guest: i think a lot of people want to get solved by january 1st but we're still a few weeks away. host: sarah kliff covers health care for "the washington post." thank you for joining us. we take a look at america by the numbers and what america looks like by the year 2016. jennifer ortman and william frey here to talk about america by the numbers. we are back in a moment. >> president obama in the reaction to the connecticut shootings. later, the impacts of the so- called fiscal cliff on tax filings. >> president obama on the school shooting in connecticut. he said the time is not to take

meaningful action. he was notified by homeland security advisor john brennan. he ordered flags lowered to half staff. this is about 5 minutes. >> i spoke with governor malloy and fbi director muller. i offered governor malloy my condolences on behalf of the nation and made it clear he will have every resource he needs to investigate this crime, care for theirctimw and families. we have endured too many of these tragedies. each time i learned the news, i react not as a president but as anybody else would, as a parent.

that was true today. there is not a parent in america who does not feel the same grief i fail. do. the majority of folks who died today were children between the ages of 5 and 10 years old. they had their entire lives head of them, birthdays, graduations, weddings, kids of their own. among the fallen were also teachers, who devoted their lives to helping our children fulfill their dreams. our hearts are broken today. for the parents and

grandparents, sisters and brothers of these little children and for the families of the adults who were lost. our hearts are broken for the parents of the survivors as well. as blessed as they are to have their children, they know that their children's innocence has been torn away from them too early and there are no words that will ease their pain. we have been through this too many times. whether it is an elementary school in newtown or a shopping mall in organ or a temple in wisconsin or a street corner in the chicago, these are our neighborhoods. these children are our children. we will have to come together and take meaningful action to more tragediesrk

regardless of politics. michelle and i will help our children tighter. we will tell them that we love them. we will remind each other how deeply we love one another. there are families in connecticut who cannot do that tonight. they need all of us right now. the community needs us to be at our best as americans. i will do everything in my power as president to help because while nothing can fill the space of a lost child or loved one, we can extend a hand to those in need to remind them that we are there for them, we are praying for them, the love they felt for those they lost indoors and not just in their memories but also in hours. may god bless the memory of the

victim's. in the words of spritzer, healed the broken heart and buying up their wounds. >> house speaker john boehner and senate majority leader harry reid and other members of congress have expressed shock at the shootings and offered condolences to the families of victims. the attack occurred in the district of congressman chris murphy. he said he was praying that the children, teachers, and staff would reach safety quickly. congressman john larsen said his thoughts and prayers were with the family and friends of the victims. the president has ordered flags to be flown at half staff until sunset december 18. an anti-gun prayer vigil was held outside of the white house in the aftermath. it has been reported that 20 children died in the school massacre at sandy hook

elementary. participants called on president obama to address gun violence in the nation. this is about 5 minutes. >> today is the day. today is the day. today is the day. today is the day. before we offer our last prayer, we will pause for a moment of silence. we will ask you to lift the scandals as a prayer to the beautiful innocent children that have lost their lives today. to the adults teaching them, let us pause for a moment of silence. let us lift up our candles as a light shining in darkness, as a

light shining in darkness across this country that we can change the worst conditions of our country's. together we can change the pain into joy. together we can change the saar into gladness -- the sorrow into gladness. today we can change this moment together. left of those lights. with them high. but our light shine so everyone can see that today is the day.

mr. president, we are calling on new, citizens who voted for you, who gave you another term to lead us by the state of the union address, please leave out a plan of action of how we may address this search of gun violence in our communities. it is not just in our inner cities. it is not just in our urban settings. it is not just in our suburbs, in our rural neighborhoods. it is everywhere. we cannot escape unless you leave us, mr. president.

we call on congress. have courage. the country is with you. lead us. lead us out of this shadow, out of this dark alley of the shadow of death. lead us. lead us. even when men fail us every time. let us look to our god. we call on you, our god, to comfort the hearts of every mother and father who has lost their child in newtown, connecticut today. we ask you to comfort the hearts of the mother's who lost her son in chicago today, who lost her daughter in philadelphia today, who lost their teenager in oakland today, in detroit, in camden, new jersey, in new

orleans, in alaska, in misery, alabama, all across this -- in missouri, all across this country. bring us out of this dark place of sadness. give us correct that we may act and of wisdom -- gives us courage and wisdom that we may act together. you say blessed are the peacemakers for they will be called your children. god, we ask for your divine wisdom to descend upon this place. let us as adults model the peacemaking that we so long. we will look to you, our god, the god of all peace. in your name we pray. ♪ we shall overcome. we shall overcome. we shall overcome some day.

deep in my heart, i do believe. we shall over some day. ♪ kathy mcmorris rodgers spoke about the school shooting in connecticut. >> i am devastated by what happened. it is awful. it is so sad. i am a mom. i have two kids. it is heart to a imagine. we need to find out what happened and what this drove this individual to this place.

we have to be careful about suggesting that it is new gun laws. we need to look at what drives a crazy person to do these kinds of actions and make sure we are enforcing the laws on the books. we need to do everything possible to make sure something like this never happens again. >> that answer has been given by democrats and republicans this year after the shooting in colorado and in oregon at the mall and in previous incidents. if it is not gun control, what about mental health and troubled youth could congress due to discuss this issue in a more serious way? >> we need to ask those questions. we need to search for the answers. that is part of what we can do in congress.

members, rep. we can hold hearings and big brother and try to better understand what happened to and what drives individuals to take the lives of the innocents this way. it is important that we ask those questions, get answers so we can prevent these types of situations from happening. >> this sunday at 10:00 a.m. and 6:00 p.m. eastern on c-span. >> next, the ceo of bank of america in the form on feature homeownership in the u.s. in the fiscal cliff and tax filings and how the fiscal cliff can affect medicare payments to doctors. tomorrow, we will take your calls and offer a perspective on

the reaction to the connecticut shoshooting. a look at how states are bracing for sequestration. advice to those preparing a 2012 federal taxes and how taxpayers could be affected. "washington journal" is live as 7:00 a.m. eastern on c-span. >> my inspiration was the idea i wanted to explain how totalitarianism happens. we know the story of the cold war. we have seen the archives in the described relationships. we know the main events from our point of view. we have read and written them. i wanted to show from a different angle what it felt

like to be one of the people who were subjected to this system and how people make choices in that system and how they reacted and behaved. one of the things that has happened since 1989 is the region that we used to call 1980 -- eastern europe has become differentiated. they have the common memory of communist occupation. >> more with pulitzer prize- winning anne applebaum. from her historical narrative "iron curtain" sun and the clock on c-span's q&a. brian monaghan says government lenders and borrowers have to reset expectations on home ownership.

he spoke at a brookings institution and a vent on the future of home ownership. this is just under one hour. >> good morning. i am pleased to introduce our keynote speaker for today. he has been ceo of one of the world's largest financial institutions since 2010. bank of america serves many different audiences with a full range of financial and risk- management products and services. you see them everywhere. the bank one out of every two american households. i have gotten to know brian through my work.

best help underserved americans. brian grew up the sixth of nine had a job of as bus boy and dug that made industrial magnets. he later attended brown university which is something we have in common and played rugby well according to some of my rugby-playing friends and met his wife there. he is a lawyer by trade with a law degree from notre dame and started out in the general counsel's office in 1993 which then merged with bank of america in 2004 and was eventually elevated to general council in 2008. when bank of america bought merrill lynch as it was teetering on the edge of the financial crisis he was named c.e.o. of the investment firm

then c.e.o. of the bank. so brian became c.e.o. at a time we all agree was a tumultuous time in the banking industry. under his leadership the bank has focused on reducing non-core business assets as well as its mortgage surfacing portfolio. "fortune" magazine wrote of brian reveals that he has proven his mettle as team builder and crisis manager and perhaps uniquely suited for the job of chief executive in the banking world. the business is now so complicated and so fraught with hidden dangers lodged in esso take that leaders are immersed in the details. the ones who service their own risk managers. that's moynihan. so brian is going to speak and after that will he take some

questions and after that we will have panel discussions featuring several pabble housing experts. so with that please welcome me in welcoming brian moynihan. \[applause] >> thank you karen. as karen said, she is a member of our national community advisory counsel which several of the members of the panel are, too and we appreciate the insight they give us. i'm grateful to be here with the brookings team to put together in important form. when you think about things, there's a saying that says confidence never comes from knowing all the answers but being open to all the questions. to think not mostly about the answers but on the questions. we are tackled to think about the questions and the impacts of the recession and future population growth and future prospects in homeownership and lending standards and how to make sure future homeowner ship is sustainable and strong affordable rental program and the questions about the proper

troll government and private sector abounds. by focusing on those questions, we can build confidence in the housing system going forward and the distinguished panel later we can discuss these questions and i invite all of you to keep pushing this dialogue forward and make sure we replicate things to make sure we reach outreaching programs. and looking forward having guided through one of the tough periods of time in the country's and the company's life, i want to make an observation about where we are in the housing recovery. there's an incredible amount of work that's been done to help

home owners in distress. we have implemented programs the government response ert including the home mortgaging bill. you've seen stability but obviously there's work to do. there are still areas of country that are hurting more than others. the housing market is showing signs of real sustained recovery. overall housing prices are up and housing demand is up which means that's a good thing overall for housing recovery and jobs. the national standards are in place and our company acquired countrywide at the height of the housing crisis and in a severely distressed portfolio. today we have helped nearly 1.5 million, that's 1.are 5 million

people avoid forclosure through short sales and other programs. today our company has ooh,000- plus people working on this, 50,000 people working on borrowers every day. to put in in perspective, only -- the industry has put tremendous resources to work in helping company get the right solution. the relocation systems in some cases up to $30,000. and we have principle reduction solutions. these prasms continue to make a difference for those commerce that can be helped but in general principle forgiveness, default rates are still high in these programs. why?

why is that true? because at this point, that the point in the cycle, it isn't the lack of the programs. it's other issues causing it. many commerce are still fighting unemployment or underemployment or have become unemployed or have unpredictable employment possibilities coming forward and lack the cash flow to sustain payments even the modified ones. so to help the customer get the right seclusion even if that means transitioning to rebel. 40 op. forclosures sales the property is actually vacant so we also must become more efficient on how we move those homes back into the system. so we get them useful again. getting vacant properties back on the market as soon as possible makes it better for neighbors who don't want to see vacant properties. when a home is taken possession by us, we sell it within 60-90 days and others who donate rehabilitated vacancies. we partnered with habitat for humanity.

and we have committed to donating over 1,000 properties to those focused on returning military. we have completed 150 donations to army specialist sler know who suffered serious injury in his last tour of duty in afghanistan. he and his fiance credited the new home with providing the fresh start they and their family needed. so when we think about the future of housing, how does this supply it underscores a need to shape a system that keeps borrowers out of a home.

it means shifting the conversation to those who own homes. as the housing market strengthens, now is the time to have this dialogue in earnest so we can be set to a more secure sustainable system for all those involved. i would like to frame the rest of the remarks for the homeowners and home buyers, lenders and the government. want to discuss some of the assumptions we need to challenge and questions we need to ask in terms of what a re-set might look like. for homeowners what are the re- sets we need to make around homeownership? what is remarkable is given everything that people have been through in the past several years that survey after survey continue to show that the overwhelming majority of

americans still aspire to homeownership. most americans still rank homeownership as their view as part of the american dream. but to look deep they are in those surveys, you will see much of the value is emotional, not financial. take for example the most recent fannie mae housing survey. the top two reasons for homeownership were to have a good place to raise children and to have a safe place to live. as a just democratic society we are all a good, safe place to live but a roof over one's head doesn't always have to come with a mortgage. some cases it shouldn't come with that. homeownership is valuable. it stabilizes a community, those things have been proven over time. for those who purchase a home over time, a home can also provide a vehicle for wealth creation.

it's important to recognize that much of the value provided during the housing bubble was more about expanding credit than it was for -- historically long-term average with homeowner appreciation going back to 1995 was 4.6% that includes the recent bubble and burst years. since 2001, the average appreciation has been 2%. so leading up to the crisis the purchase of homeownership, stability and security and savings got disconnected in the 2000s from the act of homeownership. the they are all for building long-term equity to cashing gains in many it became more about less about a safe place to live and more for creating profits. to 28% in 2006. homeowners have a leverage in their home became the norm. cashout refinances so using the money for other things other than improving or developing the home completely disconnected that from its value. for eight consecutive quarters the height of the buildup in

2005 the cashout received 80% of refinancing so the question we need to consider is if people are going to take cash out of a home and buy for investment or properties to rent, should they be able to do so with mortgage capitals, especially mortgage capitals backed by the government? we need to ask if homeownership is right for everyone? we also have to challenge the assumption, mobility versus stability. other factors is two-income households, all the things that have become a port of our modern society. work flexibility is locational decisions. in the case of the last recession and has been the case up until today.

according to karen's research the volatility of household income rose nearly 30% in the last four decades. in addition to these realities, high unemployment and underwater home values have taught us sometimes flexibility and forced people to move and not be burned by people of virtue. the 30-year mortgage doesn't provide flexibility in most cases so we have to provide the flexibility of people relative to the housing and mortgage finance. we also have to challenge the assumptions of the purchase cycle. it's important to tons purchase cycle in which you buy homes has fundamentally changed. macroconditions, the economy strong and growth was high rand house prices continued to rise. a lot of that stuff isn't true anymore. the world looks at the united

states and united states looks at itself with a lower growth. if we were sitting in this room in 2003 the forecaster would have expected a growth in g.d.p. for the next six years ahead and long-term average over sustained decades ahead. 2003 those forkers were sitting here, they would expect 2.5% and long-term average of 2.7%. long-term has risen to unexpected levels. the duration is historical levels. the historical average is 13%. that affects people's stability and ability to make their mortgage payments. there's also the issue of probability of unemployment. it's higher now than it used to be. u.s. household information has also slowed dramatic i will.

average annual household growth has been about a half million a year less than half the pace of the first of the 2000s. then if you look recently. the demographic issues we just described are much different in different jarius of the country. in detroit there's substantial less population a debate about homeownership is much different like say in dallas where population growth has maintained its strength. so all these factors taken together. slower household information and certain duration uncertainty, all should make a purchase cycle slower. it will make it harder for a borrower to find an escape for a mortgage should it become unaffordable. another thing we have to challenge is the assumptions about risk. ultimately we believe a more sustainable housing model rests in prudent standards and our ability to educate america about the inherent risks that come

with the responsibility of homeownership. at bank of america we continue to focus on the non-profits to provide purchase counseling in connection with mortgages and coming out of the crisis credit repair we are working with counselers on steps consumers can take to prepare for their credit and sustained homeownership going forward to absolutely homeowner ship is important and the american dream is important but when you tons attributes and you have to understand the risks. each a responsible home buying decision has risk. i get letters from customers struggling. those letters tear your heart out. it's letters from people who have the same reasons they couldn't fay mortgage, they have

gotten sick or lost their jobs or gotten divorced. from the homeowners side we need to consider this. how do we help people make smart financial decisions based on assumptions that may not be true in the decade ahead? how do we prepare people for the risks and responsibilities ahead? now let's switch to lenders like ourselves. what are the resets we need? the discussion often becomes centered on the availability of credit. whether banks should simply be lending more. by being overly aggressive caused the entire housing system damage and that wasn't caused by us not lending enough. we were lending too much.

the u.s. had a dramatic lending of credit and credit to borrowers who previously would not have qualified or level at which they would not have qualified. subprime loans, little down payments. all the things we now know a lot about ex panneded dramatically. our bank of america primary window was countrywide. we exited subprime lending of our country's insist 2001. we were criticized by one for not being in subprime lending, and that was fine with us. we did so and still met our long-standing commitment at the same time we did not participate in subprime. there's no doubt that the post crisis credit is tighter but also no doubt that a fundamental part of the lender re-set has been re-instituting quality underwriting.

programs that no longer apply. but if you think about what the industry and our country has been threw and customers have been through there can be no margin for error ahead. we have to make sure the loan we originate is ironclad. that's not bad, it just takes a lot more time to get used to. but credit is available. we have extended more than $53,000 to more than 215,000 bar owers. 2/3 have been maid to lower income bar owers. access to availability of credit is critical and lenders have tighter standards. it makes for more flexibility though we can't go back to where we started. we can't go back to where we were. we believe homeownership is to be pursued at all costs?

i don't believe any of us believe that. that's good for both lenders and borrowers. there's been a lot of debate about down payments. there's a lot of debate going on about how big they should be, etc. we think about that, the 20% down payment is light years from what was going on before. but think about the implication of that. off 21-year-old child for a $100,000 home to save 20% how long it will take him to save that. that is an preliminary indication, so is there any magic to a 20% down payment? is 10% more available? we can't go to zero percent. if you're hit with an unforeseen sneevepbt but they are also real concerns that too high a standard can block people out of homeownership. something we clearly don't want

as an industry. we need to land somewhere reasonable that protects the homeowner. so these are questions we need to think about for lenders. first, how do we make credit available or protect people from taking on too much credit and ending up in a home they can't asnord second, how can we strike the right balance between homeownership and then we move to the third participant. the government. what are the resets for our government? in this area the government often becomes dominated by the g.s.r.e. and the request for many to wind down fanny and freddie. why is the government involved in the first place? two reasons, expand liquidity, provide capital. second, by doing that, it makes homeownership more accessible. but currently our government

role looks different. the government dominates the housing financal market back nine or 10 months. f.h.a. has been instrumental sustaining the market but have come a long way in traditionally helping. today they account for 20% of the market. they provide low down payment lending for loans $729,000. this is just an example where we need a re-set of our time. fannie and freddy continue to help in the uncertainty surrounding the market in today's world but we do need to move from a market dominated by the g.s.e.'s and f.h.a. and government sources to one that does one thing. first we need to return f.h.a. back to its core purpose of helping low to moderate-income buyers and then they need to take a transition and provide

clarity to what marketing service and risk they are willing to take. we can do that by removing some of the uncertainties about the rules that will take place over the next year as we move forward with the reimmediate yathes of the crisis. i don't think changing so that markets and if there are guarantees liquidity to investors so, all these players are critical to transition. the healthy market needs capital so the government doesn't take the risk.

in that it's our ultimate goal to get this settled to get clarity and then we can get market reset. >> but we have to be careful with these policy inputs into the system to make sure we're working on this in a holistic way. we don't want to end up with untinded consequences. we can't have private capital closed out and we can't have dependency continue. these are the questions we need to consider. how do we provide a place that

stays true to lickety and credit. let me conclude and then we'll take questions. there has been a lot of incriminations over the past few years. we believe it is time to reset. put the lessons to good use, put the housing financial system on the good path. to reshape our and clarify the risks. it is now our duty to provide a path of homeownership that it once achieved what it was meant to be, a place to live, a place that is a reward of hard work and sacrifice and a place to have a family. it is time to reset and do that.

thank you. [applause] >> i want to stat by thank youing you. you went over a lot of things we were hoping to cover. i think the questions that you raised about government policy in the last section set ugs up for the panel discussion that we're going to have. let me start where you started with foe closure prices.

you said the bank is working on $900,000 delink quent loans. i'm wondering if the easiest cases have worked out going forward? >> you aren't going to be able to find arrangements that keep as many folks in their homes and as a follow-up, what kinds of solutions are you allowing? >> on the first issue, we talked about the bank of america, how we had one million and six and down to 930 in 2012 but remember it's not the same people so you've had all the new entrants of delinquency and there's you know what i mean became delinquent 60 days or more last month or months before that. so we're not through the programs, and we still modify

30,000-40,000 mortgages so the amount that's going through for lack of better terms is new dialogue. so new consumers and to the process so the overall levels are coming down but so there's plenty of relief left for people. when you talk about the programs going forward, they are all programs that continue to go on and you see the principal reduction and in the national mortgage settlement which offered a settlement to groups of customers but the modifications of programs will continue on past that. >> do you have a sense of how long it's going to take ultimately? well, as we look out, the rate of reduction is about 100,000, 75,000-100,000 a quarter, so if you think of the level we'll end up based on a portfolio of our

size might be 100,000, so as you look across the next two years you will probably see that return more to normal. >> i know you suggested that we have no shortage of programs to try tackle these problems, and i presume you're partly referring to government programs. is there anything else you think the government could be doing to get us through the forclosure crisis? >> the number one thing is to get people divorced from the forclosure dries sis and the people generally have the problem of being unemployed or underemployed or the two-income families that go to a one-income family so i think the pub one thing so get people back to work. you're seeing meaningful pick-up

in housing which is one of the stubborn most places to get people back to work. we have to make sure we don't overshoot again, and i could have debates about that but the programs are there, but the investors are coming along. we still need more participation by investor groups to provide more fuel but if the economy continues to improv and we continue to see the economy continue to improv 2%ish, you're creating you have this jobs and things are getting better, and that's why you're seeing housing prices stabilize. are the pockets still hard? yes. but honestly it's time and americans are patient and would like this all to be behind us but with time this is working through, and unfortunately it's been six years since housing

prices quit going up and we're impatient as a society, and that's because we're a creative and entrepreneurial society and i'm sure fixing programs would help but getting through the ones we have would be faster. >> as someone who has to make policyal recommendations and counsel patients, tough one. doesn't sell well. sympathize with that. >> it's not consistent with the urge to fix things, but i think seriously if you watch the day-to-day progress, we have come over the top and are coming down and we are representative of the industry. this will get done. and the key is just to do it right for the consumer and in an everyone net i can, clear way, but adding more to it actually lengthens the process. >> can i turn to a somewhat different topic which is credit availability? so you made it clear in the speech that we can't go back to the go-go days of lending that we saw in the middle of the last

decade. i completely agree with that. but speaking of things overshooting, we saw the credit availablity pendulum swing too far in the direction of the financial crisis and subsequently we've seen credit availability get better for some types of loans as the economy has gotten better, but my sense is, and looking at the national data that we haven't seen that much improvement in credit able when it comes to mortgages for home purchase, and that's for the nation as a whole, is it true and if so, can you help us understand why? >> well, this t, there's no question that if you think about the mortgage market as kind of having a constant level what is put on top of that is a lot of activity and it's gone and should be gone, so there always was a large portion of the

mortgage market that went through a very standard so to speak underwriting process and speeding up the pace of mortgages and refinancing so that's why you had the annual term if you take the percentage of mortgages that refunded in the year you reached 30% or 40%. it's come down to 30 or 40%. should probably be in a lower earning. but the programs are there. the process is slow. but if you think about it from the lending community, we made lower mortgage threatens to many said make a mortgage loan and i want it then in 2012 you're saying i don't want it. so these things have to be buttoned up. and our error rate is very low because we have to protect the integrity of the assets for a period of time which are way beyond the views of what went wrong 0 years down road, so i

don't think this is going to change but it's not inherently a bad thing but then does money have low or moderate programs? we have some origination in those programs and f.h.a. has made programs available for first-time buyers we have to be careful about how much we do with that, but the biggest impact is underwriters went from those processes so that's the frustrating part for the american consumer and it's frustrating for me because we can't get our loans closed fast enough for our customers and added 5,000 people over 0-18 months to increase our ability to do mortgages and we're still not doing as well as we should so it's really underwriting applied to the more traditional mortgages and i'm in the sure it's time to pull back on that yet. >> so picking up on that lastal

thought, i understand the reasons for that and suspect this is credit availability is part of what's behind the weak household formation although i completely agree that the conditions and joblessness is a major force there. but thank you feel this is a new normal or something that will change as the economy gets better? >> well one of the -- one of your colleagues and i had a conversation back, and your team has led on this, almost go city bicity and poplations trends and see how they connect because this is not aning a get america question. we had many present from 140 markets around america and dallas doesn't know what detroit's talking about. the population's going. or houston the impact.

it's just not in their thought process to think that they have a problem with unemployment or housing. detroit, columbus, other places have it. parts of massachusetts have it. other parts of massachusetts don't. so i think this has to be very localized and figure out how you solve that. so it's going to be tight until we get rules figured out and then you bring in private capital. but i'm not sure that's alltogether a bad thing but i think we have a lot more granular by-city or by-community to figure out what the answer should be. >> turning now to the customer relationship and how it's changing in response to the very dramatic developments in the bank and developments over the last several years so, first of all, i was delighted to hear about your efforts regarding home buyer -- over the past few years people need to understand what they are getting into when

they make this enormous commitment but let me ask you about the change in the different potential change. it was reported a couple weeks ago in one news article that i saw that the bank was backing off of a plan to impose new fees under checking accounts in under certain circumstances, so i was curious is the report right and what shulled we make of it? >> i'm not sure we read it but let me tell you what we do. so if you think about, we think of our, in our general retail business which is a big business in america, we have about 30 million checking holders checking account holders so starting a number of years ago we started to look at the combination of the economy and people's behaviors and the new devices really changed things, so we started to figure out that we had to figure out a different way to relate to americans and income earners as a way to

provide services fair to our shareholders and so we dropped the overdraft fees in debit cards and went to more transparency. we have lowered that and we have been managing that dialogue figuring out the right way to hand that. then entered the smartphone which changes this dynamic dramatically which is yoo pick with a 'tis and available for low cost and so we're seeing that as an interesting thing and seeing customer behavior change and so we're trying to develop programs that help people have great access to banking services. 17,000 a.t.m.'s etc. but to do it in a way that we can provide great service with the realities of things available so there's a lot of talk about what we're doing and not doing but i can tell you we have a great

transaction for the core and what we're looking for is what's the model serving forward? and what we're seeing is 70,000 more mobile bank users per week so 20 million texts go out to our customers saying your balance is low. make sure you don't overdraft. all this put together is a tremendous level to serve customers traditionally with branches and a.t.m.'s, it was at a higher cost and now you can provide it at a lower cost and you don't have to charge them penalty fees. >> we have time now for a few questions from the audience so if i can just ask you state who you are and who you are with and

also if you could just keep your question concise so we can get to as many questions as possible. so with that i think i have someone walking around with microphones? is that is that right yes. so let's take this question right here in the first row. >> i'm with the national associations of real estate professional. you indicated in your presentation or implied that a big part of the forclosure problem was admitting borrowers could not afford the -- according to "the wall street journal" at the peak of the housing boom as many as 60% of ever or more actually qualified for prime loans, that is loans they could have afforded. part of my question is what are we going to do to prevent that from occurring? last year according to the census bureau, there was a net increase of about 200,000 new

owner-up aed households, 80% of which went to hispanic homeowners and other minorities. at the same time there was a net increase of thousands of units, hundreds of thousands of other population groups including whites. what are the implications to the bank of america to these demographic changes and developments? >> we have, for at least a decade, maybe more, we look at our customers and customer-driven and think of us? los angeles or chicago or houston. so as a customer demographics change our plans change we have counseling and branches that speak multiple languages so we have been a leader in continuing ways to make the dialogue to our customers more nateive to them,

for lack of a better term, and that's important. i think when you go to housing, the groups you represent are fast-growing so the half million households will have a higher percentage of the hispanic community, which is great. it's a population of america, that's what makes america terrific, so serving them i don't think is that different than serving decades ago. you can't get the dialogue going in terms of what to do. there's not a decision point. so it doesn't always end up in forclosure but the decision ends up with -- there were about 20,000 properties in a status

that almost rolled over. so the addition is we have 9,000 or so with uncertainty and how the reposition those houses, the 900,000 is a tough challenge, so we work with all kinds of community groups around the country. so we have been trying to enlist them to help us, because comfort you give your constituencies helps us. how do we get through it? and believe me, we need everybody's help here, because borrowers have to trust the process. so i don't know if that answers all your questions, but that's kind of how we think about it.

>> thanks for your overview on the housing market. on the point of what is right for mortgages, if you look at fannie and frethy's mortgage-backed securities, it's pretty much in historical range going back to 1990. and f.h.a. -- three there's been virtually -- given those facts, what would you say is the right percentage of the market, f.h.a. and g.s.e.'s and whatever forms should emerge, what's the right balance if they are currently in the g.s.e.'s where they have been since 1990? >> there's philosophical question. if you could do it all -- conceptionnally, the practical

reality is that if you think about the mortgage debt outstanding, $10 trillion or that, 5 trillion, pick a number like that. and you think of all the -- you cannot engines through the banks, and by the way the nature of the asset is such that banks can't hold it easily but then you have 10%-15% foreign ownership of the g.s.e.'s so i think in the near term there's no practical solution other than to continue to participate in the governments, because the reality is with uncertainty in the process or asset is, do you think people who don't know america or outside america can actually invest? and we need their liquidity to balance long-term but i think the private label market will be there. we shouldn't have quite went wrong with the private label market around the c.e.o.'s.

it had nothing to do with the private label securities market but the actual underlying notes have been going on for i guess 30 years now that the -- that they are there and true and the investment of others, i think it can get there. that would require more sustainability and tried and true underwriting, so i think you need to bring the government down and private label down dramatically. i think it will go -- will it go away? maybe, but i think that's a decade or two transition not a five-year transition, because the amount of investment capital to sustain the housing market isn't going to come without liquidity. i don't want to say a certain percentage because people will then try to draw a line and get there but clearly the goal should be the least amount of

support you need for the goal you want and i think the goal is specific enough in the united states that in an economy that used to diversify growth which was going on in the mid 2000s, you've kind of got it where you want it so it should ease down. i think it should come down a small amount but the question is how much and when? >> i know you have to run to your meetings but i'm going to take a last question as a follow-up, so i see your point that an abrupt change in the housing finance system would be a bad thing given how fragile the economic recovery is right now, but we're not really talking about what the new system is going to be looking at. doesn't mean wonderful to go to the new system but we're not putting the framework out there. is that harder for you guys or make it harder to device the dwishese the strategy you have

for lending? >> i think if we can get with the cpfb, with the director and others and the qrqrm, the basic, everybody has had their perfect answer as to a whole bunch of thing. if we could get that rationalized you could see the various points form in private capital coming back in. so i think that's the near-term. longer term, secretary geithner put out a proposal 17 months ago, 18 months ago, i think that's lost behind. but i think then the near-term need so sort of finish the discussion around the core aspects of dodge frank and when you get that done and have that viewpoint then i think it's time

to have a discussion but a lot of the discussion -- frankly a lot of debates around the end points narrows on the end scheme of the government being an ensurer of way out tail risks, that's a little bit like every other -- the answer is not that different, the question is between here and there how to make the transition so i think we need clarity on these straight-forward set of topics not straight-set of outcomes. then a three or four-year discussion to get it right. potentially 13, 14, are 15, and then you start to implement it. but you have to give a lot of warning to americans and the markets because you can't change this overnight, because you don't want confidence to go backwards because of this. so even a debate about mortgage -- the outcome may be far more serious than the outcome of the

change. but part of it is just to let this ease into the psychology of the american buyer and so they can adjust their viewpoints. >> that sets up nicely with the pabble, because i think they will be grappling with the new system and what it will look like. before you leave i want to say to folks, brian is going to leave and then we are going to have the panelists hop up on stage in about 60 seconds, so if we can kind of get you to stay in your seats until that happens, that would be terrific but before that i want to thank you, brian. i know you have a busy schedule and we appreciate you coming here and telling us what's going on with the bank. >> thank you for sponsoring this discussion and thank you for your participation. >> thank you. [applause]

>> at that same event policy leaders examine changing policy. as they discuss the future of homeownership and breesing the accessibility and the affordability of the rental market. and the former director of the treasury's department ellen. this is 45 minutes.

>> welcome on behalf of all the panelists here. i want to thank the brookings institution for having us here and discussing what i believe is one of the most important issues going forward. i cover cnbc. i cover real estate and mostly what all these panelists talk about so we're going to give each a chance to do a short presentation and then give the audience to ask questions as well. so we will start with this side. >> thank you. >> thank you for the chance to be here today. the topic is what's the future for homeownership and there's really two answers to that. what will be the future and what should be the future? turns out what should be the future, i want to echo what brian moynihan said, the pace of the united states. i think that's fundamental to the degree to which we recover

in housing markets across the country. i have been to a variety of different markets for events 20 sort of look at this. sacramento, phoenix, columbus and the nature of the recovery differs greatly but the pattern that emerges is one in which the broader based economies recover better than those which are narrow and the reports cannot be overstated. the second which doesn't get talked about as much which i think is very important to the future is immigration which is central and one of the underserved policy topics in the united states. the native-born population of the u.s. doesn't have replacement fertility rates so all future population growths comes from what we choose and this is the issue over the longer term, so those things strike me as central as to how

it will work out. seems to me we have a couple things. first is to recognize it is time to look forward. this crisis began years ago now, and i was once in the camp of designing very clever policies, i promise you they were very clever. al solved all these problems, but more policy and inknow vacation and programs and intervention i think is now making it too difficult to figure out what the rules are and move forward. more policy innovation. that is making it difficult to figure out what the rules are. it is time to let markets clear. that's point number one. the example is the basil three

zero courts and the implementation. if you look at the credit implications of those rules verses normal lending circa 2001. we're on track to thrive for 25% fewer mortgages then if we have the standard for 2001. it is happening right now as we go forward. what are we going to do? providing shelter for americans should be the central focus. those in need of shelter should have opportunity for that. i believe there are two things that will end up being true. americans will not give up their deep love of the 30-year fixed mortgage. maybe second behind children.

we know that the model is broken and we have to, but something different. whether there has to be a friend end subsidy. it may turn out that that is true in a weak housing markets. do not subsidize in an open-ended fashion. not toward those who become heavily indebted. let's have something that rewards equity investments. that is briefly the lay of the land. >> my name is janis bowdler. my brief opening comments --

demographics in this country are changing and that has huge implications for the housing policy and our service and our policy. those borrowers don't just look different. they have different credit profiles from what we have seen in earlier generations. we know how to do it sustainable home ownership right. let me touch on each of these issues. the demographics issue already came up. let me put a fine point on this. 70% of household growth will be driven by households of color.

half of all first-time home buyers by 2020 will be latino. there is no one ethnicity that dominates currently. we are seeing a dramatic shift in our population. if the systems cannot accommodate that, we will end up with lopsided policy. very different profiles. we have to think about meeting these households where they are at. latino families have seen double-digit unemployment for a couple of years now. latino families lost two-thirds of their wealth because of a decline of home values.

that's a different profile. think about what they will meet when they enter the market looking for a home. think about where our students are. i saw a report that student loan debt is going up $3,000 a second. they are overleveraged already. their credit profiles will be extremely different. do we just shrink the market or think creatively about how to make sure these borrowers can be accommodated. that brings me to my last point, which is sustainable home ownership.

our conversations have been dominated by the responsible borrower. we make sure only responsible borrowers are able to get a mortgage. that question implies the run-up to the crisis, we can debate the causes later until we are blue in the face. it implies a simplistic answer to the crisis. that ignores the systemic issues that we were dealing with and makes it a more simplistic answer then will we know is a complex situation. the right question is, how do we

take those models and get them to scale so that we can build the most inclusive market possible? so they are able to get a loan. we are not talk about fancy and wildly creative things. we are talking about 30 year fixed mortgages. we have seen that it works. it only behooves us to grow the pie. as we think about our immigration policy, we need to think domestically what is going on with immigration debate. if we see 11 million people in

this country earned a path to citizenship, that will have serious implications as housers. we need to be thinking about that as well. tom? >> he has slides. >> i have a few slides i want to run through. my name is tom deutsch and i'm with the american securitization forum. i want to put in context where we are in terms of credit availability. just to provide some backdrop of where capital comes outside the banking sector. think about mortgage lending.

you always do with the local banker. those days have been gone for a while. most of the credit availability does not come to the banking sector. the capital does not come from bank of america's pockets. knows is coming out of fannie or freddie or fha. this provides a backdrop of global securitization around the world. the u.s. is a heavy user of credit products. europe is a distant second. it gives you a backdrop of the credit availability.

this gives you some backdrop that the markets in the united states have come back to an extent if you look at the various asset classes. not as many people buying cars. the market is functioning. most of the student loans are going under the government's balance sheet. different loan obligations -- this data is a little bit old. $50 billion and that market is rapidly returning. this is the slide that everybody talks about, the dramatic change in how mortgage credit is made

in the united states over the past six years. securitization of volumes have gone up by $300 billion in the past six years. private credit is a huge volume. $700 billion put through the private label security system. $22 billion is overstating it. of all the slides i have, this is the most telling about where the credit is coming from. it's coming to fannie and freddie and fha. 90% of loans are effectively

being guaranteed by the government. it is not just a u.s. phenomenon. europe does not use a government-backing program. there are some there is backing stithy banking sector -- there are some -- much is retained on their own balance sheet and their pledge to the european central bank. that's not fannie and freddie-like but still has a government backdrop. japan, australia, rbs is part of their markets.

that gets you back to where the u.s. is now. you have an outstanding mortgage stock in the united states. some of this data is a little bit dated from 2012. but it gives you some snapshots about where the delinquencies are. something like a quarter have an underwater nature to the mortgage. there are still some challenges outstanding in the markets. where is the credit going to come back into the system outside of the fanny-freddie model? there are lots of calls. you hear from jeb hensarling.

fannie and freddie and the fha have to be drawn back in some way. how do you do that? this provides at least some of the basic high points of where is it that the private capital is going to come from. if you have a pension fund, you put that money into the u.s. housing stock market. do you lend that to borrower? do you want to loan money to people at 4% to buy a house? the government may be doing that. the private markets say they will put the money somewhere

else. kind of japanese product. the liquidity it moves pretty quickly. you'll start seeing the private capital come back in. that creates more risk for the money you put back into the market. that's a quick overshot. think about the 2006 volume. how do you bring some of that back? do we want $200 billion? $300 billion? >> i want to build on some of the things that others have said already.

a couple of additional points about why we should not settle should 10% less than 2001 level mortgage market. we do run the risk of facing future policy on a very strange last eight years and we should not be doing that. leading beside the aspirational issues, if we do not keep the housing market ladder robust, it becomes difficult for people to move up and for people to move

out. that has significant effects on the economy. the boomers are going to release somewhere between 10.5 million and 11 million homes in the next 10 years. who is going to buy those homes? if we don't have a system to buy those homes, it is going to be a difficult transition. it is different in different locations. an interesting implication is for years we have talked about the importance and this was a critical element during the impression when fannie was

created, the notion of having a housing market that was the same all across the country. now we are recognizing we have different markets. what does that mean for the housing policy? that is a huge question. i want to talk about rental. one reason we ended up with a push into home ownership -- the crazy boom of the early 2000's was heavily a refi boom. we were doing rentals so badly.

it is time to recognize that and to fix that. for a third of american households are renters. million renters will added in 2011. this is an even greater percentage at the lower ends. vacancy rates could decrease to 4%. the number of low-income renters has or grown but we have lost 12% of the low rent housing units. we are due to lose another 900,000. we need to fix this problem as well as the home ownership problem. they are two parts of the same coin. almost everybody rents before they own and many people rent

after they own. i have four points. we have to fix the simple availability of a lower rent. we have to stop the continuing loss of affordable rental units to conversion of demolition. we have to figure out how to have consistent financing for non luxury and smaller buildings, which is work a huge percentage of the affordable stock is. we to think about some alternatives between rental and ownership so that you can have

shelter and some appreciation but you do not as acela have to take on the full loan. >> brian mentioned resetting policy. we have a tradition of promoting home ownership at the policy level. google is a powerful thing. you can fine speeches that are indistinguishable from each other. a home was a man's place that we needed to support after the 1990's.

it was bipartisan. "we strengthen our economy and build better citizens," said president clinton. some of the statements are overstated on the importance of home ownership. it peaked in the middle of the last decade. some countries have similar home ownership rates than we do but doesn't subsidize as heavily. other countries have lower rates. it is not a key ingredient for a strong economy contra to the last hundred years of speeches

would suggest. it is how we should apportion the subsidies between home ownership and rentership. i want to focus on the tax side. for's the biggest source subsidies. the mortgage deduction was about $80 billion a year. the exclusion of capital gains was about $20 billion. that is a significant amount of revenue. there is scope and need for rethinking the distribution of our net subsidies across home ownership and renting.

you look for a market failure and there are some in the literature. there is some evidence that home ownership increases tenure and investment in local goods. i would offer some counterpoints to this. it is difficult to know whether home ownership is leading to these positive outcomes. it is a difficult thing to know. it does cut both ways. this was alluded to before. it could make you less mobile. that suffers from the same problem as the counter studies but it does cut both ways.

if we think we should be leading into home ownership, we are not going about it the right way. we have a very clunky policy. is subsidizing bigger homes and more energy used. there are better ways to do it. there are a lot of plants on the table -- there are a lot of plans on the table. >> thank you. we will take some questions now. the answers tight -- keep the answer is tight. i want to get back to the point

-- if you take financial security out of the equation and that, people are getting into a home as an investment, you begin to talk about subsidies. when you talk about getting rid of subsidies, do you believe the fed's purchases are a subsidy and a subsidy that should continue or go away? >> i think they are a subsidy. the goal was to have a channel to expand economic activity in the united states. i would argue it's been minimally successful.

it's hard to do and it will signal success. it would mean that we're growing. that will happen once the fiscal side gets going. let us take a moment to pray. >> should there be more -- we talk about renter nation. now the attitude of the newer generation is that renting makes it more affordable with less risk involved. then why bother? do we deceit rental subsidies -- do we need to see rental

subsidies? >> take a look good the numbers. it will cost about $131 billion in 2012. that's more than all of the hud outlays. they were $40 billion. which is need to equalize some of the stuff we are doing already. i would get push back on this from doug. the only part of the panoply of programs that is producing rental housing for lower income families is the low-income tax credit. >> you are so wrong. >> new construction is down. it is producing it heavily in

terms of rehab and renovation. an awful lot of that stuff is in markets where if the use restrictions are allowed to expire, it will be lost for low-income families. another piece that got lost about investor owners of small properties is that one to four- family buildings that have relied of rental units in them were always financed as single- family homes. it is hard to get financing for that kind of housing now. a lot of it needs to be rehabilitated or refinanced. we need to figure out how we

can effectively finance those small buildings. it is up to 50. that is not a subsidy but paying attention to how the financing system affects rental, and rental that is not luxury rental. >> it will be largely hispanic. during the housing boom, hispanics and blacks were targeted by mortgage lenders and in some cases terribly fraudulently targeted. do you believe the safeguards put in place are sufficient going forward to serve the population that is coming in? >> i think dodd-frank did a great job of taking care of the retail abuses that we saw.

i think we will see a better market going forward. how to make sure good products are available. we still need to make sure there is enough liquidity to make good products available and enough incentive for those good lenders to market and locate in the neighborhoods where communities of color are. predatory lenders moved in to fill a vacuum where could it lenders were not serving. we need to make sure the housing finance system makes good products acceptable -- accessible going forward. >> counseling is critical. it's been almost entirely

supported by a combination of the government and philanthropy. the lenders and investors benefit also. the system has to be a lot bigger. >> we are getting the wrap take questions from the audience. this gentle man right here raising his hand. >> thank you. i was intrigued by the presentation because he made the responsibility of everybody else and not the financial

institutions. this crisis did not have to happen. to many people were incentivize the wrong way. nobody had any skin in the game. if we didn't go back to the past, will happen again. i would like people to address what the financial institutions can do to rectify the future. have skin in the game. it was like musical chairs. >> there is massive regulatory change in the wake of the crisis. the talk about dodd-frank. there'll be two major landmark pieces of legislation,

"qualified mortgage." does the borrower have the ability to repay the mortgage? that is the simple question. how do you measure that? you can put in a simple metric. there is some rumors that may end up into the rule. the borrowers have all kinds of varying characteristics. there could be 25% debt to income ratios. they may have a- to income ratio -- a debt-to-income of 100%. there is a challenge to create

the rule. the people who invest that money want to know that we have made what is a qualified mortgage. they do not want to take the risk it turns out not. >> should never buy have a stake in it? people were just selling these loans and nobody had a stake in it. >> that is part of the second regulation. >> the question about what can banks do. i wish he spent more time on that. bank of america has made a commitment to do principal

correction on the most amount of portfolio that they can. they can do principal reduction on loans owned by fannie and freddie. for those loans that they can, they are taking a hard look. i thought he said the average was about 150,000. that is much more than we're seeing other banks do. the commitment is more than other banks are doing and they deserve credit for that. we have 11 million home owners that are underwater. >> i served on the financial crisis inquiry panel.

irish know when to adopt simplistic explanations of what went on. it took a lot of factors to produce the perfect storm. i encourage you to read "my descent." >> what are the conversations that you are having with the banking industry and local and state governments in create environments with regard to affordable housing? why are we looking to places like japan with multi-family units and very affordable? >> i am the eco friendly -- on the eco friendly units, to the

extent we're doing new construction at the lower end, there has been a move by towards much greener buildings and a recognition that you can keep the operating cost down and you can make an enormous dent in the affordability. in terms of interest of the governments in affordable housing, i think at the state and local level, there is a huge interest. the places that have been hardest hit by the housing problem have been hardest hit in their pocketbooks. these are the places where they are having a problem paying police and firefighters as well as taking care of huge

quantities of vacant buildings. >> we have time for one more question. >> it seems that there are many forms of stimulus for the housing bubble. the speaker talked about the government subsidies in forms of taxes and property tax deduction. the fiscal cliff is an opportunity -- there hasn't been enough discussion of an intermediate discussion supporting home ownership and keeping the deduction for your first home and not your second and not the one you are speculating to flip on. that would seem an easy solution in this crisis, to eliminate the tax subsidies for the home buying beyond the first

family home. >> there are such proposals, roughly similar reforms for capping a it $1 million on principle and capping it at 5 letter thousand dollars -- $500,000. limits the size of the mortgage. it did from a deduction to a credit. that probably cut it in half and should sit on the distribution to the lower end of the income distribution. it doesn't help you if you do not itemize or if you're in the lower tax brackets. you kind of shifted down and make it less regressive. they are out there. whether it passes will be politically challenging. any attempt might be an across- the-board limit on deductions, which has been proposed in

different flavors. >> that is all the time we have but i would like to thank all the panelists. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> not the impact of the fiscal cliff.

after that, how the fiscal cliff make of that medicare payments to doctors. the president obama and congressional leadership reaction to the connecticut school shooting. >> incoming republican conference chairman looks at the fiscal click and how republicans and democrats could come to an agreement. she also talks about republican priorities for the next congress. >> strangle me, it take things from me. >> he is on that bus. >> they are just as good as gold. >> as all of us were certain to see people coming out in talking about their experience of this

phenomenon that so many of us experience in one way or another and had no words for other than adolescents and growing up. when people were starting to say this is not actually normal. this is not a normal part of passage. i think there was a moment where there was a possibility for change. they decided to start the film out of the feeling that voices were bubbling up, coming up to the service -- to be surfacing this is not something we want as our culture. >> she gathered essays and personal stories together. hear more said a night at 10:00. buy more of a television online. like us on facebook. now a discussion on the impact

the so-called fiscal cliff negotiations could have on the tax filing season. this is about 40 minutes of. host: we want to welcome nina olson. we wanted you to come back before the end of the year to talk about a topic encapsulating washington -- the fiscal cliff. what should people prepare for as they think about their taxes next year based on the uncertainty congress has not resolve the issue? guest: i think it is difficult for people to prepare for the situation. some people think if the tax rates go up, tax rates go up that instead of waiting until the next year to receive and, if they have any control, they will accelerate their income

into this year in order to be able to have the benefit of lower rates. my personal feeling is that it is very difficult to second- guess what will happen right now. it is very difficult for tax payers. i do not know how they can plan for it. host: what is your job at the irs? guest: i a mandated to help taxpayers solve their problems with the irs. i have 2000 employees a run the country to help with specific cases. then i have a group of people, myself included who advocate for systemic improvements to the tax system. congress told me to give them a report. i make legislative changes. we are identifying what is the most serious problem for

taxpayers, and that is the complexity of the tax code. that is implicated in the fiscal cliff and all the things in the news today. host: we go over the cliff and the tax cuts go away, taxes go up for middle-class americans. is it retroactive to this year, or will it take place next year so it is 2014 when we see the big bill? guest: there are three components. what is the expiration of the tax cuts. that will be that the withholding rates will change on january 1, 2013. now, that can be mitigated. if they saw the deal was imminent, they can hold off mandating that change. the other component that will have an effect on people for

their tax bills is the extender part of the fiscal cliff. there are all sorts of provisions every year that congress to renew. some are the most popular breaks. in that extender package is the alternative minimum tax. the exemption amounts, which keep millions of taxpayers from paying extra tax under the alternative tax system -- that expired on january 1, 2012. the law of the land as of right now and when you go to file your return in 2013 will be very drastic in terms of 30 million- 60 million taxpayers affected by this. host: one of the key questions lurking is what will happen with the alternative minimum

tax which was implemented a denture 1969. a way to make sure the wealthier americans pay their taxes. over the past 40 years it has changed to affect the majority of americans now. guest: there was congressional testimony that 250 tax payers who made over $200,000 that year did not pay any taxes. to put it into reference, that is about $1.4 billion today. you had 200 million errors that did not pay any income taxes at all. congress enacted this alternative tax system. they said, figure your income tax by your regular taxes like you and i all do.

some of the breaks you're getting on to your regular system you have to add back in. if you owe more tax under the alternative system, you are going to have to pay the higher amount. over the years congress brought other things under the concept of tax preference. you and that might think of tax preference as something like intelligent -- intangible drilling expenses for oil and gas investments. dependency exemptions. all sorts of things -- state and local taxes we write off are defined as tax preferences. that is where you get the middle-class being brought in. there are 30 million taxpayers that will be subject to the alternative minimum tax unless

the extenders' go through. another 28 million or so will have to go through the calculations of the alternative minimum tax in order to figure out they are not entitled to it. the fiscal cliff and what impact it has done you, your family, your business, and your taxes. we will get to your phone calls in a moment. you can also send us an e-mail. we are also on twitter. let me go back to one. s come up time and time again. if you make $250,000 a year filing jointly, your at the lower rate. the $100 or anything above -- guest: it is just what ever you

make above the $250,000. that is the marginal tax rate. the highest rate will be the 39%. host: for those individuals, what should they prepare for? guest: they could prepare to pay more, or if they have control over where they get their income, they can say pay me now rather than later. they can push it into this year to get a lower rate. again, that as soon as so many of our tax payers are wage earners, they do not have the ability to do that. the paycheck comes when the paycheck comes. you are really looking at it and saying i do not have any control over the situation. that is one of the fallout from

all of the uncertainty. tax payers seeing this makes them feel like the world has gone nuts and nobody is thinking about their lives and the decisions they have to make. that erodes confidence in the tax system and leads to noncompliance. host: frank is joining us from arizona. good morning. caller: thank you for your service. i have a question for nina, and really a omment. it boils down to -- i know that our system of taxation is it written into congressional authority, but i have an mba.

i would have failed every class if i would have taken the approach that our government has taken in solving these problems. i do not understand it. it does not make any sense to me. i am a vietnam veteran. i am a very patriotic person. the business of taxation and the political reason in the for arriving at the amount of taxes that we pay, i think it is just a game. what i am wondering is, is there anybody really trying to straighten out washington? washington is our problem. host: thank you, frank. guest: i would like to think i am not part of the problem and i am part of the solution.

i do have a very small piece of real estate and in the bigger problem of taxes and our budget. my congressional mandate is to speak up for the taxpayers of the united states and inform congress and inform the irs and advocate before congress and the irs a about how to make the tax system simpler for tax payers. i do not get a seat at the table to say how much revenue the government should it need or should raised. i am left with, what is the system congress has devised to raise the dollars. my job is to say, do not make it so complicated for the taxpayers that they are not able to figure out what you are asking them to do. you are penalizing them when they cannot figure it out. what can we figure out to make it easier for the taxpayers.

regardless of how much money the government raises whether small amounts or large amounts, you want the tax system to be as seamless and painless as possible for taxpayers. they will like a lot less giving up their money if it is a painful and confusing process that makes people feel like they are in the gotcha land. host: and if you are an account or cpa, what it must do you give them? guest: the cpas and attorneys and people licensed to practice before the irs, they are looking at the alternative minimum tax to see if they can project. n that if it does away what impact that would be on their clients. it can be quite sizable. that is one of the problems with the indefinite ness.

nobody wants to pay more into the government then they need to. you want your money right now. it is difficult for taxpayers. host: we welcome our listeners on c-span radio. our guest is nina olson. mark is on the democrats line. caller: you just ask one of my questions. you guys do a great job and i have a lot of cases there. my question is, 2012 -- i have a lot of people who want to file early. should they wait until there is a decision made? i have a lot of questions on the amt. i do not know if the forms are ready yet, so i am telling people to wait. do you foresee an extension of the bush tax cuts and letting the 113th congress decide?

do you see any kind of raid in 2013? host: can you stay on the line? guest: there is a lot in that question. the first is about the alternative minimum tax. this is one of the real difficulties that will come up again to the filing season. this inflation adjustment that keeps 30 million people out of the alternative minimum tax, this has come up before pretty much every single year. congress only anax this patch for a one year duration. the irs is used to the fact this is going to expire and the legislation often gets past in the month of december, which is really no way to run a railroad but we are used to it. in the past we have worked with congress and they have said, we

will get around to passing it. the computers, assuming there will be a patch in the fact that will keep 33 million people out, and people create forms as if that is going to happen. the software developers that create commercial products that lots of people by to prepare their taxes are working on that assumption, too. this year it may well be that assumption is wrong and congress does not pass the patch until into 2013 into the filing season. most people, about 60 million people, we have 140 million individual taxpayers, almost half of them will not be able to file their returns until we have read coded the tax systems, which the irs is projecting to be the middle of

march. there are some groups that have very easy taxes and would be easy to file. if he went ahead and were subject to the amt tax and you tried to file your return under the new law, which is there no pats, we would not accept your return. we would bounce it back. that is crazy to do to tax payers and practitioners of the world as they tried to help their clients. that is what we are facing this year. last month he wrote a compelling letter to the ranking members of the ways and means committee saying that essentially, look at what you are going to do to us if you do not enact the patch. it is not us, it is the 60 million taxpayers who will be screwed up in this process. on the bush tax cuts, i never predict what any congress will do. i really do not know whether

the negotiation parties will get together and pass what the president once, which is an expiration of the tax cuts for $250,000 and above or whether they will move them over to next year as a whole thing with a limited period of time to try to renegotiate. i do not know what will happen. of the things going on in the fiscal cliff -- we have not talked about the third part of the trifecta which is the sequestration and the budget cuts that would come on the federal government. the bush tax cuts is where we have the most flexibility because even if you cannot get a deal by the end of the year, the treasury secretary has the ability to stall changing the withholding tables thinking in the next month or two we would get a deal and you would change the withholding table to only

one and it would be acknowledging what the rates should have been from the first of the year. host: let's go back to mark who is still on the line. as somebody who deals with taxes every day, there could be an overhauling of the tax code. what recommendations would you give washington? caller: i think it is a good idea they have always discuss the flat tax. there are too many lobbyists who would oppose a flat tax. i think it is something congress should explore a little bit further in depth. guest: i think it is interesting when people talk about the flat tax. we have an advocate website where we ask people to submit their tax reform comments. over the past two years we have

had this website, a lot of people have said what i want is a flat tax. i think the rate up to $25,000 should be 5% and between 25,000 and $50,000 is 10% and over $100,000 should be 25%. the minute you look at it you say, that is not a flat tax, that is a progressive income tax. i think what they are saying is get rid of all of the deductions and tax me on the dollar amount i bring in as revenue and i will notify make income up to this amount, i can calculate it and it is transparent. now, you have no idea what your actually paying because you do not know what your deductions are and things like that. host: this is from facebook.

guest: i think that the offshore issue is a complicated one. i have to say the irs is being very aggressive on that now as many countries around the world. what of the way you deal with that is to create partnerships with other countries experiencing the same thing we are, that some of their most affluent taxpayers are trying to find ways to move their money outside of the tax system. their information exchange is key. host: next is larry from georgia on the independent

line. caller: i was wanting to ask you, if you remember back to when he was elected he could not fill his cabinet because and none in his cabinet pay their taxes. if they paid their taxes, is there any contract the consigned -- when they go up on social security checks. i guess i will take the answer off the air. guest: there is a contest for everybody to pay their taxes. there is a requirement in the lot. any individual or business subject to the laws of the united states tax system are required to pay their taxes. if i do not pay my taxes, i can be fired from my job. that is a separate statute for internal revenue service employees because we have to be

a denture a better position and more correct -- a more compliant than your basic tax payer. i think because the tax system is so complicated, it is very easy for even the most affluent people to make mistakes and have and never and problems. -- and have inadvertent problems. i will say we have a tax gap that after we get done with some enforcement collection is $385 billion. we know there are 160 million households in the united states. the fact there is $385 billion not collected every year that we think is due, when you divide that it comes out to a cost of $3,300 per household. that is what noncompliance is costing each one of us, which

if you think about it, if we could collect that, that would be a huge contribution to the fiscal welfare. host: easy question on the twitter page -- guest: the main is irs.gov. ours is taxpayeradvooate.irs.gov. we have a system called the systemic -- if you are having problems with the irs or if you have no to something that is estimate that you think is wrong with with the irs is doing, you can submit the comments and my people will look at them. they often will show up lead after the annual reports to congress. host:anne on the republican line. caller: i have a question

concerning how many are in the the tax code. and a comment concerning the fair tax. the flat tax is still based on income. the fair tax would be based on what you spend it. that sounds to me like a lot more fair. host: thank you for the call. guest: depending on which publisher you go to -- our count was there was about 9000 pages. that included pages of language that showed what the law had been previously because you are always dealing with multiple tax years. we all support the entire document into a word processing program and we came out to about 4 million words.

we look at how many changes in the tax law had occurred over the past decade, and it was more than one a day. is there any wonder people get things wrong? on the issue of any tax other than an income tax, many countries have either a value added tax in some form of a sales tax, which is essentially taxing your consumption. many commentators say the united states really needs to look at that. most countries around the world cannot raise enough revenue to run their governments off of a value-added tax. it has to be very high. they usually have a mix of an income tax and a sales tax.

they are able to bring the income tax rates down lower. at times, people have looked at that for the united states. it takes in lot of political will and discipline to get major tax reform. i think it would even take more political will and discipline to rethink our system. we really need to exercise that political will and discipline and really go back to a clean slate and say what do we want to tax, what do we need to tax, and what should our system look like? then figure out how much revenue we want. the design of the system, we really just need to think about. it is difficult to get that kind of thinking. host: danny has this on our facebook page --

did you want to respond to that? guest: that would be fine. where the dollars are in our tax system if we want to save any money from the tax system, they really are concentrated in things we call tax expenditures, and the major tax expenditures are things like the employer-paid health insurance premium, the exclusion from my taxable income of retirement contributions that i might make, the charitable contribution deduction. the exclusion of social security and va benefits from taxation. where the dollars are are in these things, tax expenditures that are run through the code

that the vast majority of taxpayers hold near and dear to their hearts. you're not going to solve were the biggest breaks are in the code. the most savings are going to come from you, me, etc. to me, the one that is going to have the major hit on january 1 for most taxpayers is the alternative minimum tax. if we do not get the patch, it is really going to mess up the filing system which impacts 140 million people, at 80% of home get a refund. the average refund is about $3,000.

if our filing season is delayed, that impacts everybody. the second thing is what happens with the bush tax cuts. you could mitigate the impact if you thought a deal was going to come up early in january or february. them the third which nobody seems to be really thinking about but is an across-the-board cut, and for an office that i run where we would be looking at about a 7.5% budget cut, those are human beings -- that is where the money is going to come from, people with jobs. you put people on the rolls and you have real issues. again, in the order i would say the amt patch, a tie between the bush tax cuts and spending

cuts. host: you have always been gracious with your time explaining this to our viewers. guest: i have been here since almost 2001. host: ed has this question. guest: it could even if you do not itemize but you are claiming the child credit or the child in dependent care credit or if you are taking one of the education credits that we have. taking the advantage of some of these provisions that congress has put into the code. he would fit into the millions of taxpayers -- you would fit into the millions of taxpayers'. you literally may not be able to file your taxes if we have to reprogram our machines. that is where you will not owe amt but you will not be able to file. until we get our machines

correct. that will not be a problem if congress enacts the patch by december 31 because we have already programmed are machines if the patch is enacted. again, think about the amt. it is one of the biggest reasons why people are pulled into the amt, because of dependency exemptions come at the right office for your children -- the exemptions, the write-off for your children. we tried to update a family and looked at by virtue of them having children, by having six kids, where they get pulled into the alternative minimum

tax? they did. they paid a lot more money by getting married and having six kids then if they had not got married and just cohabitated. host: the next caller is from new york, the democrats' line. good morning. caller: good morning. thank you for taking my call and thank you, c-span. i am a widow and at this time my daughter in law and my granddaughter -- i have been supporting them since july of this year. rent, all of the expenses, going to school, etc. would i be able to claim them this year on my taxes? i do not make a big income. i was inquiring if i could claim them or not.

guest: i am not giving you any tax advice. i really cannot do that. being able to claim your daughter and your grandchild as a dependent on your taxes depends on a lot of different things, and one of them is are they providing -- are you providing more than half of your support for them? are they living with you? another thing you would need to look at is your daughter making and the income whatsoever even if it is a small job that she has on the side or a part-time job. that would probably make her ineligible to be claimed by you. the irs instructions are very good. you can go online and get last year's instructions because the rules are not going to change. you can read through that and see whether you can

qualify. host: a specific question about the tax code -- guest: this is where you have a spending program or a social program that is run through the code where congress has decided there are a lot of children that are in foster care in the united states and they want to encourage parents to adopt children because that is better for the welfare of those children and in the long run costs the government less. so, they have a public policy of wanting to encourage adoption. instead of writing a law that says we will cut a check or underwrite adoption programs, they have run the program through the tax code by giving a tax credit out to adoptive parents to offset their costs of adoption.

where you are willing to adopt a special needs child, if the state certifies it is a special need child, they will pay you additional funds even if you did not incur the expenses because they want to encourage this. there is a lot of controversy about whether you should be running these programs through the tax code as opposed to a regular budget. one of the criticisms -- this is one of the reasons why the tax code is 9000 pages long -- it masks the true cost of this program to all the taxpayers. it does not matter how many people participate. the costs could go sky high. it is going to keep on giving until congress repeals it.

each year, congress has to look at it and say how much money are we going to give to this initiative. there are a lot of transparency issues. host: the web site is taxpayeradvocate.irs.gov if you want to get more information. we have been putting on the screen a phone number that you can call to help you through the process. richard is joining us. good morning. caller: good morning. i agree with the caller that said the problem is in washington. congress, the administration, absolutely. we have spendo-crats and klepto-crats running washington. we have $16 trillion in debt, a we have $16 trillion in debt, a deficit of $1.20 trillion, and