uighur muslims di betan bude -- tibetan buddhists, uighur muslims and others are discriminated against. a christian died in prison, he was denied treatment for malaria because he refused to renounce his faith. threats to the free exercise of conscience and religion do not always come directly from governments. just yesterday, we heard reports that gunmen mask raiding as security officers waylaid a bus of shia pilgrims traveling throughout western iraq. the women were abandoned by the side of the road but the 22 men were shot and their bodies left in the middle of the desert. this sort of hateful, senseless violence has no aim other than to undermine the fabric of peaceful society.

in the middle east and north africa, the transitions to democracy have inspired the world but they have also exposed ethnic and religious minorities to new dangers. . people have been killed because of their ethnicity or their faith. governments have stood by while sectarian violence inflamede by religious and most yits tear people apart. there are exciting first steps to democracy and cannot trade one form of repression for another. shining a spotlight on violations of religious freedoms around the world is one of our goals in releasing this report. we also call attention to some of the steps being taken to improve religious freedom and promote religious tolerance. one of those is u.n. human

rights council resolution 1618 which was introduced on islamic cooperation and adopted by consensus in march and calls on all states to take concrete steps through service projects and interfaith dialogue. and we worked very hard with a number of nations and with the o.i.c. to pass this resolution and we will be working with our o.i.c. and european counterparts on implementing it and ambassador johnson cook is leading our efforts. we have seen turkey take serious steps to improve the climate for religious tolerance. the government issued a decree in august that invited non-muslims to reclaim churches and synagogues that were

confiscated 75 years ago. i applaud the prime minister's very important commitment to doing so. turkey allows women to wear head scar vs at universities. third, as we release this report we rea firm the role that religious freedom and tolerance play. hatred and intolerance are destabilizing. when governments crack down on religious expression, when politicians or public figures try to use religion as a wedge issue or when societies fail to take steps to denounce religious bigotry and curb religious identity, they embolden extremists and fuel sectarian strife. the reverse is also true. when governments respect religious freedom and work with

civil society to promote mutual respect or promote acts of violence against religious minorities, it can help turn down the temperature and foster a public aversion to hateful speech without compromising the right to free expression. and in doing so, they create a climate of tolerance which helps a country become more secure and more prosperous. the united states will support religious freedom. we are engaging with faith groups to address the issues that affect them. our embassies encourage interfaith dialogue and will speak out against efforts to curtail religious freedom. because it is our core conviction that religious tolerance is one of the essential elements not only of a sustainable democracy, but of a peaceful society that respects the rights and dignity of each individual. people who have a voice on how

they are governed no matter their identity, ethnicity or religion will have a stake in their government's success. that is good for stability for american national security and global security. with that, let me introduce both our assistant secretary and our ambassador at large to come forward. >> could you -- can you tell us anything about your understanding about what's going on in iran, the hikers and president ahmadinejad saying that they will be free? >> we have followed this very closely and we are encouraged by what the iranian government has said today. but i'm not going to comment further than that. we obviously hope that we will see a positive outcome from what appears to be a decision by the government.

>> thank you. >> thank you. good morning, everybody. as you know, the state department is mandated by law to produce this report each year. the secretary of state also designates countries of particular concern, countries whose governments have engaged in or tolerated particularly severe violations of religious freedom. secretary clinton has designated eight states as countries of particular concern. they are burma, china, iran, north korea, saudi arabia, sudan and uzbekistan uzbekistan. all of these countries have been long-term and chronic violators of religious freedom. the report has full details. in burma, hundreds of buddhist monks are still in prison and

the government refuses to recognize the ethnic minority. in burma, they declined in 2010 and is worse than this year. the repression of buddhists and weeg you are muslims continues. members of the bahai are expelled from university and leaders languish in prison. saudi arabia prohibits the public practice of religion other than islam and discriminates against the shia. these and many other violations in the eight countries of particular concern are spelled out in great detail in the report. but i want to emphasize that the list is about no means the only

measure of serious violations of religious freedom. in a significant number of other countries, we are also closely monitoring official repression of religious minorities or official indifference to their plight and urging government to protect religious freedom. let me mention a few. we are deeply concerned about the fate of christians in syria. many of these people have been victimized twice. they fled the violence in iraq and many are seeking to flee syria. the government has created a climate of instability and violence in which the human rights of thousands are being violated on a daily basis. in pakistan, the government has not reformed a blasphemy that has prted muslims. this year, there have been

several assassinations of those who called for reform of those laws including a governor and minister for minorities whom secretary clinton met in february before he was killed. the government of pakistan has taken steps to address these rising concerns. precks, in march, one was appointed an adviser. in july, the government also created a ministry of national harmon any which which protect religious minorities. and in august, ap president celebrated national minorities day and committed his government to support protection of minority religious rights. we will engage with the government of pakistan to promote tolerance and improve religious freedom. in iraq, religious minorities

have been the targets of devastating attacks since 2003. since last october, 50 worshippers were killed in a catholic church and the government of iraq has tried and convicted the perpetrators of that attack, but the tragic massacre of the shia pilgrims that secretary clinton mention that had came to light yesterday indicates there is more work to be done. in vietnam, the record is mixed. while the government has allowed hundreds of new places of worship to be built, significant problems remain especially at the provincial and village levels. these include slow or no approval of registration for some groups, especially in the north and northwest highlands and there are reports of harsh treatment of detainees after the closing of a catholic cemetery and the government reimprisoned

a cagget like human rights dissenter who was paroled 16 months earlier after suffering a series of strokes. mistreatment between christians and muslims. a bomb killed 22 people after the fall of the mubarak government in february. and in may, clashes between muslims and christians left 15 dead, 232 injured. in response to the clashes, military leader issued a strongly worded public condemnation of sectarian attacks and 48 suspects have been referred for trial. the prime minister has ordered 17 churches be allowed to reopen across egypt. we call on the government to pass a unified law which would

set a standard for building houses of worship and apply to both christians and muslims and we stand ready to support political, religious and civic leaders in egypt as they work to build a new society where democracy and religious tolerance can flourish. in these and other places, we will continue to review and assess the state of religious freedom and prepared to designate other countries as countries of particular concern as the situation warrants. i would urge leaders of all these nations and civil society groups as well to use this report as a resource to help identify and address violations of religious freedom. we stand ready to help. and that's my pleasure to introduce susan johnson cook who is the ambassador-at-large for religious freedom. >> it is a privilege to be with all of you today as we release

this important report. i was sworn in on may 16. and it was worth the wait. throughout my career, i have had the privilege and opportunity to work with people of different faiths to bring them together to achieve common goals. it is my belief that in order to live peacefully side by side, we cannot allow violence based on religion to continue under any circumstances. my first month in the office of ifrpbl religious freedom, i have met with leaders from switzerland, turkey and o.i. c and working with my u.s. government and as the secretary said in her remarks last week, too many countries in the world today do not allow people to exercise their religious freedom or they make it difficult or dangerous to do so. as hard as it may be, we need to get up and keep trying to make a

difference. the report we are releasing today is one way to do that. it shines the spotlight on human rights issue and guides our policy making. the report is the work of my staff and in the international freedom office who have put in long hours and our missions overseas and here in washington to verify that this report is comprehensive, accurate and fair. i would like to thank the hundreds of activists and academics who provide us with reporting and analysis, sometimes at great personal risk. this year, we are publishing the report on our web site at www.humanrights.gov. and we are updating it every day with our state department statements, speeches and materials. this report covers every country, every faith and myriad forms of harassment, persecution

and abuse on the basis of religion and hope other countries will redouble their efforts to create an environment where citizens can follow their faith or profess no faith. in some cases, we spotlight government violations of the right to religious freedom and other cases we all on governments that aren't doing enough to stop violence by some citizens against others. sadly, the list is long. i urge all of you to read the executive summary where we have stated in a few pages the religious freedom in 2010. a great deal has happened since the independent of 2010 and up-al in the middle east and sectarian violence there. we have included a summary of key investments around the world in 2011. we used shoe leather diplomacy. it's going to countries and talking to officials, religious

leaders, educators, journalists, young people and others about how to combat hatred and religious persecution. i'm going to be hitting the road in the fall and visit a number of countries that face religious freedom, china, egypt, iraq, nigeria, pakistan and saudi arabia. and third way we make a difference is by spotlighting examples of where things are going right. i plan to travel to countries that are taking steps to guarantee religious freedom to all their citizens. in july, i went with secretary clinton to istanbul. as the lead u.s. coordinator for the implementation of resolution 1618, i'm eager to work with the organization of islamic cooperation and others, other partners to discuss their practices and exchange ideas on

how to best protect freedom of religion. i will convene a meeting with experts later this year from participants from around the world. we'll talk about how to counter through education, interfaith dialogue and public debate and prohibit diss krim nation and share ways of combating hate. everyone must have the right to believe as well as the right to manifest their beliefs. i want to thank you for coming this morning and we will be happy to take your questions. thank you. >> i have two questions regarding china. the first is according to the congressional and executive commission on china, according to their report, beijing had

launched a new round of -- from 2010-2012 that calls for increased transformation. i wonder if you are aware of this continued persecution and second question is recently, china is trying to amend the criminal procedure law and if is this adopted, it would expand the police power and may authorize the -- what are your comments on that? >> we have said repeatedly that we have concerns about what really has been a deteriorating human rights situation, especially since february of this year. i was in china in april for the human rights dialogue and raised

a number of these issues publicly and the specific question you raised is part of a broader pattern. we have concerns about the treatment of those who are in unregistered churches, house churches. there is one church in beijing where around easter are not allowed to gather and we have concerns about restrictions on muslim religion and we have concerns about the tibet and community where 300 monks were taken from the the mo nmp astery and detained and there is a broader pattern of religious persecution. i would also call out one case, a lawyer who has represented religious communities and who has been missing since april of 2010.

>> one question to follow up on china. religious freedom in china and visiting officials -- [inaudible question] >> how they persecute people because of their faith, belief in god or worship. what do you hear from them year after year. >> first of all, we will continue to raise these issues in china and else where because they are universal norms and apply to every country in the

world and an obligation to respect those norms. we have continuous discussions as part of a broader engagement with china, but these issues are an important part of that dialogue and i can't tell you every time we have had a conversation we have agreed or had satisfying results but raising these issues both publicly and privately serves a number of purposes. it provides assurance to people in the country that we are paying attention and know what's going on and reinforces their commitment to work and in some cases we have gotten results like releases or better conditions. we'll continue to press. >> my other question is overall religious freedom. i have been going through this report and what you said and secretary said as far as pakistan and also saudi arabia.

and including in the u.s. or saudi arabia or in pakistan, if you are in the mosque, the teesks is not about their religion but teesks against other religions and in pakistan, behind u.s., and they have not taken any steps against those including pakistan. so pakistan is like other societies and comparing saudi arabia and pakistan may be a different story. saudi arabia doesn't allow non-muslims to practice any religion.

why has pakistan not been taking any steps against those who -- >> i think what i said in my opening comments. we are -- as your comment suggests or your question, we are concerned about the law -- intolerance in pakistan, about the murder of the two gentlemen. at the same time, the government has in the last several months taken a few positive steps and working with the government on the assumption that these issues need to be addressed. we work with the government on a range of things. this was an important subject and the increasing extremism in that society is worrying everybody. we are mindful of the things you raised both in pakistan and saudi arabia and these are issues that we are attentive to.

>> you mentioned engagement as a way of promoting religious tolerance in different countries, what about the countries you don't have nyack cease, you don't have any relations, such as iran, for example? >> we are frustrated by a number of things in iran, including the continued harassment of the bahai. there were seven ba hmp ai leaders who were sentenced to 20 years and reduced it to 20 and. one of the schools of higher education are being put on trial. kids can't go to the regular universities. there are a range of things not only in their communities but other communities. we have a difficult relationship with that government or north

korea and other places on the list. but it is important for us to be clear about the facts and hold every government to the same standard and reinforces people in those same societies to know that the united states government is listening and paying attention. >> even they have not had any effect. is there any mechanism which you can get to these countries? >> i think with respect to iran in particular, there is a special group that is focused on iran just beginning the work and will play a useful role. it's not the united states but human rights council and we are going to see whether the government lets him in. and what kind of a report he produces and what the reaction is. but there is a drumbeat and growing view in this world that these issues of human rights and

religious freedoms are part of what is expected of every government in the global economy. >> is it the o.i.c. that is helpful at all all? it's islamic. >> i think the o.i.c. has helped us change the discussion, which was a very negative discussion of defamation which was at the human rights council for a decade or so. we were debating a pakistan and- o.i.c. resolution that pitted us against some of the islamic countries because it focused on ways to restrict free speech. free speech and promoting religious tolerance and har money are consistent. what the o.i.c. secretary general has done and secretary clinton were there in istanbul

is to talk about an alternative, 1618 resolution which has been adopted by the u.n., which says let's go at the problem of religious intolerance affirmatively and find ways forward and listed about a dozen of them. those are useful and that's what we need to be focusing on. >> and the resolution that was achieved was a result of 10 years' worth of work. it is in the implementation stage. istanbul was a successful trip and i'm hosting the experts here. it's ongoing and we will not let it go. >> i wanted to ask you about israel. there are issues of christians and muslims being able to practice freely and attacks on the west bank. have you been speaking to the israeli government and how are

they trying to protect as an occupied power? >> we do speak to the israeli government about this and range of other human rights issues. ive been involved since the goldstone report in dealing with some of the issues of humanitarian access, et cetera, in the context of a u.n. resolution. but i would say, i think to put this in a broader frame, at the center of a lot of the tensions in israel, west bank and gaza is the absence of a peace process, peace process that is yielding a two-state solution. that's what we favor. a lot of human rights issues are going to be dealt with much more directly and easily once we have that process up and running. >> could you talk about the situation on religious freedom in georgia in general and give us some more details about

uzbekistan and the former soviet states. >> i don't have anything to add to what's in the report on georgia. with respect to uzbekistan, we have had -- i have been to uzbekistan twice. my colleague was part of a bilateral dialogue that occurred last week here with the government of the -- of uzbekistan and one of the things he raised was the issue of religious freedom and we have concerns about restrictions on the ability of religious groups, unregistered groups to participate and operate openly. i met with a number of religious figures who had church services disrupted and religious leaders arrested. there is an ongoing problem there and we are eager to work

with the government to improve that record. >> hitting pakistan again, i wonder if you see any progress on the blast emmy law and whether you considered adding it. >> we considered adding any country and we are very findful as i said in my opening comments about the misuse of the blasphemy law and the fact that some people have received severe sentences. we will work with the government and have seen positive steps in the last few months but the message here is that we have great concern about the overall situation of extremism and intolerance in pakistan and we stand ready to work with the government to try to address

that. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] >> and the issue of religious freedom coming up tomorrow on the house floor. they'll take up the re-authorization of the international religious freedom act of 1998. work on a resolution expressing the house's disapproval of the recent raising of the debt limit that failed to move forward in the senate last week. president obama, if it passes the house, if it passes congress, would most likely veto that. the house is in tomorrow at 10:00 for morning hour speeches and back at noon for legislative business. some political news today,al consumer advocate is saying she will enter the massachusetts senate primary to challenge republican scott brown. she will formally declare she is running tomorrow. she plans to greet morning

commuters in boston. elections today, special house elections today in new york and nevada and keep you posted if any results are delivered later this evening. >> tonight on c-span, congressional budget office direct or before the joint deficit reduction committee saying the u.s. government needs to spend money now to fix the debt. >> policy makers wanted to achieve a short-term economic boost and longer term fiscal sustainable, the combination of policies that will be most effective would be changes in taxes and spending that would widen the deficit today but narrow it later in the decade. such an approach would work best if future policy changes were sufficiently specific, enacted into law and widely supported so they would truly take effect. >> more from this event at 8:00

eastern on c-span. >> the c-span networks, we provide coverage of politics, public affairs, nonfiction books and american history. this month, look for congress to continue federal spending into november including funding for recent natural disasters. the candidates continue to campaign across the country. all available for you on television, radio, online and social media sites. search, watch and share all our programs any time with c-span video library and on the road with our c-span digital bus, bringing our resources to local communities and showing events from around the country. washington your way. the c-span networks, created by cable, provided as a public service. >> president obama was in ohio today, home state of house speaker john boehner urging

citizens to tell their members of congress to pass his jobs plan. he spoke at a local high school until columbus for about 20 minutes. [cheers and applause] >> hello, columbus! it is good to be back in the thick of ohio. [cheers and applause] >> couple of people i want to make sure you know is here. my secretary of education is in the house. [applause] >> superintendent of columbus city schools is here. [cheers and applause] >> the principal of the educational center is here. [cheers and applause] >> and the mayor of the great city of columbus is in the house

. [cheers and applause] >> it is a great honor to be here at forth hayes, one of the best high schools in ohio. [cheers and applause] >> i want to thank tom for that introduction. he gave me a quick tour and let me just say, these buildings look great. he did a good job. i wouldn't mind taking a few classes here. [laughter] >> you've got computers in every classroom. got state of the art graphic design, new media center music room and when you combine that with outstanding teachers -- [cheers and applause] >> and a challenging curriculum, you've got the foundation for what you need to learn and graduate and compete in this

21st century economy. [applause] >> i'm here to talk about exactly that, about the economy. i came to talk about how we can get to a place where we are creating good, middle-class jobs again, jobs that pay well, jobs that offer economic security. and the renovation of fort hayes is a great example of where those jobs can come from if we can finally get our act together in washington. [cheers and applause] >> if we can get folks in that city to stop worrying about their jobs and start worrying about your jobs. [cheers and applause] >> now, yesterday, i sent congress the american jobs act. it's right here. it's pretty thick. this is a plan that does two

things. it puts people back to work and it puts more money in the pockets of working americans. [applause] >> everything in the american jobs act is the kind of proposal that in the past has been supported by both republicans and democrats. everything in it will be paid for. and every one of you can make it happen by sending a message to congress that says, "pass this bill!" [cheers and applause] >> ohio, if you pass this bill, then right here in this state, tens of thousands of construction workers will have a job again. [cheers and applause] >> one of the most commonsense ideas out there. all over the country, there are roads and bridges and schools, just like fort hayes in need of repair.

some of the buildings here in fort hayes were built during the civil war. that's old. [laughter] >> when buildings are that old, they start falling apart. they start leaking and ceiling tiles start to cave in. no heat in the winter and no air conditioning. some of the schools, the vept laying is so poor, can make students sick. how can we expect our students to be their very best in a situation like that? the answer is we can't. every child deserves a great school and we can give it to them, but we have got to pass this bill. [cheers and applause] >> your outstanding senator brown has been fighting to make this happen. [applause] >> and those who of you here at fort hayes have been making it happen. a few years back, you decided to

renovate this school and didn't just repair what was broken but rebuilt this school with faster internet and cutting-edge technology and that not only is better for the students but created jobs for construction workers. you just heard tom say it created over 250 jobs from masons and concrete workers and carpenters and plumbers and electricians and many of those are filled by the good people of columbus, ohio. [applause] >> but here's the thing. there are schools all throughout ohio that need this kind of renovation. there's a bridge in cincinnati that connects ohio to kentucky that needs this kind of renovation. there are construction projects like these all across the country waiting to get started and millions of unemployed

construction workers looking for a job. my message to congress is, what are we waiting for? [cheers and applause] >> i don't know about you, but i don't want any study to study in a broken-down school but study in great schools. i don't want the newest airports and railroads being built in china but being built right here in the united states of america. [cheers and applause] >> there is work to be done. there are workers ready to do it. so let's tell congress "pass this bill right away." >> pass this bill! pass this bill! pass this bill! pass this bill! pass this bill! >> pass this jobs bill and there will be funding to save jobs for

up to 14,000 ohio teachers, cops and firefighters. [cheers and applause] >> think about it. there are places like south korea that are adding teachers to prepare their kids to add to the global economy at the same time we are laying off our teachers left and right. so we have school districts that have eliminated arts, sports, you name it. you have situations where -- i just heard a story from duncan. a music teacher in philly and his budget, total budget is $100 for teaching music in a whole bunch of schools. they are using buckets to do drums because they can't afford actual musical instruments. you have seen it here in ohio,

budget cuts, they are making layoffs. it is unfair to our kids and undermines our future and has to stop. tell congress to pass the america jobs acts and put our teachers back in the classroom where they belong. [applause] >> tell them to pass this bill so we can help the people that -- we can help people. that is america's small business owners. big corporations have seen their profits. that's good and we want them to hire people as well, but smaller companies haven't come back. this bill cuts taxes for small businesses that hire new employees. it cuts taxes for small businesses that raise salaries for current employees and cuts

small business payroll taxes in half. let's tell congress, instead of just talking about helping america's job creators and do something, let's pass this bill right away. [applause] >> pass this bill! pass this bill! pass this bill! pass this bill! pass this bill! >> if congress passes this jobs bill, companies will get new tax credits for hiring america's veterans. [applause] >> we asked these men and women to leave their careers, their families, risk their lives to make sure we are protected. the last thing they should have to do is fight for a job when they come home. that's why congress needs to pass this bill. it will help hundreds of

thousands of veterans all across the country and help hundreds of thousands of young people find summer jobs next year. [applause] >> has a $4,000 tax credit for companies that hire anybody who has spent more than six months looking for a job. the america jobs acts extends unemployment insurance and says if you are collecting benefits, you will get connect todd temporary work to enhance your skills and resume while looking for a permanent job. finally, if we get congress to pass this bill, the typical working family will get $1,500 in tax cuts next year. 1,500 that would have been taken out of your pay check, will go right back into your pockets. if congress refuses to pass this bill, the middle-class families will get hit with a tax increase

at the worst possible time. we can't let that happen. some folks have been working pretty hard to keep tax breaks for the wealthiest americans. tell them they need to fight harder for middle-class families. tell them to pass this jobs bill. [cheers and applause] >> so the american jobs act will lead to new jobs for construction workers, jobs for teachers, veterans, young people, unemployed. tax relief for every worker and small business in america and will not add to the deficit. it will be paid for. [applause] >> we will pay for this plan. we'll pay down our debt and do it by following the same principle that every family follows. we'll make sure the government lives within its means. we'll cut what we can't afford to pay for what we really need,

including cuts we wouldn't make if we hadn't wracked up so much debt in the last decade. and here's the other thing, columbus, we have to make sure everybody pays their fair sure, including the wealthiest americans and biggest corporations. [applause] >> after all, we have to decide what our priorities are. do you want to keep tax loopholes for oil companies? >> no! >> or renovate more schools like fort hayes and make sure construction workers have jobs again? do you want tax breaks for millionaires and billionaires? >> no. >> and cut taxes for middle-class families. columbus, we know what's right. we know what to do to create

jobs now and in the future. we know if we want businesses to start here, stay here and hire here, we have to outeducate and outinnovate and sell more goods around the world that are stamped with three proud words, made in america. [applause] >> we need to build an economy that lasts and columbus, that starts now. that starts with your help. democrats and republicans have supported every kind of proposal that's in the american jobs act and we need to tell them to support those proposals now. already, yesterday, there were republicans quoted in washington saying that even if they agree with the proposals in the american jobs act, they shouldn't pass it because it would give me a win.

that's the kind of game playing we have gotten used in washington. they supported the stuff in the past, but they are thinking maybe they don't do it this time because obama is promoting. give me a win? this isn't about giving me a win or democrats or republicans a win but giving the american people a win, about giving the people of ohio a win and about your lives and jobs and futures a win and about giving your kids a win. maybe there are some people in congress would rather settle differences at the ballot box but i have news for them. the next election is 14 months away and the american people don't have the luxury of waiting that long. you got folks who are living week to week, pay check to pay

check, they need action and they need it now. i'm asking all of you to lift your voice, not just here in columbus anybody who is listening, following online, call, email, fax, tweet and tell your congressperson that the time for gridlock and games is over. the time for action is now. [applause] >> if you want to create jobs right now, pass this bill. if you want construction workers, renovating schools like this one, pass this bill. if you want to put teachers back in the classroom, pass this bill. you want tax cuts for middle-class families and small business owners, what do you do? pass this bill. if you want to share in the opportunity, pass this bill. now is the time to act. we aren't a people who just watch things happen. we are americans.

we make things happen. we are tougher than the times we live in. we are bigger than the politics we have been putting up with, we are patriots, innovators and entrepreneurs through individual effort has built an economy that is the envy of the world. we right our own destiny and within our power to right it once more. let's meet this moment and let's get to work and show the world why the united states of america is the greatest country on earth. thank you very much ohio. god bless you. and god bless the united states of america. [cheers and applause] ♪

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[captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] >> president obama earlier today in ohio. tomorrow, the president will visit a small manufacturing business in north carolina and speak again about his jobs plan and will be talking to students

at north carolina state university and c-span will have coverage of his remarks. some political news, consumer advocate elizabeth warren is going to enter the massachusetts senate primary. she will formally declare she is running tomorrow according to her spokesman and there are two special house elections one for dean heller's seat in nevada. and the other in queens, new york, anthony weiner's seat. and the two who want weiner's job, brought out the big guns on the eastbound of today's special election. turner campaigned with former mayor rudy giuliani at a railroad station and heard from supporters like former new york

city mayor ed koch and got calls on his behalf from former president clinton and former governor cuomo. >> congressional budget office director before the joint deficit reduction committee saying the u.s. government needs to spend money now to fix the debt. >> the policy makers wanted to achieve both a short-term economic boost and longer term fiscal sustainability. the combination of policies that would be most effective according to our analysis, would be changes in taxes and spending that would widen the deficit today, but narrow it later in the decade. such an approach would work best if the future policy changes were sufficiently specific, enacted into law and widely supported so observers believe that future restraint would truly take effect. >> more from this event tonight

at 8:00 eastern on c-span. >> follow what members of the deficit reduction committee are saying on twitter. it's easy, just use c-span's newest dedicated twitter list. from our twitter page, click on the list tab under our profile and select the list you want to see. click the follow button and get the latest tweets from committee members. c-span on twitter, follow us. >> any given night in america, more than 640,000 men, women and children are without housing. >> if we have a problem, we have probably a family, a network, a network of friends, a network of maybe a church or a school. we have people who will hold us up if we fall down. a homeless person has lost all of those contacts of the >> i think the most common stereotype is folks are homeless because they aren't trying hard. they're lazy or victims of their

lack of initiative. >> should the federal government spend our tax money to help these people? >> there is definitely an important role for the government to play in ending poverty and ending homelessness. some people feel the government should stay out of social service work and the churches should be doing it all or people should be on their own and there shouldn't be any help. and i don't believe that. >> that's one of the winners from last year's student cam competition and see all of the winning videos online at student cam.org. the constitution and you, get more information at studentcam.org >> former federal reserve chair greenspan warned congress not to underestimate the federal budget crisis and was part of his testimony to a senate finance

subcommittee as members looked at how reforming the tax code could help reduce the deficit. other witnesses including a former reagan economic adviser. the hearing is two hours. . . uh we are looking forward to this star spangled panel we have. you know, it's this week, three years ago, was the collapse of lehman brothers and we have yet to recover. if this congress does not get serious, then the structural budget imbalances facing this economy could permanently reduce the labor productivity

and economic growth for years to come. a launching point for getting our fiscal house in order should be the overhaul of the federal income tax code. and if that means lowering tax rates, eliminating tax expenditures and other loopholes and simplifying the tax code, then so be it. we hear a lot about entitlement programs, social security and medicare in particular. what we don't hear a lot about is the 250 entitlement programs cooked into the tax code. tax expenditures, the various tax credits, deductions -- deductions and exclusions

grafted onto the tax code are entitlement programs pure and simple and if you're eligible you can claim the benefit. it's an expenditure. and there's no application process in order to get this benefit. and there's no annual or even periodic review of those expenditures' efficiency by the congress. so tax expenditures are entitlement spending without accountability. some of these tax expenditures, particularly those relating to oil and gas, they date back to the early 1900's. and might have outlived their justification. the last time congress tax -- tackled the tax expenditures in a systematic way was 25 years

ago in the tax act of 1986. i voted for that. were you in the house at the time? >> no. but i would have. >> but you would have. that legislation took a hatchet to special interests and lowered the top individual tax rate from 50% to 28%, but the special interests came back, then, stronger than ever, and since 1986, according to the joint committee on taxation, congress has enacted 158 new tax expenditures. is it right for an oil company that they could reap an $11 billion tax windfall from the worst environmental disaster in our history in the gulf oil spill?

i think that's questionable. and i don't think oil spill cleanup costs due to the negligence of the parties that were drilling should be treated as an ordinary and necessary business expense. that's just one tax break. is it right that large multinational corporations can report record profits yet still pay no federal income tax? and of course the example that has been out in the news quite a bit is general electric, which had worldwide profits of over $14 billion, and they paid zero. in income tax. well, that doesn't seem to be right. doesn't seem to be fair. when you need a tax system that is embraced by the population as being fair, these are

examples that strikes the everyday american as a system that is very unfair. sit right that wall street executives can avoid millions in taxes using complex deferred compensation schemes while that average taxpayer can put no more than $5,000 a year into their roth i.r.a.? or is it right that a special tax rule allows oil and other commodity speculators to treat a portion of their short-term trading profits as long-term capital gains in order to have a lower tax rate? in fiscal year 2008, tax expenditures such as these totaled $1.2 trillion in lost

revenue. that's in one year. that sum is greater than the entire amount raised by individual income tax in that same tax year. it's also greater than all federal discretionary spending in that same year of 2008 and it's twice as much as all nondefense discretionary spending. between 1972 and 2008 the number of tax expenditures more than quadrupled from 60 to 247 and over a 25-year period, from 1974 to 2008, tax expenditures climbed from 5.7% to 8.6% of g.d.p. if we simply reverted to the 74 tissue the 1974 level of tax

expenditures, we could wipe out $400 million off our annual deficit this year and more than $4 trillion over 10 years. so tax expenditures can be characterized more accurately as tax earmarks because they represent favors for a particular interest that is revenue that is not coming into the system, that has to be made up someplace else by the average american taxpayer. so tackling tax expenditures is about getting rid of distortions that act as a drag on investment and economic growth.

it's where intellectual property is easily transferred and goods are manufactured in global production chains that transcend borders. he uni home, t plods along with an antiquated tax system in which the rules for taxes international trade and investment were developed in the 1920's and this time for tinkering has now passed and we need to overhaul the way we tax u.s. companies that operate around the world. so we're going to focus today on the subject of examining whether there's a role for tax reform in comprehensive deficit reductions and u.s. fiscal policy.

one of the things is tackling tax expenditures to make the tax code simple, fair and equitable. the code is so complex that many taxpayers simply throw up their hands, they spend an spimented $7 -- an estimated 7.6 billion hours each year complying with filing requirements. that means roughly $140 billion in 2008, 60% of the taxpayers' -- taxpayers paid tax preparers to fill out their forms. i could go on and on and i will submit for the record the rest of the testimony here. let me just, before i send it to my colleague, senator crepo, i want to say that we do have a panel that is extraordinary to speak on this subject.

the first witness, alan greenspan, managed u.s. monetary policy under four presidents during the five terms as chairman of the federal reserve. and during that time, the united states grew from a $5 trillion to a $13 trillion economy. and john taylor served as a member of the council of economic advisors in the george h.w. bush administration and as undersecretary of the treasury for international affairs in the scrorge bush administration. he's a professor of economics at stanford. martin feld stein served as chairman of the white house council of economic advisors in the reagan administration and dr. feldstein has written more than 300 research articles in the field of economics, founded

the national bureau of economic research and is currently a professor at harvard. john ingler, three-term governor of michigan, president of the business round table. he was president and c.e.o. of the national association of manufacturers. and edward kleinbar, chief of staff of the joint committee of taxation from 2007 to 2009. he has 20 years of experience practicing tax law in new york and is currently the professor of law at the university of southern california. it's an extraordinary panel. thank you for honoring us with your presence. senator crepo. >> thank you, mr. chairman. i appreciate your holding this hearing as well. i want to focus at the outset

on one of your early comments that as any part of the important needed changes we need to be making in america today with regard to economic and fiscal policy, tax reform is one of the key pieces that we must not allow to be ignored. as you know, i've been working with a group of six, it's been called a gang. i know you've been working in other contexts, snoort widen as well, who has a proposal of his own. one area agreement i think we have among us and among others is that in addition to controlling the accepted spending appetite of washington and getting our spending under control, which is undoubtedly important and necessary piece of the reform of our fiscal policy, we also need a pro-growth element of our fiscal policy and economic policy and if we are going to deal with the issues america

faces properly, we'll focus not only on the austerity and the proper fiscal policy relating to expenditures, to spending, but also with regard to those kinds of reforms that i think are started at the foundation with fundamental reform of our tax code that will generate a pro-growth opportunity for america an help us to build and strengthen our economy. today's hearing focuses on the issue of tax reform and as you've said, we have an outstanding panel here to discuss this with us. the notion that tax reform is needed is hardly a dispute, i think, in the united states today. but there are a tremendous number of ideas about how we should do it. you have identified a number of pieces of the complexity of the tax code where i think i got the feeling you felt we could simplify. as you know, the group i've worked with has proposed dramatic reconduction of the complexity in our tax code and

i know that senator widen's proposals are similar in that regard. and undoubtedly, we'll have to engage in the discussion and the debate over these various specific aspects of our tax code and there will be disagreement about individual pieces and their policy justifications, but we must engage in that debate. i have said many times that if we were to go about creating a tax code that's more unfair, more complex, more expensive to comply with, and more anti-competitive to u.s. business interests, we'd be hard-pressed to do it. -- to do it worse than we've done it with our code. some would argue with that, but i don't think they'd argue that we need to flatten our code and make it less complex and much more friendly to growth and business development in america. some called for a combination of raising tax rates and modifying and eliminating tax expenditures as a way to eliminate revenue that would be

good for debt reduction. others say we need to stay in the age-old box of whether to raise taxes on those who are particularly identified as the wrong people in america to receive tax benefits, raising taxes on the wealthy or lowering taxes on this category and we need to move out of that box into a debate in this country over how to reform the tax code. the proposal i supported, the proposal that many others have proposed all have similar elements and that is, they look at simplifying an reducing the complexity in the code, most focus on reducing tax rates in accordance with that and building the economy. and that's definitely the approach that i think would be music to the ears of those seeking to engage in capital formation and business -- excuse me, business development in the united states. a byproduct of the economic growth that i would hope would come from tax reform would be

the additional kind of revenue we do not now currently see in our economy, not because current tax rates are too low but because our economy is not growing. history has shown that our annual total revenue as a percentage of g.d.p. is about 18.2%. this has been the case whether the top tax rate was 70% or 28% or 35%. in booming time, we've seen temporary revenue spikes and in sometime -- times of slow growth and high unemployment as we've had in recent years, we've seen dips in total revenues. but over time, we see revenues return to historic average regardless of what congress has done to the tax code. in fact, an kuhl revenues have only exeded 20% of g.d.p. three times in the last 70 years and two of those times were at the end of world war ii when our nation was still running high deaf silts. the other time was in 2000 when the annual revenue, 20.6% of

g.d.p., took place at the height of the stock market bubble. this temporary spike in revenue was bound to come down as soon as the bubble popped, and it did, which also coincided with other, the post-9/11 recession that occurred. in fact, in 2000, of the other 11 times since 1940 when our budget nab surplus, revenues were less than 20% of g.d.p. and seven of those years, they were below 19% of g.d.p., it's also important to note that our budget has never been in balance when it exceeded 19.4% of g.d.p. i appreciate that many of our witnesses today note in their prepared testimony that while tax reform is an important goal for congress, fundamental entitlement reform must be a primary and immediate goal for congress as it is the largest driver by far of our long-term fiscal shortfall. nevertheless, even if we do cut trillions of dollars of

spending, which we must do, so long as our economy remains in the tank and unemployment remains persistently high, policies that will generate the kind of robust economic growth that is is currently nowhere to be found must also be a priority. it's for this reason that i support the inclusion of pro-growth tax reform as part of a comprehensive fiscal reform plan that also includes fundamental entitlement reform and strict enforcement mechanisms that will keep congress from violating those guidelines and requirements. i'm very pleased, mr. chairman, that you and i have been working so closely together on these kinds of issues. as i noted, the other senators on the panel, we all have to some extent different ideas about exactly how to achieve it. but there is a huge overlap in our commitment to achieving this kind of fundamental tax reform and the hearing we are holding today is evidence of that.

so again, mr. chairman, i look forward to what our witnesses have to tell us and i look forward to working with you and our other colleagues in congress in developing a pro-growth agenda for our economy as we also move forward to deal with our spending excess. thank you. >> thank you, senator. chairman greenspan. >> thank you, mr. chairman. mr. chairman, senators, i very much appreciate the opportunity to testify before this committee. it's an extraordinarily important subject and i'm glad the congress is taking a very pronounced effort to come to grips with it. tax reform is a major part of any program of fiscal reform. it will contribute to a restoration of american competitiveness and the vibrant economy that goes with it. the fiscal success we achieved in the early 199's was essential to -- 1990's was essential to contain budgets

that seemed inherently prone to excess. the great irony of those years was the surpluses that emerged from 1998 through 2001 as a consequence of that success thoroughly undermined fiscal prudence. we have now come full circumstancele to a point where as much as i wish it were otherwise, there is no credible scenario of addressing our current fiscal problems without inflicting economic pain. we have been procrastinating far too long in coming to grips with the retirement of the baby boomer generation, a fiscal problem that has been visible for decades. by 2006, with chronic surpluses already a distant memory, the medicare trustees indicated, according to calculations by the council of economic advisors, that the medicare

program does not have enough projected revenue to cover projected future spending. a reduction in medicare part a expenditures by 51% would be necessary to make the medicare trust fund solvent. but rather than repairing that huge shortfall and a lesser one in social security, we expanded entitlements still further without a matching source of revenue. our major problem is not only that spending has been rising rapidly, but that it has been mainly in the form of entitlements rather than of discretionary outlays such as war spending or bridge building that cease when the activity comes to an end. entitlements, however, once bestowed, are very difficult to rescind. the growth of our economy in

the years ahead is bound to slow. our civilian labor force, short of a major change in immigration, should parallel a slowing growth of the working age population, most of whom are already born. professor gordon of northwestern university has concluded that his most recent 20-year forecast of the growth rate of per capita real g.d.p., as he put it, represents the slowest growth of the measured american standard of living over any two decade-interview -- two-decade interval recorded. since the inauguration of george washington. in the years ahead, increasing entitlements will be pressing against shrinking economic growth. my preference going forward, as i have noted often, is

something akin to the budget recommendations of paul ryan, the chairman of the house budget committee. i regret, however, for now, at least, that ryan's budget lacks the votes for passage. as european problems underscore, delays in implementing policy can be destabilizing. of the feasible political budget proposals on the table that proffered by the bowles simpson commission on fiscal responsibility and reform appears most substantive. what impressed me most of bowles-simpson is that addresses tax expenditures, cuts in tax expenditures, mostly subsidies, cab alternatively structured and viewed as cuts in outlays rather than reduction in

revenues. subsidies of whatever stripe distort the optimum functioning of markets and ultimately the standard of living of society as a whole. i do not know whether a u.s. budget crisis is immediately on the horizon or is years off but i do -- but what i do know is if we presume we have a year or two before starting serious long-term restraint, and we turn out to be wrong in that optimism, the impact on financial markets could be devastating. if we are wrong in being overly fiscally cautious in the year ahead, that is a problem that is rarely solveable. thank you, mr. chairman. >> thank you, chairman greenspan. dr. -- dr. taylor. >> thank you, mr. chairman, and members of the committee, for holding this hearing on tax

reform and u.s. fiscal policy. the most important thing for our economy right now is to have higher growth and therefore lower unemployment and comprehensive reform of fiscal policy is a big part of that. i think for the past several years, we have focused more on more temporary, targeted types of interventions and in my assessment, they have not been effective. that's why it's so important, i think, to move toward a more comprehensive strategy. there's two elements of that strategy. one is the budget strategy and second is the tax reform strategy and they're intimately linked together. i would like to refer to a graph that i've distributed in my testimony, which is in front of you. this graph illustrates the way to go about this in a sensible way. you would start with the budget control act of this summer, the budget control act of 2011.

while criticized by many, it has accomplished a reduction in spending growth compared to the original budget submission of the president. if the joint select committee comes up with the additional spending reductions, it will take the spending levels by 2021 from 24.2% to 22%. 24.2% was in the president's budget. it will come to 22% if that action is taken. but i think we need to go further and would suggest we take spending levels back to where they were in 2007, as a share of g.d.p., levels will be higher, of course, that level is 19.5% of g.d.p. there are two big advantages of that strategy and i'll show you in the graph in a minute. within is it allows tax increases to be taken off the table, which is a stimulus to economic growth. two, it will allow for revenue

neutral tax reform, meaning lowering marginal rates and broadening the base, the classic definition of tax reform. those advantages are, i think, essential for raising economic growth. the tax reform strategy,ing of, should just do that. reduce marginal rates as the base is broadened. you've indicated many ways, mr. chairman, of how to do that. it can be done on the corporate side and on the personal side. i think both should be part of this. i'd like to just, in the last couple of minutes, try to work through my graph to illustrate this. the numbers are very important here. but if you look at page 5 of my testimony, page 5 of the testimony, you'll see a graph that shows federal spending, federal outlays as a share of g.d.p. from 2000 to 2021. the history is most remarkable because it shows really a gigantic increase in spending

as a share of g.d.p., from 18.2% in 2000 to over 24% now. the president's original budget didn't deal with that spending problem as we all know and it's shown in the graph. it would have had spending at 24.2% of g.d.p. by the end of the budget window. with the budget control act plus the continuing resolution of 2011, and with the extra work the joint select committee must do, you can see that has been -- the picture is changed dramatically, assuming you didn't go through, go ahead with the big spending to 2% of g.d.p. but as you can see, if you really want to have a budget strategy that doesn't entail a tax increase, you've got a little ways to go. what i would suggest is with the tax reform proposals and entitlement reform proposals, it's feasible to get to just

where we were in 2007. that was 19.6% of g.d.p. it's -- i've drawn in my graph a way to do that. there are other ways to do that , chairman greenspan referred to another one. this would be the way to have a comprehensive budget strategy a comprehensive tax reform strategy and one which will do a great deal of good for the american economy with higher growth and lower unemployment. thank you. >> thank you, dr. taylor. dr. feldstein. >> thank you, mr. chairman. i'm pleased to have this opportunity to testify. i've been talking about tax expenditures and about pro-growth tax reform for many years, indeed, even before i served as chairman of the council of economic advisors for president reagan. so i was really very pleased to hear your opening comments and those of senator crapo.

i wrote the testimony that i submitted before i heard president obama's speech to the congress the other day and his plan to finance his new stimulus package. if you've looked at my testimony, you know that i, like others, favor reducing tax expenditures. but i must say i do not favor the way president obama to proposes to limit tax expenditures. i think there are two reasons why his proposals are bad ideas. first it uses the revenue to finance his new collection of government spending programs. when we need that revenue from reduced tax expenditures to reduce future budget deficits and to lower marginal tax rates. second, as you know, the president would limit the tax expenditure reductions just to

hire -- higher income taxpayers, those with more than $200,000 in income. but long-term deficit reduction requires that everyone share in that burden. if congress were to pass the president's proposal to reduce tax expenditures just for high-income individuals, i think it would be very difficult to rehave it that at a later time and to extend it to the entire population of taxpayers. with that said, let me return to the testimony that i submitted. again, i said, as both of you said, and as the two previous speakers have said, tax reform, although it's the focus of this hearing, is not a substitute for the fundamental reform of social security, of medicare, and of medicaid, the primary sources of the future growth of government spending.

i think the key to those reforms is to reduce gradually the growth of the projected government benefits and to supplement those benefits with universal, investment-based annuities and private health spending. doing that would protect the future incomes of older americans without requiring higher futurer tax rates. but let me turn to tax reform, where i -- in the prepared testimony, i emphasize what you've both spoken about, and that is the role of tax expenditures, tax expenditures, which, as you said, are substitutes for direct revenue lost because of these tax rules and to use the resulting extra revenue to reduce current and future marginal tax rates. today's marginal tax rates are typically close to 50% for a

middle income family because of the combined impact of the income tax, the payroll tax, and state taxes. these high marginal tax rates reduce the incentive to work, require more skills to start or expand a small business, to save, and to invest. they induce individuals to seek their compensation in nontaxable forms and fringe benefits and to spend money in wasteful ways that generate tax reductions. so limiting tax expenditures and using the resulting revenue to lower marginal tax rates would produce a double win. it would reduce wasteful behavior directly and would strengthen incentives for increased economic growth. of course, that can be made a triple win by using some of the resulting revenue to reduce budget deficits. although limiting tax

expenditures produces additional revenue, it is as the chairman indicated, really a way of cutting government spending and government entitlements. the effect shows up on the revenue side of the budget but it is really a cut in spending. the accounting rules make it look like a tax increase but the economic effect is the same as any other reduction in government outlays. let me be more specific about how i think the cutting or limiting of tax expenditures might be approached because i think it can be done without actually eliminating any of the tax expenditures or even putting limits on specific tax expenditures like the size of the mortgage deduction. i think a better and fairer way to reduce the revenue loss cause be -- caused by tax expenditures is to allow individuals to use all

currently available tax expenditures, but to limit the total tax benefit that each individual can get from those tax expenditures. to limit that total tax benefit to a percentage of that individual's adjusted gross income. for example, limiting the revenue loss from the itemized deductions and exclusion of employer payments from health insurance to 2% of each individual's adjusted gross income would raise more than $275 billion a year at current income levels and more than $3 trillion over the next decade. the size of the tax cap could be started with a higher rate and reduced to a 2% cap. even a 5% cap would generate more than $100 billion of

additional annual revenue at current income levels. a key point to stress about this idea is that the 2% cap is applied to the tax expenditure benefit and not to the total amount deducted or excluded. for example, someone with a 30% marginal tax rate who pays an annual mortgage interest of $5,000 would receive a tax expenditure benefit now of $1,500. that 2% or 5% cap would apply to that. it also would generate tremendous simplification, a 2% cap on tax expenditure benefits would cause nearly 75% of individuals who now itemize their deductions to shift to the standard deduction, which would indeed be an enormous simplification.

i said a little bit about corporate tax reform, basically lowering tax rates an shifting to the territorial system that is used by virtually every other industrial country, but i'll stop there and look forward to questions after the other speakers. >> thank you, dr. feldstein. governor engler. >> thank you, mr. chairman. i'll pick up on corporate tax reform, from dr. feldstein left off. i'll mention in my credentials as a three-term governor, we got michigan back to a triple-a rated state. i appreciate the challenge in front of the committee. my testimony today focuses on the critical relationship among business tax reform, economic growth, and deficit reduction. business tax reform should be designed to maximize economic growth over time, while creating permanent jobs with good wages. we believe the congressional action can improve the ability of american workers to compete

in the hyper competitive world economy. such actions to sustain economic growth would have the additional benefit of reducing the burden the nation's current debt imposes on our economy. if sound corporate tax reform along with other reforms, including broad regulatory reforms, improves economic growth by even half a percentage point, we can generate new jobs for millions of americans. you and the committee could not be holding a more timely hearing than today's session. our companies are disadvantaged today by a u.s. corporate tax system that's an outlier at a time when capital is more mobile. your opening statement focused on that and recognized that our current tax system impairs the ability of u.s. companies to compete abroad and discourages capital investment in the united states. the u.s. corporate tax system is quite possibly the least

competitive in the oecd nation and i put a chart up to show what's happened over a period of time because of the importance that we do that. you noted that we've got an antiquated tax code, developed for a different era. this chart, 25 years ago, shows where we've made changes and we're in a more competitive posture. today we need a simpler, flatter, lower rate system that allows american business and constituents, america's workers, to compete and win. the two primary reforms business round table endorses are a competitive territorial tax system and a significant reduction in the u.s. statutory corporate tax rate. first, the territorial system under which foreign earnings are exempted from domestic tax are the predominant practice when the oecd. territory -- territorial tax systems allow domestically

headquarters companies to compete on a level playing field in foreign markets where they do business. got a table here that shows how predominant the practice is. and then second, as the other chart was showing, we had a competitive statutory tax rate, we no longer do rate reductions have resulted in the u.s. corporate rate 50 pk of the oecd countries. i believe the proposals today would boost the worldwide competitiveness of american companies, increase jobs for american workers, increase wages, promote long-term economic growth for the united states and help pay down our debt. in evaluating the costs of adopting these reforms, it's important to consider their cost relative to the revenue stream that government would have otherwise collected. in doing so, i urge congress to recognize that many provisions in the tax code, although they may have statutory expirations,

have routinely been extended year after year. you sort of mentioned that in your opening comments. the r&d tax credit, for example, has been a temporary provision for 30 years. provisions that have been repeatedly extended are realistically part of the baseline, against which the revenue must be measured. some will argue the tax reform and business tax increases should be used for deficit reduction now. still others will argue that business tax increases should be used for new spending. but the business round table will argue that any business tax changes should be used to, as the president said to the congress the other night on thursday, lower one of the highest corporate tax rates in the world. clearly, given the deficit and everyone's desire to be fiscally responsible, couples with everyone's desire to see the u.s. unemployment rate come down, we must guard against any diversion of corporate tax revenue, lowering the rate and

eliminate the unfair worldwide tax system. comprehensive tax reform is a channel, it will not get easier by settling for piecemeal changes in the tax base or succumbing to the targeting that you spoke of for specific industries. success will come when we address the fundamental tax reforms that can help achieve a higher u.s. standard of living. on behalf of the business round table, i look forward to working with congress to have comprehensive tax reform with sustained job growth and tax reform. i brought one more chart, we'll close wit, it shows where payrolls are today, this one has gotten a little bit of attention. that's what we need to change, move those numbers on the employment side in a positive direction. thank you, mr. chairman. >> thank you, governor. >> thank you for inviting me to

testify. the u.s. is an extraordinarily low-taxed country by world norms, fourth lowest in the oecd. even by our own standards, we're collecting historically low levels of tax, below 15% of g.d.p. for three years. at the same time, we are spending outliers in two respects and since spending determines the level of tax revenues we require, it need to say one quick word about that. first, we spend much more on health care per capita than any other country and our per capita government spending is the second highest in the world. if the u.s. were to spend her per capita what norway does on health care, our aggregate health care spending would decline by $00 billion a year. second the u.s. spends as much on its military as do the next 14 countries combined, 42% of the world's military expenditures. our current revenue base cannot

be reconciled with our outsized spending on health care and defense. moreover, whatever the long-term set of government entitlement spending policies we transition to, we immediate to finance the cost of getting there and that means higher tax revenues than those we currently collect. the u.s. can afford to increase its total tax collections as a fraction of g.d.p. just a decade ago, the country ran budget surpluses and enjoyed a robust economy while tax collection exceeded 20% of g.d.p. the c.b.o. budget baseline assumes that the bush tax cuts will expire at the end of 2012. extending those temporary tax discounts would add some $4.6 trillion to our cumulative deficit over the next 10 years. we therefore have no practical choice but to treat the c.b.o. baseline as the tax reform base case. our tax reform goals should be to raise about the same revenues as the c.b.o. baseline

but to do so in a smarter way. this in turn means we must abandon our nostalgia for the tax reform act of 1986. that tax reform effort was revenue neutral because it could afford to be. it was preceded and followed by major tax increases. the fact that we have to raise neve knew today means that this tax reform effort will look different, not that it is impossible. in particular, this tax reform will need to tackle some deliberate subsidy programs in the tax code, which is to say, tax expenditures. of all of this -- of these, the most important are personal itemized deductions, such as home mortgage interest and state and local taxes. they are extraordinarily costly, about $220 billion a year in foregone tax -- in forgone tax revenues. they are inefficient, they lead to mismanagement of resources, they are poorly targeted in that they go to individuals who

would have behaved the same without them and they are unfair, in that they are upside down subsidies. they subsidize high income americans more than low income ones. the tax policy center estimates that eliminating these would increase tax revenues in the neighborhood of 1.5% of g.d.p. over and above the lapse of the temporary tax discounts. this is an enormous revenue pickup. their elimination would also simplify the code and increase productivity. i fully recognize that the personal itemized deductions are described as political sacred cows but they are sacred cows we can no longer afford to maintain. either we eliminate the sacred cows or allow them to stampede over us. tax reform also must address the corporate income tax. i agree with the governor that the 35% rate is too high by current world norms but at the same time, u.s. multinationals are adept at gaming the current

u.s. tax system and those of other high tax countries through the production of what i call stateless income. income that is taxed essentially nowhere. the u.s. corporate base is being systematically eroded through these stateless income tax planning strategies and a territorial system along the line proposed by the business round table would make these problems worst. a package could be fashion aid long the following lines. first, eliminate business tax expenditures, make the corporate tax range 25% to 27%. the resulting corporate system would represent a huge boost for american domestic firms, would attract inward investment into the u.s. and provide a fair tax environment for u.s.-based multinationals. thank you, mr. chairman. >> thank you, mr. klinebard. senators i'm going to ask one question, i'm going to then

turn to you for your questions, gentlemen, how much revenue could congress expect, realistically, to be generated by broadening the tax base, eliminating tax expenditures an closing the loopholes? let's just go right down the list. >> it's a very extraordinarily large number but i wouldn't put the issue that way because what we are dealing with is a major problem in this country in which what we have promised in the way of entitlements is in physical volume terms more than i think the size of the american economy can produce. so it's not an issue of raising

revenue, per se, it's a question of our spending is already committed to more than we have a capacity of achieving. so i would say that the focus has got to be fundamentally on the issue as to why, for example, as i mentioned in my earlier remarks, the trustees of the medicare fund several years ago found that we were significantly underfunding medicare and unless and until we understand that our problem is spending, and not taxes, i think we will be -- we will lead ourselves astray. finally, let me just say, mr. chairman, that there is no question that the level of taxation is a very major factor in determining the level of economic activity. and the issue that i think we ought to focus on is that we

are in a period of very sluggish economic activity, there seems to be no real potential for changing that materially, and the revenue we're going to engender, irrespective of the tax code, are going to be much less than i think is currently being projected even by c.b.o., o.m.d. or a number of private economists. if that is the case, we have to recognize that we have a major problem on the expenditure side and the way i would define it is that this is not discretionary spending, which is very easy to end. it is very difficult to cut entitlement spending. i think unless and until we put our focus on that issue, and then determine what it is we need to raise in revenues, after we determine what we are going to spend, is to my view the appropriate way to focus on tax policy. taxes are there to fund

spending and the lower the level of spending, the less a problem of funding. >> if it's just a matter of -- >> hold on, dr. taylor. i want to follow up with chairman greenspan. just focusing on tax expenditures, it's an item worth $14 trillion over 10 years. what do you think is realistic for the congress to squeeze out of that $14 trillion of tax expenditures? >> well, mr. chairman, i'm one of those, and i suspect you may be as well, who thinks tax expenditures should not exist in our fiscal system. and that as far as i'm concerned, what the bowles-simpson commission essentially did is started off with the presumption that tax ex-pentures would be zero and then work back from there.

i like that premise. in fact, i realize that it's going to be very difficult to avoid having to keep some of that in place, but as far as i'm concerned, the sooner we get rid of the whole concept of tax expenditures, the better we would be. i would like to see all expenditures go through the appropriations process rather than go through tax credits or other things which i find is merely a mechanism to get around the ultimate choosing process which the congress, in my judgment, is supposed to do. >> so get rid of $14 trillion and then build from there? >> i would say if you start with the assumption that tax expenditures are an inappropriate means of raising revenue, and then work back from there,ic we are in the right direction as the bowles-simpson commission

recommends. >> dr. taylor? >> i think if you want to just eliminate expenditures and not consider it along with tax reform, which is really adjusting the marginal rates, then you'll be disappointed about how much extra revenue you raise. if we have a strongly growing economy, say like we had after the recession in the early 1980's, 6% a year, 6.5% a year, rather than 2 pk or 2.5%, the same share of taxes, we get a lot more revenue. we can do a lot more things. it's the growth that's most important. i would say when you're thinking about zero in terms of tax expenditures, you better be simultaneously thinking about the marginal rate reductions to go along with that. >> which is precisely what we have said up here. now dr. fieldstein you proposed

2% cap. on any individual, and i assume corporate amount of tax expenditure and if i recall your testimony, that was about $3 trillion over 10 years. and that way you don't have to pick and choose which ones you want and don't want. >> that's right. let me be clear. that was just on the personal side. it's hard to think about what the equivalent of a percentage of a.g.i. is for the corporate side but i haven't looked at that. i do know if you look at the tax expenditure analysis by the joint committee, there's much, much more of the tax expenditures are on the personal side than on the corporate side, although the things you mentioned are important and on the corporate side. there's also a question of how one ought to treat incentives

for saving and investment. under a broad income tax measure, you would say contributions to individual retirement accounts or the interest earned within 401 k accounts shouldn't be allowed but i would disagree with that. i would say, and the numbers i mentioned, assume that pro-saving items in the tax code, those pro-saving features of the tax code like i.r.a. deductions and the nontaxation of the inside buildup in i.r.a.'s, would continue to be allowed. so that $3 trillion over 10 years comes just from the personal deductions and the exclusion of employer payments for health insurance, putting a 2% cap on that.

>> governor? >> being only a very mediocre agriculture economist, not an esteemed economist like my colleagues here, i'm not able to put a number on this. let me just remind the committee of something that virtually every member of this committee was part of, back in 1995 and 1996 when we were doing welfare reform, that stands as one of the singular accomplish. s in the last semplingry, we saw when the incentives got changed, we had people going back to work that people said would never work. we had entire counties where everybody on public assistance was working somewhat. and that was as simple as changing the way we handled income disregards. i would simply argue that to restore, per the animal instincts of our entrepreneurs and get the incentives lined up, the kind of changes being talked abhere will yield

additional revenue beyond what analysis over in some c.b.o. corner of the room would come up with and that the die namism of this tax code is not to be underestimated if we get it right. and what we, i think, have to be focused on and what manufacturers and business round table members deplore is the lack of economic growth in this country. we need to be a jobs engine again as a nation and our policies should be coordinated to get there and your topic today can help. >> mr. kleinbard. >> as former chief of staff of the joint committee, it's time for me to do what you suspected our old group did, pull a number off the top of my head. i come up with about, i'm rounding here, $4.5 trillion. the way i get there is first, the itemized deduction, somewhere in the neighborhood

of $2.5 trillion over 10. second, the employer-sponsored health insurance. i would not put a cap on that the way marty has proposed. we can talk about that in more detail. but what we tend to forget is this is one tax expenditure which also has tax expenditure effects on our social security tax and that's about $1 trillion over 10 years. so regardless of what we do on income tax, if we include employer-sponsored insurance as part of our fica tax base for payroll purposes, we're talking about another $1 trillion. then there's over $1 trillion, $137b92 trillion or so in business tax expenditures. those -- every country that's lowered its rate has broadened its corporate base by getting rid of accelerated depreciation. that's a fair trade and would put over $1 trillion, which in

my view should be employed to reduce the corporate tax rate. having said that, when we're talking about fundamental changes like this, eliminating the personal itemized deductions, it's important to remember a maxim that chairman davis taught me, which is that you have to boil the frog slowly. you can't simply wake up tomorrow with no home mortgage interest deduction. i confess my numbers don't reflect any transition rules. >> the frog is still dead though, i'd point out which is one of the problems. >> so your pr posal is -- >> $4.8 trillion over 10. >> $4.8 trillion over 10. senator crapo. >> i assume that that number mr. kleinbard would be $4.8 trillion out of the $14 trillion that is now in the tax

code? meaning there would be about $9 trillion left in the tax code as part of the tax expenditure system? >> yes, and most of those would -- >> yes, and most of those would be on the other side. >> thank you. with these proposals that are out there with regard to the corporate tax rate, they are being proposed on a revenue neutral basis. is there any disagreement that on the other side, the corporate side, there should be revenue neutral? but i do not disagree, but we should note that -- >> i do not disagree, but we should note that some business tax expenditures are claimed by corporations, about 80%. >> thank you. getting back to the level of the

adjustments that can be made in terms of flattening the code and reducing the tax expenditures -- and i think there is no disagreement among any element with regard to the fact that in some way we should do that. the bottom line to me is that there seems to be big debate over how the revenue savings to the federal government should be utilized. as i see it, it can be utilized in three ways. it can be used to reduce rates, to justify more spending, and it can be used to reduce the deficit or to pay off debt. and there may be other ways to use it that i have not thought about yet. but in a broad sense, those are the three options. in my mind, reducing rates would be the most effective utilization of those kinds of savings, but i would like to have from each member of the panel your observations as to how we should approach that.

>> normally, i would agree with you, but we are in such precarious shape at this stage that i think it is essential that we get the level of the deficit down as quickly as possible. every day that deficit is it's out there, we are adding to the day. -- the debt. that is an economist's fiction because what can happen very quickly is that the whole thing can break apart. i think the whole thing couple with the issue -- this leads me

to conclude that the first thing we ought to address is get the deficit down. once the deficit is down, then i think we approach the issue of cutting spending and cutting the deficit. i think in extreme circumstances -- only in extreme circumstances should we cut funding and our money. at the end of the day, i do not think that works. and the mere fact that everybody seems to agree on the baseline of this and the total revenues on that, which in fact tends to be the case -- omb and cbo tend to come out reasonably the same in all areas. as a consequence, that is the major driver of resin used --

revenues. my judgment is, let's get our house in order. let's remember that taxes are there for the purpose of funding spending and decide what level of spending this country can afford, not what it would like, what it can afford. >> i am and strong favor of that with qualifications of your first approach, which is to reduce rates. the which to me, is the classic definition of tax reforms -- expanding the base and a lowering revenue in a revenue neutral way. the budget i outlined at the beginning orally and in my written test on the house that built into it. it has one of the advantages of a gradual reduction in this very high level of spending we have reached recently. >> thank you. dr. feldstein? >> i would split the revenue

between the two uses. and i thought that the bulls- simpson proposal, which does do that, probably does put too much into deficit reduction and into rate reduction and not enough -- too much into rate reduction and not enough into deficit reduction. i think we have to get back to annually balanced budgets, not every year, but over the business cycle as quickly as possible. here is the good news. after world war ii, we had a debt to gdp ratio of 110%. 50 years later it was down under 50%. that happened because over those 50 years, on average, there was no deficit. some years it was above, some below. but the fact that the economy grew 2.5% to 3% and we had the inflation at 2.5% to 3% meant

that the nominal gdp kept growing while the total debt remained unchanged. we got back from this very high- pitched debt to gdp ratio -- very high debt to gdp ratio to something more like what we have recently. >> i was going to mention simpson-bowles as well in terms of structure, but from the business side i think it is very important -- you mentioned the concept of net neutrality. i think that is the right baseline. i want to put that in my testimony today because there is -- it alters a lot depending on how you play that. but the rate reduction, which i think has a positive effect in terms of economic growth and debt reduction, the only thing you have to be very clear about is no increased spending because that will go in the other direction. >> thank you.

>> i thought chairman greenspan was quite persuasive. milton friedman said that to spend is to tax. the question is, how much revenue is do we need? here we are perhaps not keeping on the table this inescapable demographic fact that the country is getting older. just look at the panel in front of you as proof. the result of that is our health care expenditures are rapidly growing at a rate that greatly exceeds our growth in gdp. we need to rethink our spending patterns of long-term entitlement patterns. those have to be phased in slowly. we have to boil the pot slowly in terms of changing and how

much rolls to a more sustainable one. and whatever is left we have to finance, and we finance that through taxes. the medium term, i do not see any prospect other than higher taxes being used to help reduce the deficit, already minimal not increase it as we make the transition to a different spending pattern. >> thank you. senator bingaman? corexit thank you very much and thank all of you for being here to talk with us today -- >> thank you very much and thank you all for being here today to talk with us. i would like a little more clarification on as congress approaches this whole idea of tax reform, do we need to raise additional revenue? and mr. klein are says we do need to raise additional revenue.

i understand chairman greenspan to be saying we do. i believe -- that is my interpretation. and the rest of you have said we do not, or maybe we do. dr. feldstein, maybe we you could -- maybe you could clarify. >> my view is that if we eliminate, or cap -- which is my preferences -- tax expenditures, we should spend some of that money to reduce deficits and some of it to reduce marginal tax rate. >> we should raise additional revenue, but it is a question of how we use the additional revenue. >> if you reduce tax expenditures, you automatically raise revenues. the question is, do you give it all back in the form of lower rates? >> and your view is that we should give some of that back in the form of lower rates, but not all of it. >> exactly. >> dr. taylor, your view is that we should do the reforms, but we

should use the revenue that we achieve from those reforms to cut rates? >> yes, it would be analogous to what we did in the 1980's, in the 1986 reform. >> you would not want us to do an increase? >> economic growth is so important. classic tax reform is what i would suggest. >> but am i correct, chairman greenspan, that your view is -- as you put it, deficits are so important. we first need to bring down deficits, which means we will have to raise revenue until we get back toward a balanced budget. is that your position? >> it is, senator, but very specifically what i would recommend is recognition of the bush tax cuts of the year 2001

and 2003 essentially rested on the concept of looking at large period surpluses, an unbelievable amount of surplus. as some of the analyst put it at that time, "as far as the eye can see." and i was in new zealand did -- i always in vision to the surplus as being something that could cut the tax base and reduce the surplus. i think what we ought to do is go back to the tax structure of what existed prior to 2001 and then start again, meaning that we want to get the level of taxes down. but you can only do it if you read expenditure -- if you raise

expenditures. the objective ought to be to get us to a stable position and allowing all of the bush tax cuts to be rescinded. we will start to get to a point where we will begin to get balance in the system, and as i've pointed out in my prepared remarks, this is not like the end of world war ii with 110% ratio of debt to gdp. that was very easy to cure. you just stop world war ii and suddenly spending went down. if you have a lot of discretionary spending, that is easy to cut. but we are locked in with entitlements, which everyone who receives them believes the

government says, this is your right. and as a consequence, rescinding them, something very difficult politically to do -- i mean, my view has always been that we are in the process of promising more to people who may be 55 years of age, a level of medicare benefits in real terms of, say, 2030. which i do not think our economy is going to be able to deliver. and basically, not delivering what is promised by government is the worst thing that government itself can do. because the person who is 55 years of age cannot know what its actual -- their actual benefit size is going to be with medicare, for example. they will work a year or two longer than expected because they've retired on the assumption that those benefits were real.

and i think they are not. and i think unless we recognize that we have a very serious problem, this is going to be a very tough road to hoe to get us back to fiscal stability. >> thank you very much. mr. chairman? >> thank you, senator bingaman. senator wyden. >> thank you for your leadership on this. this is particularly an important topic and i commend you and senator crapo for the work you are doing. i want to zero in on the jobs issue with respect to this topic and i will start with you, as i -- if i can, dr. feldstein. i am very sympathetic to the kinds of proposals you are putting forward in this area. when we look at the bureau of labor statistics within the two years after the 1986 reform bill, the country created 6.3

million new jobs. i keep the zeroing in on that almost like a record player that just never stops. 6.3 million new jobs. and it seems to me, the study you did on the 1986 bill, which to a great extent has affected my thinking over these years with the bipartisan bill i had with senator gregg and now with senator coats is really based on that. the witches, look to lower marginal rates while keeping progressivity and you are on a path to stimulating the economy and creating family wage jobs. d u feel the same? >> absolutely, yes. >> the second question, maybe we can get mr. kleinbard or anyone to participate.

on the question of the cancer rate, we have it on 24%, which is the lowest. most are between 25% to 27%. but the point is, everyone is moving in the tax reform debate toward the same kind of figure. the question is, how to do we make sure that in corporate tax reform we get as many jobs as possible here in the u.s.? because what the typical citizen is saying is, look at these tax breaks. and you have tax breaks for shipping jobs overseas and we need jobs here. a lot of companies would like to put their focus here. whereestion then becomes we need to go to get that done. it seems to me, what you are saying in your testimony is that if you cut corporate rates to the mid 20's, and i am certainly

open to whether it ought to be 22% or this or that percentage amount, your theory is that it could create jobs here the united states for companies that are already here, number one, and companies that are looking around the world to invest here, and for the multinationals. in other words, it would allow us to run the table and do everything as far as tax policy that is needed to have pro- growth tax reform. is that essentially true? >> senator wyden, that is an excellent summary. i believe quite strongly that the corporate rate is too high. i also believe, frankly, that too much attention has been paid to the plea of multinational firms for a territorial system which would, in fact, work for

technical reasons to erode the domestic corporate base even further. domestic firms have been sort of left out in this discussion. the way to approach is to lower the rate on domestic business operations to attract jobs, to attract in down capital and more jobs as a result of that. and then to offer multinational firms a fair system with respect to their international operations. when you look at the tax rate, you see these countries where they actually operate with large economies. those tax rates are still in the high 20's at the moment. if we were to offer your firm's a worldwide rate in the mid 20's, we would be smack dab in the middle of where the oecd, the g-seven, the major economies are today with respect to fair income. one footnote, when we make these comparisons, we have a tendency

to put in state and local taxes. the fact is, multinational firms do not pay state and local tax on their foreign income. we are not talking about a 39% rate. we are starting with 35%. we need to get it down to 25%. >> dr. feldstein, on this question of where you get that sweet spot in order to increase growth to the greatest degree possible, get as many american workers employed as we can, i want to get your thoughts on the territorial issue. senator craig and i spend countless hours on this, and that is barely an exaggeration. i kept coming back to all of the issues with respect to territorial issues that involve gaming, where someone generate a

profit over here and books that over there and the like. i came to the conclusion that competitive rates solve a lot of problems. our bill is 24. maybe it should be something else. i am open to continuing to look at a territorial system. but is it fair to say -- and this seems to be in line with your study, the 1986 bill, marginal rates while keeping in progressivity and the like, that competitive rates will solve all lot of problems here. >> might work on the '86 tax cut -- my work on the 1986 tax cut was about personal rather than corporate. i was the coordinator of the president's economic recovery advisory board for president obama's tax study and we spent a fair amount of time looking at and listening to witnesses and talking to treasury officials

and others. are referred to the sections of that report in my written -- i refer to the sections of the report in my written testimony. i was struck every time by the fact that the united states, with one exception i think, is the only zero ec -- oecd country that does not have a territorial system. when i think how easy it is for a french company or a german company to do cross-border investing -- after all, they have all of their neighbors there. and yet, they do it and they find it favorable and they create manufacturing jobs in their own economy. i can see the pros and cons. i consider the plight -- the complexity of it. -- i can see the complexity of it, and yet i'm destrucstruck be

fact that all of these other companies have chosen a territorial route. >> this summer, i was just struck by how many businesses said that what they really want for growth and investing is some certainty and some predictability and some measure of permanence. "wall street journal" said the other day that the only thing permanent about the tax system is that it is in permanent. -- impermanent. if't there an urgent need we're going to have significant economic growth to get some certainty and predictability that you can only get if you have real tax reform. >> i think so and i think many of our companies think as well.

i have mentioned regulatory reform in a number of areas. it is across everything today, but you are completely correct in terms of the tax code. let's, whatever we do, make it permanent. and make the complexities of the scoring things and how long it has been in effect or not come out way to make all of these things go away. -- or not, we need to make all of these things go away. we can go to a very good place over a certain time frame. that is another permutation on our discussion today. if i know where i'm going and it is permanent but i am going there, the path has some options, at least, that exist. but from a competitive point, it makes no sense to me to have a system -- germany company

headquarters, u.s. company headquarters, we both the order china. the german company takes the money home. the u.s. company leaves the money over there because they pay and other tax. why would we not want to bring that home just because we might not be able to spend it once it gets here? >> i think you make an important point with respect to the example i made with senator coats that if we are going to a permanent tax reform change but it does make some sense to have a onetime repatriation to make it attractive for people to bring that amount home. i just think that as we get into this, as it was done in 1986, not what i was alluding to with respect to your analysis -- democrats are planning liberal

and ronald reagan made a judgment at competitive rates plus progressivity solved a lot of problems. dr. feldstein today confirmed my thinking that it still makes sense. beyond that, i am very open to working with your organization and others with respect to what those rates ought to be. at 24%, senator coats and i have the only bill that has been scored with the lowest rate on offere. it might not be the right rate. we are willing to work with you on what it needs to be. but what dr. feldstein has found after 1986 is to except these principles that are proven to create jobs. and proven to create jobs in the u.s., which is what mr. kleinbard has expressed so eloquently. >> if i might stretch my example a little bit further, we used to have it taxes in this country and that we paid 10% credit.

in the example of the german company in china, the german company might have an incentive to buy something here. we might have and hit on that before we can make the purchase. -- we might have a hit on that before we can make the purchase. >> mr. kleinbard, do you want to respond to that? but this is a very difficult issue and i have spent the last two years working on this issue. i agree that we want the money to come home. with one -- with $1.4 trillion trapped overseas, that is silly. but there are two solutions. one is a territorial system and the other is a worldwide tax

system. for example, if you were to reduce tax rates to 24%, well, from memory -- and i may be wrong -- but from memory, china's tax rate is 25%. it would add no burden to the united states for doing business in china. the terror -- the trouble with territorial as a system is not in theory, but in practice. when you start looking at the territorial companies, like what germany has done, they propose all sorts of implications on perfectibility all over the world. many people in the business roundtable would find these extremely distressing. a well-designed territorial system that is robust to gaming would raise revenue under the current law in ways that would be viewed as troublesome to

multinational firms. >> mr. chairman, my time is up. my goal is to reconcile these two points. i can recall a statute -- a conversation i had recently where a ceo said, i like your bill and i love the fact that you and senator coats are doing it. if you get the corporate rate down to 21%, we are on board. and i said, i'm not in charge of this. chairman baucus is in charge. we are going to have to have a lot of negotiations with respect to trying to find that sweet spot where we can be competitive wage jobs inamily this country. i think singapore has a rate of something like 10%. it is something like that. we are not going to get the rate down to 10%, but we can walk out

of this debate with a competitive rate and then get to where you just described, mr. ingram, which is some sense of predictability so businesses are on the country can plan. because that is what i found this summer, all they said was, just get away from this one year or other kinds of things. if we do not get the cooperation that senator nelson and senator crapo are talking about, we will have a lame duck session in 2012 that is along the lines of the lame duck session of 2010. we will be talking about extending a dysfunctional, broken system, rather than getting the family-wage jobs. i really encourage you and i look forward to working with you in a bipartisan way. >> this is clearly a moment in time where we can get something done with the super committee. senator crapo. >> i appreciate you letting me

go out of order because i have to run to another engagement. with this group of experts, i cannot resist asking this question. there has been a lot of discussion by every member of the panel about the fact that we have to get our deficit under control. we may have some differences among the system about what portion is problem that relates to as far as over spending or taxes. get $1.2king to trillion additional at a minimum reduction. i am one of those who believes that is not enough. the reason i believe that is -- as you know, i served on the simpson-old commission and its proposals would have reduced the deficit over 10 years by about $4.7 trillion. the broader picture of how far

we need to get is the question i am asking. if you took the $4.7 trillion and played out for 10 years, assuming congress did not get around it somehow, and it worked, even after that is all done, we will have just kept our head above water. our national debt was still $12 trillion or more. it seems to me that our nation, in terms of setting a target, needs to be looking at somewhere in the $4 trillion or $5 trillion neighborhood of deficit reduction now in terms of the next decade. i would like to ask the panel to react to that in terms of how bold we need to get in terms of our deficit reduction as we work with some of these proposals. >> i think $4 trillion is a minimum.

i think that the current services budget projections -- the current services projections of the deficit are too low. and what we do know when we look at history is that there is a tendency on the part of anybody who does budget analysis in government to be optimistic. the problem is it does not work out that way all the time. and just taking a second to comment on this issue of uncertainty, one of the measures i find very rigid in is the fact that currently, if you look at non-financial corporations in the united states, usually they will spend approximately what their cash flow is. today, they are at the lowest level of investment in long- term illiquid assets of any

other time relative to cash flow since 1940. the whole level of uncertainty is also reflected in equity prices, in the sense that the equity premium of those who issue stock in order to sell an issue, that equity, according to jpmorgan, is that the highest level in 50 years. the level of uncertainty is deep. it is partly related to the tax issue, and the especially the permanence issue. you could almost argue it is the lack of permanence in the tax code which makes investments in 20-year assets very difficult to do. before i was in government, i

served on innumerable corporate boards in which i was involved in making projections of long- term capital investment procedures. i will tell you that the degree of stability of long-term tax expectations played an important role not in the average rate of return on the particular investment, but its variants. once you start putting variants on a number of investments, the risk becomes prohibitive. i think the focus of this committee, and indeed, the whole process, has got to be once and for all to let us get a structure of taxation that is not constantly subject to change and is not subject to such things as tax -- tax expenditures. it is more difficult to get it through the appropriations process. >> what should our target be?

>> i estimated originally it should be $6.2 trillion. i think if the joint select committee gets its $$1.20 trillion, there will be some left on that. and what i mean by that is, taking spending to 19.5% gdp. i would suggest some of this dialogue be transformed back into discussion because these trillions over 10 years are a little much for people to fathom. but the idea of holding our federal spending to the same level it was in 2007, 19.5%, most people can understand. and it does add to the uncertainty. i recommend that, but there is a long way to go. uncertainty, unpredictability, like of permanence, -- i mean, over two years ago, when the

case was being made for timely tax cuts, the budget committee said, no, we need permanent, predictable, pervasive tax cuts. it created a little joking about the alliteration, but that is what we have come to. the other position is very important to remember. that is what we have come to. >> if i remember correctly, the cbo number is that if we are on a course now that will take us to about 90% debt to gdp ratio. i think a reade -- reasonable goal would be to get it down to 60% and stabilize it there. i would prefer it lower, but doing that requires taking out 30% of gdp over this time frame, and that means roughly $6 trillion less debt than is currently projected.

and in order to stabilize it at 6%, you would need to get the budget down to about 3% on an annual basis. the >> i would say the employers need to do their part to get the growth rate up a little bit. if we're going to have a 9.2% unemployment rate, 1% of gdp that cannot hardly get 2%, then we cannot make cuts to get ourselves out of the whole over verizon. hole over thethe whol horizon. >> i think that is in the ballpark of where we need to be. the trouble is, in doing that, cbo assumes the expiration not just of the individual tax cuts,

but also all of the business expanders. at all of that up and cbo is assuming $5.5 trillion more than we are collecting taxes today. the cbo also assumes constant growth. there are no hiccups in the cbo baseline. if you want to build in a rainy day fund on top of that, you are unfortunately talking about some number compared to current policy in excess of $6 trillion. >> thank you. dr. feldstein, what do you recommend we do with the bush tax cuts? >> tell me what the economy is going to be like. i am afraid the economy is going to be very weak. and therefore, when i think about deficit reduction and reform, i think that we have to

do the timing such that we do not take a weak economy and push it down even more. i think there is, unfortunately, contrary to a lot of the private and public official forecasts, i think there is a 50% or better chance that we are going to go into a new recession. i think consumers and businesses are not, under current circumstances, inclined to spend. i am afraid that if that is where we are it would be a mistake to let those tax cuts laps. >> anybody on the panel, i would like you to opine on this. do you have any favorites among the tax expenditures that you would like to get rid of?

that you particularly think are a drag on the economy? and where we can get the best effect on the overall economy where -- by eliminating that tax expenditure? >> if you want me to list one, the obvious one is ethanol, which to an agricultural economist would make a good deal of sense, getting rid of that. it strikes me that we have the impossible problem of a sluggish economy and the need to get more revenues. i do think we need to keep in mind the studies that have been made with respect to reducing the problems of, say, fiscal

problems over the years. most to study this, including the imf and a lot of academics, have come to the conclusion that, yes, an increase in taxes does contract economic activity. also, a cut in spending does, but nowhere near as much. in fact, the actual verbage that the imf used is that the decline in gdp as a consequence of a reduction in spending was not significant in a statistical sense. i think we have to recognize that raising taxes is a problem. if somebody could say to me that we will cut spending by the amount of the tax -- the bush tax cuts, i would say that is great.

remember, the amount of the bush tax cuts is not that they are sacrosanct in any sense. but if we go back to where we were before they were enacted, -- in fact, their enactment in my judgment was mistaken because there was a judgment that the surpluses were going to continue indefinitely. in fact, they stopped in the third quarter of 2001. dealing with that sort of thing, you realize that you have a very tough decision to make. if we could find a way to cut spending enough to allow the tax cuts to grow up -- to prevent the tax cuts from going up, that is the best of all possible solutions. but in my judgment, as bad as the problems are, i think they would be worse if we find as a

consequence of this very sluggish time that we are born to end up with 110% gdp -- going to end up with 110% gdp or something like that. it is tough to bear when you are dealing with entitlements. you cannot cut them in the way you are cutting other spending and is going to be a very tough road to hoe. i grant you that enabling all of the tax cuts to lapse overnight is probably more than i would wish to see the economy taking. but at least, put in place a phased in program. at the same time, try to really understand that the purpose of taxation, as i said before, is to fund spending. unless we get spending down, all of the discussion about the appropriate level of taxation is

irrelevant. >> anyone else would they favor a tax expenditure? >> i would just make the point that follows from what allen was saying. -- alan was saying. the studies that show that cutting spending was less contraction area or not contraction airey adderall relative to -- let's contractionary or not contractionary at all relative to raising tax rates, that is very different from reducing tax expenditures. i have asked the authors of these studies, did they have an answer? does a tax expenditure reduction have the macro economic effect of a spending cut, or the macro- economic affect of a tax increase of a traditional sort, raising tax rates. and they said, we just do not

have the experience to answer that. but my hunch is that raising tax expenditures does not have the same kind of adverse affects because it does not have the same incentives. the >> the only thing i can fall back on a little bit is some of my experience as a governor. at the time i was governor in michigan, we had some studies done and one of them showed pretty clearly that people were mobile. we were losing people. and i think there has been some evidence lately in other states where tax increases have resulted in the relocation. the taxes on certain classes of people or income levels or whatever resulted in the relocating of residents to other states. in fact, a good or been constituent is now a las vegas resident because of tax changes.

i think on the tax expenditure side, we are kind of presenting a unprecedented testimony today to say, look, let's put them all on the table, but let's use them to achieve what senator wyden mentioned, to get the rate low. if you start losing these -- and i think the finance committee -- we are counting on you as a champion to fight the poaching of these buy other interests or other spenders are around the congress who have not studied the issue the way you have. but you have to protect them in order to drive the rate down. if you lose them, you cannot go as low with the rate and then you get a lot of different distortions and unequal effects. none of these tax expenditures got here by themselves. they are here because somebody thought they were a good policy at the time. but now we are saying, let's all come to the table, put everything on the table, and see

if we can get a permanent, more competitive structure. i applaud you for holding this hearing. >> it seems to me there is a lot of agreement that the focus on reducing spending growth to should be the highest priority. chairman greenspan indicated we should not worry too much about going too far with that. but even the proposal i laid out, which takes the spending to 19.5% of gdp, spending keeps growing. there are no cuts in the sense that the federal budget keeps growing. i do not think it is a problem to -- is not draconian. it is not austerity. it is just something that the american people want to have happen. the highest priority seems to do what chairman greenspan said is possible.

and then we will worry about the extra revenues. the 1986 tax reform, revenue neutral, lowering rates to stimulate growth is where the aim should be. >> at the same time, you have to have a tax code that people consider to be fair. any other comment about tax expenditures? >> i would not eliminate the so- called tax expenditures for savings and investment. we talked about that. and similarly, i would not eliminate it for charitable contributions. the proposal -- the president's proposal to limit the charitable deduction to 28% marginal tax rate, i did a calculation based on the extensive research that has been done on how charitable giving response to the cost of giving to the taxpayer and, yes, the government would get additional revenue by putting

that cash bond. but basically, every dollar that the government got came from the charities. the taxpayers would not have any less money available to spend on other things because they would cut back their charitable giving by an equal amount. that strikes me as a bad one to change. because unlike a lot of other tax expenditures which distort spending in a bad way, i put the charitable contribution along with the saving and investing, something we as a country ought to be in favor of. >> i would like to reiterate the point that dr. feldstein made in his earlier comments that not all tax increases are the same. in fact, some tax increases or spending cuts. that is the will point of this expenditure discussion. yes, we need to cut spending, but the way to do that is through eliminating tax

expenditures. it is just an accident of accounting that we call that a tax increase. the personal itemized deductions are not going to change behavior. limiting that will not change behavior in the same way that raising marginal rates will. that is wise, back to the same point -- why i come back to the where it needs to be done in a way with the least amount of damage to revenues. it needs to be along the spending cap that we are already embarked on. >> chairman greenspan. >> there is one issue that needs to be addressed on this whole caught -- whole question of tax expenditures. following the 1986 tax legislation was very

dispiriting because i recall a elaborate discussions with respect to bringing the -- to expand the base, bring marginal tax rates down, and that was achieved in the 1986 bill. the problem is almost immediately, we began to erode that process. there is something inherent in our political process, which means we need two things. one, get rid of a lot of issues of tax expenditures and other such things and broaden the base, but find a legislative vehicle that prevents it from eroding thereafter. because if you have the same processes going today that existed post-1986, we may solve the problem now and find out we are back in 10 or 15 years

having another cut at this problem. >> you recall at the outset i mentioned how many new tax expenditures had been enacted since the 1986 -- >> as i recall, mr. chairman, it did not take very many days for a number of those things to come back in place, merely because it was so easy to get them through because there were relatively small and no one recognized what they really were. >> senator wyden? >> i have nothing else, although, i want to say i very much share your views on that last point, dr. greenspan. no current congress can never totally blind a future congress. -- can ever totally bind a future congress. but we can certainly find some hoops that anyone who wants to unravel tax reform would have to go through once you get it

passed. and there has been a lot of work done looking at those possibilities. any ideas that you panel members have would be very much appreciated. literally, if you look at what has happened since 1986, some studies have shown that there has been almost one change for every working day. you know, you're in, you're out. which gets to the question that -- year in and year out. which gets to the question that we have touched on very thoughtfully, which is the lack of permanence with it all. i think the chairman has gone through about as many tax reform hearings as anybody around, and yours is one of the best. i appreciate all of the expert testimony from our witnesses. >> senator, we are at a moment time that the body politick is poised to allow us to get out of our individual selfish

interests, and i do not use that word director torelli. ily.erogator because we have to look at the common good. if this hearing in any way serves to read fans that possibility this year, then -- serves to advance that possibility this year, then it is serving all of us. to all of our panelists, we are deeply grateful for your lending your expertise. thank you, and the hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

[no audio] >> bedews think it will be difficult for them to find compromise? -- >> do you think it will be difficult for them to find compromise? >> [unintelligible] and i wish them well.

>> [inaudible] >> oh, no. i have been saying that for the past two or three months. >> did you say there is anything new about these tax cut? >> [inaudible]