter way to do this that's more secure and less invasive talking about the k-9

units and what they are capable of doing and what we can do about that. >> and the whole body imaging did not find some of the things used in the december, 2009 incident and the list goes on. t.s.a. has spent millions and millions in technology that has not worked. remember the 2007 puffer machines after spending $30 million and having those deployed, they were put back on the shelf. the challenge before us is great. it's a mess. it's real. we have to deal what threat as a real security threat to our nation. there's no end to the creativity of terrorists. and while i've heard press recounts saying 25,000 security breeches, 1% or even less than 1%. have to be right 100% of the time and terrorists only have to be lucky once.

they have not done the job to secure the airports to the degree that we need to. how do we become more secure and yet less invasive. that we don't give up every personal liberty in the name of security. and we have to find that balance knowing the threat is real. so i look forward to the hearing today. we're also going to rather than wax on, i'd love to hear from the panel but at this time we'd like to recognize the ranking member, the gentleman from massachusetts, mr. jeremy for his opening statements. >> thank you chairman and thank you for being here, witnesses. we understand we're going to address some important issues today, around one of them for instance is the screening passenger techniques or spot program. our general accountability office criticized that program saying it lax appropriate scientific validation. the study says it shows is more

effective than random screening but didn't address whether behavioral analysis is an effective way to de tect potential terrorists. they are asking for another $250 million. i think it's pretty critical with that investment we look at whether this program is effective in identifying potential threats to security. we're also going to discuss the checked baggage. congress panned dated 100% bags checked. again, the general accountability office says despite the regulations being in effect, the technology requirements were not put in place until 2009. turning to the issue of perimeter security, there have been some high prifle breeches we're all aware of and the tranl i can incident that occurred outside the airport

where a young man fell out of a plane and he likely gained access to the plane after breaching security in charlotte. this is not a unique incident. and security breaches by mr. wong who was somehow able to make it on to a plane with a stolen boarding pass. general accountability also raised questions about the nation's airports. 2009 they found u.s.a. failed to implement a national strategy to implement security but only a small percentage of airports, this again raises serious questions that have to be addressed. so as we evaluate these challenges, it's important for us to take the time to understand what transportation fuppingses and what the administration is not responsible for and one is the perimeter area. they are not principlely

responsibility for the perimeter of airports. that is the responsibility of airport operators while they are sure they are adhering to a security plan that meets federal standards. so as i said at the last hearing on t.s.a., the government has an unenvyible task of providing constructive criticism with which the t.s.a. can strike a balance on security and budget. i thank the chairman again for bringing us together. >> thank you. we'll now recognize the chairman of the transportation committee and also a member of the subcommittee, the gentleman from florida for his opening statements. >> thank you mr. chairman and thank you mr. tierney for your leadership and also for pursuing very important issues relating to transportation security and holding very

important age and the accountable, having been involved with t.s.a. and actually picked the name for the agency and helped craft its enabling legislation some 10 years ago, i've had a chance to monitor its activities closely, and unfortunately, i've become more and more concerned with the billions of dollars that are being expended. some of it just astounds me. we've created an agency that is -- that's actually run pail mail away from security and turned into a huge, unthinking, non-risk-based bureaucracy. everywhere i turn, i'm appalled at what's taking place. recently i had the opportunity to go to our state capital in tallahassee, and i left the

airport to pick up a rental car. and the airport is located on about a 16-foot embankment. it's an embankment across the entire length of the airport. here's the front of the airport. here's the embankment 16 feet high. just to show you. we're talking about airport security and perimeters. how idiotic we could be in implementation of any requirement like this. but this is the parking space for rental cars and this is the 16-foot embankment. you can see where cars go through the entrance of the airport. now if there's a new airport administrator who wasn't familiar with all the details, but we're going to do a thorough investigation of this.

this is just one incident of a non-thinking agency. i don't know of any explosive device that can possibly penetrate 16 feet here except maybe a nuclear weapon. i don't know how much it costs to put these barriers here, but again, forcing a small airport, or t.s.a. paid for it, an idiotic expense, not to mention the cost to the taxpayer or the airport, but then of course they would never consider the economic loss of the car rental firm or to the revenue of the airport. but every time, everywhere i turn, i see a disregard for the taxpayer. this is just one instance in one small community . again, just an unthinking

agency. their budget is what an $8 billion range? then i opened a paper a week or two ago when i was refering to washington, and i look at this ad. of course this humane society looking for a vice president of federal affairs. they have a little, i would say a 1/ of a page but we have a full color half paged a for -- page -- a half page for public affairs. only total disregard for taxpayers resources could you expend money on whether the venture like this by state capital airports or in a capitol hill publication, and i'm going to request, too, an accounting for the expenditure of this.

let me just tell t.s.a., too, if you controversy cooperate with my committee, the transportation infrastructure committee, i have had and will continue to have the cooperation of both the subcommittee on which i serve and the full committee, mr.izea, and the chairman here has agreed cooperate to get the information. and we will get the data, whether it's this or other activity such as you've refused to provide information to us on regarding your expenditure of your national deployment force where you can't hire people or people leave their jobs, and you have to fly them in, put them up at hotels and pay their expenses and pay them a perdiem. whether it's that issue or more than a dozen pending items, we will get the information. we will investigate.

we will protect the taxpayers who are paying the bulk of the expenses for this fiasco. so thank you for holding this hearing. we'll get to some questions and i yield back. >> now i recognize the gentleman from massachusetts, mr. lynch, if you'd like an opening statement we recognize you for five minutes. >> thank you mr. chairman. obviously the interest of airport security is a tremendous one for all of us. i know that we have spent enormously on the safety and security of the processes within our airports. but this is something that the security of our perimeters of these airports have become much more of a concern since the fairly recent incidents that involve my district. the young man who was

apparently stode away above on an aircraft recently from south carolina to logan airport in boston was found deceased in my district in the town of milton in my district. so i was able to see up close the tremendous concern generated by this. the hardship on the family. the concerns of all the law enforcement as well, and obviously the concern within the aviation community. so i think it is worthwhile to spend some time to redouble our efforts, to focus our resources on an area that we believe has been neglected. and i want to thank the witnesses here for their willingness to come before us, to help us with this task, to help the committee, to make

sure that we're being thorough in our examination, that we're not overlooking anything. and that as a result of this incident, and some others that at the end of this process, the american flying public will be safer, and our communities will be safer. and our airports will be more secure. that's the goal here for both democrats and republicans. that's the -- that's our intent here. and again, i want to thank the witnesses for coming. i yield back. >> thank you. i'd like to now introduce our panel. so they can be prepared for their opening statements. mr. john samen. the assistant administrator with the transportation security administration. we do appreciate you being here. mr. steven lord is the director of homeland security team at the government accountability office. mr. jeremyor is with the

charlotte douglas international airport and mr. raffy is the former director of security at tel-aviv ben guren airport and inspector william parker is the commander of amtrak police department's k-9 unit. we appreciate your being here as well. all witnesses will be sworn in before they testify. rise if you would and raise your right hand. do you solemnly swear or affirm the testimony you're about to give this committee will be the truth, the whole truth and nothing but the truth? >> thank you. let the record reflect that all witnesses answered in the affirmative. we would appreciate if you would limit our verbal tom five minutes or less. your entire written statement will be entered into the record. with that we'll start with mr. samen. you're recognized for five minutes. >> good morning chairman rankeding member tierney and

distinguished members of the subcommittee. i appreciate the opportunity to appear before you today to discuss the transportation security administration's responsibility regarding perimeter security at u.s. commercial airports. i would like to emphasize three points. first, every airport has an individualized security plan of which perimeter security is an important piece. two, airport authorities are responsible for executing the plan. three, t.s.a. is responsible for improving the plan and inspecting airport compliance of the plan. unlike check point security, airport security people and vents play the lead role in carrying out airport security. t.s.a. conducts airport inspection to mitigate risks, and including joint vulnerability inspections and atesting of access-controlled

processes in the airport. analyzing the assessments to develop mitigation strategies that enhance a security processture and determine if any changes are required. perimeter-related airport compliance has been inspected 27,031 over the past 16 months. every airport receives an annual security assessment to include access to perimeter and controls. initiated a special inspection and emphasize on inspection on all airports including fencing, non-man made barriers, electronic inintrusion and motion detection devices. assessments are complete with the largest airports with the

smaller airports inspected -- expected to be complete by 2011. and also violations which may result in civil penalties. going beyond compliance, we work collaboratively with airport operators and airport associations. and in that collaboration, t.s.a. issued updated and improved security guidelines for security strixes and a report that ch which highlights best practices from all airports across the united states. the effort was the first of its kind in working closely with airports across the nation in beening best practices in airport perimeter, access control, terminal frontages and other key areas. over 700 practices from airports were assessed as part of this ground breaking initiative. because of that, there's a resource allocation tool.

they attack vulnerability scores and countermeasures probabilities. it allows airports to baseline and will directly inform decisions about improvements to provide greatest risk reduction for their money at their location. t.s.a.'s goal so work with airport authorities to stay ahead of the terrorist threats whilal protecting passengers' privacies and t.s.a.'s airport perimeter security initiatives are one part of that comprehensive effort. i want to thank the committee for the opportunity to discuss this important issue and pleased to answer any questions you may have. >> thank you, we now recognize mr. lord from the government of accountability office. we will recognize you for five minutes. >> thank you mr. chairman and members of the subcommittee thank you for inviting me here

today to discuss aviation security issues, the attempted 2009 christmas day attack provides a vivid reminder civil aviation remains a target of terrorist activity. securing commercial off yation is difficult given the hundreds of airports and thousands of daily flights and millions of passengers and pieces of checked baggage. the t.s.a. spends millions each year to help secure the system however risk to the system remains. today i'd like to discuss three layers of the system. first t.s.a.'s behavior detection program also called spot. airport criminal and access control and finally t.s.a.'s checked baggage screening system. first regarding the t.s.a.'s behavior program, t.s.a. has taken angst to validate the underlined science but based on our reporting more action the

needed. may 2010, t.s.a. deployed this program on a nationwide basis without first demonstrating it was based on validated science. according to t.s.a. spot was deployed before it was completed to help those threats posed by suicide bombers. good news is t.s.a. completed the study and found the program was more effective than random screening in identifying so-called high-risk passengers. however, as noted in the study, the assessment was just the first step. additional research is needed is going to be needed to fully validate the program. and some of the recommend daigles made mirror those we've made the our may, 2010 report. in some, it's still an open question whether behavior detection principals could be

applied on a large scale for -- i would now like discuss some of our key findings on airport security. terms of progress, we noted various steps the t.s.a. has made in implementing the worker program and expanding requirements for name-based ballgame checks and developing new biomet trick security standings, however, we found t.s.a. had not completed a risk assessment as called for by d.h.s. they completed such assessment in july of 2010. however, it did not include an assessment of the so-called insider threat which t.s.a. views as a significant threat. the risk posed by insider threat will be included in the next update due later this year. and we also recommended the t.s.a. make greater use of joint assessments.

these are a great tool in the t.s.a. toolbox and are completed in conjunction with the f.b.i. the latest studies show they have completed the assessments on 17% of the airports leaving about 83% of these airports unassessed. the last pint i'd like to discuss the t.s.a.'s effort to employ screening equipment. it's one of the largest programs in d.h.s. and highlighted in a report released to representative micah yesterday. t.s.a. has upgraded the explosive detection requirements for this equipment but faces challenges in meeting these requirements. the explosive detection requirements for this was established in 1998 and subsequently revised in 2005 and 2010 to better address current threat. however, t.s.a.'s current

checked baggage screening systems do not feet in 2010 requirements. some of the machines are operating at the levels established in 2005 to -- the remaineder operate at the levels established in 1998. the report describes some of the challenges t.s.a. faces in de ploying and looking that the technology. for example, d.h.s. and t.s.a. faithfullyal collect data on the physical and chemical properties. they contain recommendations for acquiring these sophisticated systems. the good news is the t.s.a. has taken actions to implement all of these recommendations. this concludes my statement. look forward to answering your quis. thank you. >> thank you. now i recognize mr. orr, the airport director and operator of the charlotte international airport. we appreciate you being here, sir.

you are recognized for five minutes. please turn on the -- and move it closer to you. the microphone. thank you. >> mr. chairman, members of the subcommittee, my name is jerry orr and i'm the save yation director and i'm the director of the charlotte airport. i was a small business owner for 3 years before. i'm here to testify on airport perimeter security. i have been critical of the performance of the t.s.a. since its inception. i am not critical of its mission. i am critical of its measures. my judgment, the effectiveness of the t.s.a. is compromised by a rigid attitude of arrogance and bureaucracy. november of last year the body of a young man was discovered in massachusetts and was thought to have fallen from an aircraft. i learned about a possible

connection to charlotte in the media and therefore reached out to our federal security director. he did not want t.s.a. to take the lead and instead recommended i ask our immune is approximately police department to head up the investigation and t.s.a. would assist them. ultimately the investigation could neither prove or disprove the breech happened in cart and they came up with the reasonable assumption about what might have happened that includes entry through a check point but it failed to acknowledge that they could not rule out this possibility because t.s.a. had failed to preserve their surveillance video of the check points, and some of it was lost. i'm not saying that the young man came through a t.s.a. check point. what i am saying is that the t.s.a. failed to even admit the possibility and deflected attention elsewhere.

this mentality serves toal protect the agency at the cost of real security needs. the attention on airport security and in charlotte we have 19 miles of six-foot high chain link fence with three strands of barbed wire enclosing the airport. this fence meets all federal requirements. we spend a half million annually on maintaining the fence all from the airport budget and 75 personnel with perimeter security responsibilities. the fence is a deterrent. it says keep out. however, the final line of security is the eyes and ears of the 20,000 people who work inside the fence. t.s.a. seems to believe that airports are automatically in violation of the regulation even when they did everything they were obligated to do and it simply didn't work.

to me that's like saying customs and border protection assist violating the law each time an illegal alien crosses into the united states. other examples of t.s.a.'s lack of a partnership. we recently asked t.s.a. to explain their security basis and legal authority for directing us to do something but t.s.a. failed or refused to respond or even acknowledge our question. t.s.a. has conflicting roles in operational and regulatory capacities that are not kept separate. having an agency interpret the rules, implement actions and then judge their effect i haveness lends itself to the possibility of abuse. i am confident that i am not the only airport operator with significant concerns about the effectiveness of t.s.a. an adversarial relationship is clearly detrimental to the goal of safety and security.

so what can be done to focus on the real needs of our nation's airports? congress should continue its support of allowing airports to opt out of using t.s.a. and assure bureaucracy doesn't throw up arbitrary roadblocks to discourage us from doing this and any airports working to achieve security must do that, work with them. t.s.a.'s current, because i say so culture does not foster respect. i also believe congress should redirect some of the available funding for airporter security directly from t.s.a. to airports. the operators most familiar with the airport's vulnerabilities and strength and is well equipt to make enhancements. safety is always our number one priority. there can always be more security, but the challenge so provide better security. we need to spend money where it

counts on things that matter. it needs to be reasonable and collaborative. if airports are given the resources we need and a true partner for security, the traveling public will be the beneficiary. >> thank you mr. orr. we now recognize the former director of tel-aviv's ben guerin airport. you're recognized for five minutes. >> thank you, mr. chairman and members of the demee inviting me to testify today. i'd like to draw the committee's attention to a three factors that i believe are playing a key role in many of the short comings in airport security. the first one is the imbalance created shortly after 9/11 when the t.s.a. had the overwhelming task of the recruiting, training and installing

technology in airports around the country. something that has failed to be the backbone of t.s.a.'s operation and influence over security at the airports. at the same time the airport's security facility has received much less attention, and not only that a screening of passengers and bags were most of the attention and funding went into, but it was also executed, according to the law, by t.s.a. while the rest of it was left for the local authorities to take care of. funding was relatively short. the standard for performance of the security task on the local level are not very clear, and

in many cases do not even exist. and the point of the issue of perimeter security is a very good example for them. because i think that the traveling around the country, one can easily notice that first of all, there's very little consistency in our airports as far as perimeter security is concerneded. secondly, most of the airports today are still not protected by an operating perimeter intrusion systems, in other words, we don't know when a breach occurs. we only get to know that when it is addressed by somebody or when we end up with a stow away making his way through wheel well and sadly ending up losing

his life after takeoff. obviously, this is not a good, reasonable standard compared to those that we implement on the passenger and screening operation. the other aspect of that is that the issue of jurisdiction is not very clear. when it comes to the security operations and security facility operation of the airport, it is local law enforcement agency or department that is responsible for that, but here, most of the police departments that they provide service in airports are still implementing their role more as a law enforcement agency rather than a security agency, and there is a major difference between the two. and once again, if you look at perimeter as a reflection of

this problem, you can see that the road that our local police department is taking on perimeter security at airports is minimal and usually based on responding to calls rather than early detection and prevention. so i think the two areas that still needs to receive much more attention, one is the role and funding of the local authorities as far as the airport facility security is concerned. and secondly, the need for standards that will create consistent, high-level performance that will characterize the security in airports around the country. i thank you very much. >> thank you, mr. ron. a little bit of explanation as we introduce mr. parker.

you would be cures as to why we would want somebody from amtrak to be here at a hearing regarding airport security. one of the questions, i think that is a legitimate one that the committee would like to explore, while the t.s.a. has invested in whole body imaging and the like, many have come to the conclusion that dogs are the single best way to find explosive devices and i'd like ask to introduce into the record, there was a press conference by lieutenant general michael oats that said quote dogs are the best detectors, and this, i would point to this. i know all good americans get this magazine, airmen which is the united states air force in their may-june 2011 edition, it says there's no technology proven more effective in

detection of the explosives than the k-9. there are questions are we investing enough in technology that we know works according to the pentagon having literally spent tens of billions of dollars so again without waxing on too much more we appreciate truly inspector parker being here and he's going to give a bit of testimony and then we're going to give a demonstration. i'll let him explain how it's going to happen and we would ask if you have some sort of something, we're glad that you're here but we're going to do a bit of a demonstration and we appreciate the leeway here in the committee as we do this demonstration. inspector parker, we'll give you great leeway. >> good morning mr. chairman and ranking member tierney. my name is mr. parker and i'm

inspector of the k-9 unit and i'm here to speak with you about what dogs can do to protect airport with airport security and detect explosives. dogs do not de prosheyate like machinery does. their skill level will increase with experience. perimeter security is of great concern to airports and transportation administration. many surveillance and camerasal protect their perimeter, but the problem is if nothing appears on the camera you can't assume nothing is there. someone has to respond and make sure no one is hiding from the camera. a well-trained law enforcement officer with a well-trained patrol dog can find and address that immediately without waiting for backup. on september 11, 2001, we used explosive dogs to sweep airport

terminals, the dogs were use to the sweep in the morning and in the evening when the terminal closed. i saw a real surge in interest in k-9 capability after 9/11. people realized dogs are effective in crowded environments. amtrak trains are randomly swept for explosives before boarding. we keep an explosive team to provide a detection capability and immediate response. think i this a dog would provide an elevated sense of security. dogs are very effective not only in detecting explosives but as a deterrent in any environment when deployed properly. amtrak has many challenges in airports, particularly the need to secure open space areas that

intruders can use to come on to our property. i helped pioneer a new application of k-9 called vapor weight. it's a trained dog's ability to smell in the wake of the air after a person passes by. otheral agencies such as t.s.a. are starting to use the vapor wake technology. it's an excellent investment for any agency that needs secure high traffic areas or facility perimeters provided the program is properly supported with a strong infrastructure. >> to this point, i'val brought two teams with me to give a brief demonstration. after we conclude the demo, i would be happy to answer any questions you might have.

thank you, begin, for this opportunity. what you're going to see in this demo, sir, i explained to you about vapor wake technology, the dogs will be able to detect people that walk by. it's not intrusive. you'll see two from my right, your left, we're going to have people come through the door. the dog is at a check point. the people are going to come in and the dog is going to be able to detect who came in with something on them. we're just waiting on the crowd of people. staffers.

as you see, sir, the dog's not hurting anybody. walking. as you see, that's a hit. as you see that person walk by, the dog, walking, walking, as you see, this is the response the dog would give. this individual has ankle weights on that have explosives on his ankles, so he has about five pounds of explosives on his ankle. could you show the committee, sir? and in that second demonstration we're going to give. ok. second demonstration is when a person passes through an area --

>> as a person passes through an area, you'll see a person walk into the room over to your left, she's going to walk and sit down and the dog is going to come through that same area, the person has already sat down and the dog is going to follow the scent and determine where she's located at. they are just trying to give it a little bit of time, because in theory it's been known somebody would walk through the area 15 minutes and the dog could still pick that up. that's a scientific fact that has already been noted.

and then they are coming in. >> good girl. let's give the dog a round of applause. [applause] >> thank you. very impressive. appreciate it. i'm now going to recognize myself for five minutes and move to the questioning.

and we'll go from there. i want to start with mr. sammon here, and the g.a.o. g.a.o. in the report that's released out today, dated today on page 2 and 13 it says data shows from fiscal year 2004 to july 1, 2011, t.s.a. conducted joint vulnerability assessments at about 17% of t.s.a. regulated airports that existed at the time thus leaving about 83% of airports unassessed. how can that be? in september 2009 there was an issue saying 87% of the airports haven't been assessed and since that time frame we've only moved that number to 17% assessments? >> the joint vulnerability assessments are done in concert with the f.b.i. they are done in a limited number of locations but every

single commercial airport receives an annual security assessment. >> but wait, why aren't there 100% j.v.a.'s done? is the goal not to get to 100%? >> t.s.a. does complete security assessments including the perimeter of all airports every year including we've done 27,000 inspections. >> i'm asking about the -- i recognize they are different assessments. >> what is your goal? >> we will not get to 100% of 450 airports with the f.b.i. every year. no. >> not every year. at some point. mr. lord, you've looked into this. what were your findings in this particular area? >> >> when we first looked, the number was 13% fro