then pretty soon, congress is going to start to raise the rates and capital gains will go right up with them. turns out he was right. it was to make sure our progressivity was the same. >> just a little addition to that. exactly agree with what senator packwood said. there was a provision in the bill since we got to the magic number of 28 for both capital and earned income. we had a provision in the bill that said if the generate ever went higher than 28%, the capital gains rate would be 28%. in other words, you would never tax capital higher than 28. and i remember oh, might have been four months after the passage of that bill, people were saying we need differential capital gains and my point was if you take a differential

capital gain, you're going to end chuck grassley up with much higher, generate. and indeed, that's what's happened when president clinton came in. capital gains went back in and the rates went to 39%. and seems to me that there's a lot more coherence in a bill with a lower rate that treats capital and labor the same. >> thank you, senator. >> thank you, both, for coming. i want to start with something you both touched on in your opening statement, but to get more specific, and so i'll start with with senator packwood, but i'll ask senator bradley the similar question. it deals with the robert "bob" w. packwood process of presidential reform. do you think tax reform would

have happened if president reagan had not made tax reform a priority in his administration and a follow on and then isn't it going to take at least that much commitment or involvement from president obama with with his own party in congress to get a tax reform bill enacted and then for senator bradley, could you share your thoughts on the importance of presidential leadership and accomplishing tax reform. senator packwood. >> senator reagan was immensely helpful. if you're asking me is is it absolutely essential from day one and pushing, i don't know. it's like saying this committee couldn't reach its own

conclusion without the president, but it was very helpful and one morning, there was a small breakfast at the white house. just danny and me and the president, vice president, jim bakker. it was before, bill had passed right before conference and the president took denny and me aside at the end and said if you can keep this bill revenue neutral and get the rates you got, you may count on my support no matter how you get to those rates, so that's how critical it was. we knew we had his backing. absolutely. but bill touched on something and that was about the treasury. jim bakker was up to his neck in negotiations with us and dick darmen because in the last seven days, where this was all done, he wasn't here. he was in tokyo with the president on one of those economic multination meetings and all of the financial negotiations for the administration were done by darmen and on the last paragraph william "bill" warren bradley of my testimony, you'll see an interesting exchange on the phone between darmen calling bakker in tokyo and telling him

what to tell the president. so, is is it pretty -- i don't know if it's critical, is it immensely helpful? yes. >> senator bradley. >> i think presidential leadership is essential. i believe there are so many times when things happen that you need to be able to get the white house's clout. that can be man fastifested through the treasury secretary. it's not you talking to the president all the time. but i also would say, going back to my anecdote, i think the president would viscerally in favor of lowering tax rates because when he was an actor, he had a 90% rate. 90% and i would viscerally in favor of this because of the asset of a basketball robert in other words, closing loopholes had traditionally been what democrats were for. lowering rates were traditionally what republicans were for. the question is can you bridge that divide and bring something

together. the answer is yes. if reagan had not said i put my -- on this, it would not have happened. >> and bill touched on something right there, senator grassley. froms democrats wanted to get rid of unjustifiable deductions. republicans are not adverse to going along with that, if they can use the money to lower the rates. and president reagan said i'm -- re reductions and produced a potful of money and you can't raise revenues. to lower rates and you had a willingness, to reach the same conclusion. >> last question deals with something we have to tackle here in a basic way. so both of you in your view, how important was it that the '86 bill was comprehensive tax reform package rather than focusing only on business or on the other hand, individual reform and getting support for

its passing? >> for us, it was critical because we needed a lot of the money we raised from business. don't confuse rates with revenue. we raised an immense amount of revenue, more than we raised from businesses before, but we lowered the rates and we used a lot of their money to wholower rates from individuals. i would have misgivings about trying to do just business and then later on, we'll try to do just individual. i think you're better off to try to do both at once in one big bill. want to use the grandeur again. you come out with a big bill that you've agreed upon and if you do, touches the point bill and i have william "bill" warren bradley talked about, before the bill ever gets to the floor of the senate, you're going to have immense newspaper support, academic support across the board, liberals and conservative and you will be glad in retro retrospect that you combined it all in one. >> i agree. we should, you should, you should combine both corporate

and individual. p because if you just do corporate, it's not like you're going to have an easy path. if you do anything that's serious. for example, when we did the individual and corporate essentially, the business community split. large percent of the business community to the point. another segment of the business community was against reform. guess what was the dividing line? what tax rate they pay. >> if they paid less taxes because the rate went from 50 to 28, they were poor. it made up more. they were against it, but the key was constructing a coalition that included a significant part of business. this is where bob was brilliant and so, i would argue that that's very important.

you also might get through a point where you might have more flexibility if you do individual than corporate because they both are essentially two sides of the same coin. for example, you might decide that you want to cut the corporate rate to 10%. or 15%. and you might want to off set that by increasing the taxes on the individual side. on dividends and capital gains. that's what they do in denmark, for example. you wouldn't have that flexibility if you didn't have both individual and corporate put together in the same bill. >> senator isakson. >> thanks for being here. i was a real estate guy in 1986 and had a couple of robert "bob"

brokerage companies. first of all, thanks for being on the nine who voteded against selective treatment from the passed law. i think that's right, both of you voted against that, if i'm not mistaken. looking in a rear-view mirror, had some transition been applied to those investments made prior to '86 so the treatment would be properspective, did you ever think about doing that or if we went into something again, could we do it that way? >> he's right. if there was an industry we hit, it was real estate. we drove the -- out of business,

the principal financers of real estate. and we did not do it to, we did not do it retro -- we did it retroactively. we found william "bill" warren bradley passive lawsuits, for rich people to shell their money and pay little taxes. we got rid of it, but senator, you're absolutely right. the real estate industry was hit hard and the oil industry got it particularly favor as the deal i made, because i was going to need their votes later on on the floor in a particular issue. >> senator bradley. >> i agree that real estate industry paid more. if you phased it in, of course you have not as much revenue and you also skew the distributional tables. but in records to real estate, we keep in mind that was at a time where there were i would say real estate tax shelters that were not, investment was not based on the need for apartments or office space, but based upon theville taxpayer getting a tax deduction off set all the other income. i had a call sometime in this period from paul volcker. who has been the federal vefr

chairman. he said you know, i really like what you guys are koing up there. i said, why is that? he says because i can't get at these banks who are simply throwing money at uneconomic real estate investments and it has to be through the tax code. so, i think that's one of the reasons, at least for me, that i felt we were on strong ground. >> i think you did the right thing because it was abused. my point was if you could have transitioned prospectively in terms of the passive loss rather than claw back, you might have prevented the collapse of the savings and loans and creation of the reefs, which is what the ramifications were. >> i think you're right. >> one other question -- collapse because of the tax reform. that was the last straw, i guess. that would be it. >> maybe that's a better way to say it. >> my other question is did you consider in 1986 or have you thought since about going to a retail sales tax or con sumts tax?

>> i've thought to myself, what kind of a deal could have been between the republicans and democrats that would result in some increased revenue. i thought, what happens if the democrats were to offer this to the republicans? we'll go to an electronic funds transaction, which i prefer sales tax, and we will cut in half the corporate and individual income tax.

and you will allow the tax however to produce an additional $500 billion in revenue. now, the republicans are thinking wow, you could cut the income tax in half and corporate in half and we're not really, we've already spent a supportive con sunlgts tax any way. is that kind of a deal possible? we'll go to it one day. there's no question in my mind. the danger of any kind of a con sumgts tax is probably republicans are more afraid of it. it is so easy to raise. need a little more money? raise a half a percent. take a look at your sales taxes in different states. this started 1% or 2% 30 years ago and are now at 8 or 9%. look at the european value added taxes. i don't know if any major country in europe that's not less than 20% on the value

added tack, but to answer your question, yes. if you could combine it, i think there's a possibility that you could possibly, maybe see the republicans shaking their heads. you could possibly make an argument for some increased revenue to change dramatic reductions in corporate andville. >> rell quickly. senator bradley. >> i think what senator packwood said about electronics transfer tax is extremely interesting. you know, if i were the chairman, i would task the joint tax committee to an analysis of that in terms of revenue that could be generated. because you've got to know what revenue you're going to generate before you cite how you're going to spend it. on the consumption tax issue in my testimony, i make a suggestion, baseically, the point is that we should tax less those things we like such as wages and tax more those things which are bad for us and dangerous, which are pollution

for example. social security, medicare, unemployment. and a gasoline tax. or a tax on things like volatile organics or sulphur dox ide or lead or whatever. just a numbers game. if you did that, it would be have profound impact. if you were to cut both individual and corporate social security employment tax, you would in essence be giving individuals a tax cut and corp. races a tax cut. at a time where jobs were need ed ed.

the fact there's this 15% hurdle, it affected different industries in different ways. if you're mckenzie or microsoft or google or you want to hire real talent, you pay them more because you really need that talent so that you pay them more to off set the employment tax. if you're working the lumberyard in oregon or somewhere, where there's a surplus of labor, the you don't pay them more to off set it, so the irony is that it ends up hitting the lower paid guy, the struggling industry more than it hits the person who's in the consulting or technology industry. so, reducing those employment taxes are, have many benefits. for example, a 24 million people people, 25 million people

working part time now could very well be brought into the workforce. you could find people that weren't working to be brought into the workforce, so that's the good news. the question is, what are you going to use to provide the money to do that? and you know, i know the committee has looked at it. it's probably not possible. but who knows. they said tax reform wasn't possible in '86. you could take a dollar gasoline tax or you could take a carbon tax and use all that money to reduce those employment taxes and i think the net benefit would be greater job creation, economic growth. it would hit certain sectors more than others, obviously. but let's just take the dollar gasoline tax. never could it be offered would it be a better time to do it than now when prices are where they are, but say you phase it in as you suggested you do on the other things. if you phased in a gasoline tax over five years and the automobile industry was going to

improve mileage efficiency, at the end of that five bill nelson years, it's the individual would be geing more miles with less gasoline, they would be paying no more for gasoline with the dollar tax that could be used to reduce slow security taxes and employment taxes than they're paying now. without it. >> senator nelson. >> improve the roads and bridges that are crumbling. this has been a fascinating discussion for me and thank you very much. i take your ideas and try to put them into the day's politics. off setting, lowering employment

taxes and going after something like nitrous oxide and that's much more difficult today because of the climate debate. getting the votes. i think about what you said, senator packwood, that president reagan was so critical in tamping down the opposition is among republicans in the house. well, how are you going to get president obama to tamp down that opposition? today, just over the kneejerk reaction to some republicans to the word.

so, it's hard for me to make the transition from your success in '86 to today. and it really puts a real burden on the shoulders of our chairman and ranking member. >> well, that's why this committee, at least in bill's -- there is much more than nonpartisanship in the senate than there apparently is today. i can't tell you whether or not you can put, 1986, it appeared to us, just as difficult to put it together as it appears to you now. there are different issues than we had then. and nobody can make the right circumstances. you can't buy them, wish them, coerce them. all you can do is be around when these circumstances comes and hope you can take advantage of it. maybe there's a possibility. but if at the start, we're going to say the republicans say no bill, if there's any revenue increases total and if the democratic position is no bill

unless there's some revenue increases, then you might as well spend your time working on asia pacific trade agreement or something like that. >> you know, our problem thus far since a lot of your success has been we're in this kind of herky jerky patch at the 11th hour. tax extenders, an example. you want to give us your thought about how we take this illogical approach to taxes? do you have to do it in the overall global kind of big deal in order to get it done? >> tax extenders are lobbyists about how we take this illogical approach to taxes? do you have to do it in the overall global kind of big deal in order to get it done? >> tax extenders are lobbyists through employment act.

>> yes. >> you have to bite the bullet and make some decisions. what should be permanent, what shouldn't be. there are always questions of revenue, so you want it to go out a year or two, but not three or four because that would affect the revenue. and i just think that you know the practical reality is that people would probably say extenders are necessary. but they're necessary only because fundamental choices are not made about the tax code. what kind of tax code do you want. what do you want in, out, not what you want in this year because then we all know you lobbied every year about the same thing and quite frankly, it becomes boring, i would think. you know the argument before they come on. on your earlier point about nitrous oxide, you know, you

would be cutting some taxes. social security. a couple of years ago, you cut the social security tax and then there was a quiet deal. you let it go back up and nobody said anything about it. right? not one party attacked the other party. well, that's the kind of thing here you could get with the employment tax reduction and the increased taxes on essentially either pollutants or gas or carbon. >> i have mixeded feelings about extenders. you make some of these permanent, you're going to play however getting rid of them when the time comes you ought to think you get rid of them. at least with extenders, you are forced to look at them at least and think, should this be kept and then of course everything falls apart and you extend them all. say you made them all permanent. now, you don't have to look at them until someone says you

should look at this. kind of pay your money and take your choice on it. >> next is senator coates. >> this has been fascinating for me. i'm a rookie senator sitting can't use a basketball analogy but i can use a baseball analogy. in the left field bleachers when my friend had to extend the roster here to accommodate the three of us, so it's a -- well, that's home plate. i figure i'm in the left field, although i would prefer to be in the right field. never the less, having had the opportunity to serve with these two distinguished former senators, just sitting here, listening to them talk through the process has been fascinate fascinating. so often, we take an issue and start with the

substance of the issues. comes to a grinding halt because the process wasn't set until the beginning. determines how we take the -- from here to there. outline the principles of the process that you had to work through in order to accomplish the goal and occurs to me, mr. chairman, that a buy in of the committee with the principals up front to prevent us from having to be seduced away through ideology or through special interest group pressure on particulars, okay, i can get behind you unless if you

exclude this or include that. perhaps from getting batter's box all the way around to home plate, so, i just thought a fascinating history here, had the pleasure of serving you in 1986, but watching what was happening there, we need a member of the house and then now, all of a sudden, having the opportunity sitting here thinking, could this really be done? and what you left with us is yes, if you avoid, if you, if we as a committee can avoid the pitfalls of making prejudgments as to what ought to be in, what

ought to be out and look at how we could accomplish something of the enormous impact of the future of america, for the whole generation, i think that's what we're looking at here. what a legacy that would be. to you, mr. chairman. to ranking members and all of us on this committee, it appeared to me there are some stars lining up here. between the house and the senate. given the personalities. experience and background, leadership of the ways and means as a way of the finance committee here. question mark in terms of where the -- to their income level and what causes the eureka moment. to me, it seems like i'm just going on here, but seems like

the real challenge here is to address the question of how a lower rate and cleaner product can result in the kind of growth and economic and economic impact is something we would do. should i go back in the government for expenditures, as appealing as it might be? how many roads could we pave and how many bridges could we fix or do we let the market determine how that capital is better invested. it's really not asking a question the panelists want to comment on that. actually,

making a statement. >> senator wyden, you may remember my predecessor, give me control of the procedures and i will control the substance of democracy. this was not really a planned procedure. the house pretty much ceded us the right to write the bill and if they liked it, they'd adopt it, but i wasn't making any progress following normal procedures. it was only when the thing was not moving at all that i came up with this idea of half a dozen of us getting together in secret and in this group we had, four republicans, three democrats. we

had an agreement. if any four of us could agree on something, it would be put in the chairman's mark. i recall no vote. four democrats, three democrats. i recall a number of those where i was on the three side of the vote, but we had that agreement. but it wasn't planned, nothing worked, but yet, the circumstance was there to make something work and that's how it i don't know if the circumstances here. you feel it. you don't plan for it. it arrives. i'm not sure how to make it arrive. >> i'm trying to get that feeling. >> senator harper, you're next. >> thank you, mr. chairman. to chairman packwood, my friend bill bradley, it's great to see you. i was talking with brian sealander the other day, whom you graciously sent to me, sent him to delaware, signed him up to my senate race and one of the reasons why i'm here today is

because of that kind gift along with sean barney and a couple of others who came as well. so, thank you for all of them. you couple of years ago, we're having a hearing on the issue of debts reduction and had a bunch of really smart people here to talk to us that day, too. one was ellen blinder. has been the vice chairman of the federal reserve. back now teaching economics at some school in new jersey, starts with a p. >> princeton. >> that's it. at his testimony he said to us, in terms of debts reduction, 800 pounds of -- health care costs. says if we don't get our arms around that we're doomed. he said more than that, but that was the substance. >> i said, what's your advice to us? he sat there for a while and thought, then he said, this would my advice.

find out what works. do more of that. he said do more? he said, yeah. we're happy you're here and looking to find out, you've given us idea of what worked. one of the keys is clear to me leadership. whether it's a basketball team, college university of business most important here, most important ingredient is leadership and we can't pass laws to create leadership, but

every now and then, people come along and provide great leadership. just talk about the importance of leadership here and what our leader, what we, our leaders of this committee and of the senate especially, what we need to be doing. >> as i said earlier, leadership starts from the president, the treasury secretary, chairman ways and means and chairman of finance committee. that's the leadership structure. if any one of those isn't on board, it's not going to happen. i would also make the point when senator packwood made the point, whoever voted, he lost sometime, i lost sometime. four republicans, three democrats. that was fun. legislating is fun with the right people. you can do something very important and you can enjoy what you're doing because you never know what's coming around

tomorrow. if you're in that kind of negotiation. it requires you to know what you're talking about. i just hope you guys are having that much fun. >> fun would be good around here. >> i've got to tell a humorous story about bill because remember, i don't have a whole lot of time. >> sorry, go ahead. >> if you could, if you want to just answer, i'd love to hear the story, but question about leadership and what senator bradley told us is very important, right on. all of us in politics have seen natural leaders. some are inside leaders like lyndon johnson, some outside, like ronald reagan. we all know who are the standout leaders. we knew in my era that scoop jackson and sam nunn on defense

were good for seven or eight votes and a tight vote anymore. we knew that dick lugar on foreign policy was good for six or seven votes, they were leaders in their area. all of you on this committee know who the half a dozen leaders are. i don't know, but you know. certainly, the ranking member and chairman know. and there's -- a ko lig of those can be put together, but the key is, you have the leadership, does the little leadership group agree on the goal they want to reach? if they don't agree on the goal, no quantity thety of leadership is going to make any difference. >> thank you. >> second question deals with you know, did all this work in '86, ink dry on the legislation for all those years and we started changing it. a whole lot over time. did you ever think of the time that we'd

see this kind of change that quickly in such, to such an extent and did you ever think at the time about what can we do to sort of preserve what we have, at least for a while? i don't mean how many changes we've seen, but i'm told like 15,000 or something or mb since '86. should we keep looking for the federal reserve for a while, just a >> tom, that was a real lesson for me. that obviously one congress can't buy another congress. you can pass something which i thought, i think bob did it and people as significantly as tax reform and it can be like a sand castle. on the edge of the sea. can be washed away the next year.

which means you have to be humble when you do these things and you have to i don't think there is a institutional fix to make things permanent. maybe the reason this wasn't permanent was that you know, this wasn't something that bubbled up from the country saying you must do that. do this. this was something that happened because people who had responsibility on this committee assessed what was the right thing for the country. >> all right. senator packwood, briefly. my time's expired, i'm afraid. thank you. >> mr. chairman, thank you thanks for holding this hearing and i want to begin by thanking our distinguished guests for being here today. as a relatively new member and a new member of this committee it's great to get to this historical perspective, so thank

you so much for taking time. i'll also thank you and the ranking member for being committed to this effort. i know it's not going to be easy, but it's good to see that there is real work moving forward and i appreciate your to our witnesses, the further you get out here in left field, the more general the questions, but it is good to know that both of you started where i am today. so there is hope for the future. i want to move to five years ago on the boles-simpson proposal. did either of you testify or have an opportunity to put any input on that particular proposal? >> i did not. i was not called as a witness.

i followed it very carefully in the press but i was not -- i was not a witness before that commission. >> can you give me any perspective of what you thought of that report? >> well, i thought the report was excellent in the sense of here is where this country is going, if we don't do something. i've often put it -- when i speak it i put it in a different version. i am less concerned about the deficit than i am about the increased spending. if you are rich enough, you can afford a deficit, as long as you stay rich. you can afford to pay the interest on a debt. but i look at spending, and the figures are not that necessarily good from a century ago, but as best we can tell, a century ago all of the governments in this country, federal, state, local water and fire districts, spent about 10% of the gross domestic product.

today the same governments spend around 40% of the gross domestic product and that same pattern has been true in all of the major countries and they just started before we did and if you look at the simpson bowles report, that amount is going to go up. and the debate we should not be about the deficit and we can debate about it, but do you want this country to spend 45-50% or 55% of all of the available assets on government. that doesn't get talked about because it gets mixed up in the government. >> senator bradley, the same question to you? >> i did not testify. i always talk to my buddy al simpson but we didn't spend a lot of time talking about taxes. >> he's one of my favorites,

allen simpson. when i was in the house, i was on the ways and means committee and dave camp was my chairman. as you know bowles simpson was dead on arrival. and it got no hearings and was dead on arrival. what lesson do we learn from these efforts? >> you're discouraged. i read the camp proposal. it was a good proposal. i thought it covered a lot of bases that needed to be covered. and you are right, it was dead on arrival. and i'm not going to bad mouth the president, but he appointed this council. and as soon as it comes out, he

gives it the back hand. but i thought the commission did a first-rate job. >> i thought camp had some interesting ideas. what happened, he kind of started too late. people knew he was going out the door and he did his own thing and put something specific forward which is a necessary prerequisite, the treasury one and the treasury two, and you have to put in something specific because the interest chews it up and you have to figure out what can be swallowed and what can't. i think you need to see the total picture. i think he did a very good job of thinking through tax policy and coming out with a coherent package. >> senator bennett, you are next. >> thank you, mr. chairman. and what a great privilege to have both of you here. i was thinking back, actually, as senator packwood was talked

to john mcphee's book, a book about senator bradley when he was playing basketball at princeton and asked the question, how could this -- maybe not the best athlete that we have or the best of this or that, succeed so well at what he was doing and senator packwood said the opportunity appears to do it. and so with that in mind, i wanted to read -- i took a look at showdown at gucci gulch and the first chapter and i think it is worth the historic perspective and i would just ask you to respond to us. the groups with an interest in the existing tax system were well organize and ready to defend the tax breaks at a moment's notice. the tax populous were unorganized and diffuse. furthermore congress was a slow and cumbersome institution -- that is not true any more, of course -- that only made piecemeal changes. this produced a revamping of the

tax structure. there was a tremendous inertia in congress that resists any such sweeping change as a result they held that tax reform was destined to lose and the conventional wisdom had plenty to back it up. tax breaks, after all, had been part of the currency of congress. this passage, i would say is even truer today than it was 30 years ago, as a description of where we are, just in 2014 federal lobbying totaled over $3.2 billion. i wonder if you could take us inside of that room you talked about and tell us as senators how you were able to overcome the -- these interests and the pressures that you faced and how we as senators should think about that in the arc of our careers on this committee?

>> well if you are talking about the little cab el of seven of us, the pressures weren't that great. we knew what had to be done and wondered could we swing it and make it work, but i don't recall i'm not going along with x is in this bill or x is not in this bill. so those pressures were not on us. i know what you mean about the interest groups and that is what happened to the house bill. they had a lot of individual votes on each of those little parts and if it hits your part and you hate that, you are against the bill. you don't care what is in the rest of it and you hate the bill. that was enough of that. that was not in the -- the senate bill didn't happen that way. the senate bill was written in those seven days and we didn't have any hearings. and suddenly it was like minerva born fully formed. here on the last night does the committee see the whole bill for the first time and vote for it

20-0, but had they voted on individual little sections and i'll give you the reason i made this deal and i never told bill this and the reason i made the deal with the oilies and we got it and i take it away from everybody else and bill was furious and george mitchell has furious because i hadn't bounced it off the group because we are voting that night any way and the reason i did it is because the biggest reason we did this on the floor, it was going to pass 20-0, and it was because of the ira's, it was on the other side about more, more and not clampen up on the ira's and that was about a $20 billion pick-up. well, on the senate floor this

ira amendment came up and i won it 51-48 and 19 out of the 20 oily senators voted with me and had i not made that deal i would have lost a couple of them and i would have lost ira and that loses the bill. >> senator bradley? >> the reality is that tax reform was failing, until the pac would counter offensive. and it wasn't like this sprung forth from the head of zeus, right. we had had 30 hearings. the substance has been thoroughly chewed over by the committee. it was familiar territory just put together in a different way. >> thank you, mr. chairman. >> thank you. senator sohn. wait a minute. let me see here.

i'm sorry, senator menendez, first. >> all right. thank you both for your testimony which i read at length. i think we all agree we need to simplify the tax code and make it more economically efficient but i always think before we go about the task of comprehensive tax reform, we need to agree what is the end-goals we are trying to achieve so we can direct our focus. and i know some of my friends here argue that we should focus solely on corporate tax reform and stock market gains and i think i heard you both say you feed to do it all at the end of the day to make it effective. senator bradley, do you believe it is enough for tax reform to focus on increasing gdp on the stock market and corporate

profits, or should we also have the goal of assuring economic growth as part of it particularly as it is felt by as many americans as possible? is that the type of goal we should be forcing? >> yeah, you want the economy to grow and you want everybody to benefit from that. and when we did this bill, as i said earlier, we had four principles, these are the things you should consider. that the market is a more efficient allocator of resources. the ways and means committee and finance figured out we should do this or that activity. second, equal incomes should pay equal tax. it is not fair to have your neighbor pay less because they have a particular tax benefit. and third, those who have more should pay more. the progressive principle. and fourth, if you can simplify

it, please simplify it. to me, those are the four principles. the economic issues and growth you would want people to move up and say to people at the top you have to pay a little bit more. so i think those are the principles that i would use going forward. >> you know, i think that it's -- my question suggests, at least i view it, is that it is a neither-nor process but equity on the low reduce the burden on low and middle class is not just morally responsible but about two thirds of the economy is fueled by consumer spending and lower and middle class families have a higher percentage that they need and spend on goods and services.

so in that respect i think it makes sense to be looking at how the consequences of reform deal with them not just on corporate taxes as well because i think it will fuel spending that will help private sector profits. senator packwood, at the end of your testimony, in 1983, 1900 people who earned a million or more paid no federal tax and that fact was due to a myriad of special interest loopholes clogging the arteries of the tax code before '86. and as you noted in your testimony, the product that passed the finance committee 20-0 and would later become law raised the taxes significantly on corporations and rich individuals. they would pay more and the middle income would pay less. and we have now a situation in which the average new jersey

family that makes $65,000 per year pays a higher rate -- a higher rate than the wealthiest 400 americans -- the wealthiest families that make $200,000 a year and what is your perception on the tax treatment and would you agree that the loopholes that have allowed the wealthiest to reduce the tax rate over the last 30 years. >> there is no question that the public is aware of the inequality. in 1986, it wasn't in the issue of fairness, how do these people not pay any tax at all and how do companies making profit not pay back. and that was a driving inequality. and it is a much higher goal today than it was 30 years ago.

what i'm hesitant about is not do you want to fix that, the longer i've been in life and in senate, the less confident i was that what we were going to do would necessarily get us to what we wanted. and that is why i agree with bill. the market is a better allocation. if you want to undo the inequality, i think that is legislatively doable, if you can get both sides to agree, that is perfect, but it wasn't what drove us in 1986. >> thank you. i might say that - >> i'm sorry. >> in terms of the middle class, we need more good-paying jobs. and so that is tough to get at through the tax code, but not impossible. so i'll share with you one of my hobby horses. infrastructure investment

desperately needed. tough budget, you can't do it. and the size that we would like to do it. but there are people that have money. chinese, singapore, koreans, in the persian gulf. large sovereign funds. i mean hundreds and hundreds of billions of dollars. and they have to decide what do they do with that money. and i ask any number of them why don't you invest in infrastructure in the united states, in other words they play the role the british played in the 19th century, and they say there is one provision in the tax code, and it is 892 and it says if you are a foreign government and you invest in stocks or bonds, you don't pay tax on that.

very simple, extend that to infrastructure and you could very well find a significant amount of money for infrastructure coming from sovereign funds. >> thank you. great. >> senator stone. >> thank you, mr. chairman and thank you all very much for being here. i was a staffer back in '85 and '86 and when this was done last time and a great admirer of the hard work that went into it and the ultimate result and i'm things are different and this is a different time and a different place and the one thing that i think you noted and made the difference is the active engagement in the process and i remember treasury one and two and how hard they worked to try to get that across the finish line and to me to do anything big and consequential in this town, you need presidential leadership. i hope we get that.

with regard to a couple of the issues you batted around back at the time, one had to do with whether lower rates or more favorable cost recovery revisions ought to be a focus on tax reform and which is better for economic growth and i think that was part of the debate. and my question is do you believe lower rates paired with longer depreciation schedules is that approach and how do you think we should approach that question today? >> don't know how you should approach it today. we felt lower rates was the most desirable thing we were doing. depreciation was a major sense when we went to congress. i won't advise you on what you you ought to do. i just say lower rates and keep it revenue neutral but there might be something you can work on that but lower revenues.

>> how do you feel about cap gains rate and the lower income, in your view when you look back on it, was that a good thing? >> yes, it was, and i remember bill talking a few moments ago about the hearings we had, and you had to have a differential. it was 30%, you had to have 15% and if it was 20%, had it to be 10%. and i said if there was no income tax would you have to have a subsidy to invest because there is no deferential. and he never been asked that question and didn't know how to answer it. i think you could do well if you had a low rate, with capital gains being the same rate. >> ok. and this has been alluded to already but there is suggestions about the goals of tax reforms and one thing that separates us here which makes it hard is

there are folks who look at this as an exercise to raise revenue and that is something the president wants to do and a lot of us believe that can be done through growth and tax reform is how do we raise that income disparity issues mentioned before, so speak about growth as an objective or a goal of tax reform and how you think that plays into the deliberation that should occur here. >> well obviously everybody wants growth. i remember russell long, chairman of this committee for 16 or 17 years in one meeting saying, i have been here for 30 years. he said, three times we have put the tax credit in three times and three times we've taken it out and when does it work out

with the economy. i think a lot of us don't know exactly what works. i know there are industries who want things who say this will work but i don't think we're necessarily smart enough to know. >> mr. bradley, you've talked about growth, tell me your sort of views on that? >> well i think you can have growth and equity. i think growth, you get in part through the lower rates and also in part from clearing out the code of this under-brush that prevents the economy from growing because it subsidized one segment as opposed to another. i think that if you are going to deal with the equity question, i think the way to do that is with the earned income tax credit and i think the president's proposal on second earning tax is something to look at and i think you can do stuff that is not

special interest that will allow you to deal with equity and at the same time you are lowering the over all rate. and to me, that is the key. >> thank you, mr. chairman. mr. bradley, your credit to basketball players everywhere. >> that is a big complement. >> thank you, mr. chairman. >> thank you both for being here with us today and providing insight to 1986 and i will tell you sitting here as a relatively new senator it seems relatively impossible for two sides to come together as well. her insight is invaluable to all of us -- your insight is invaluable to all of us. this is treasury one. this was during the years that you guys found the will -- these

are six years of president's proposals. my first question really is for both of y'all. how do we find common ground went mining a serious partner -- when finding a serious partner for tax reforms appears to be missing in the presentations and the proposals? the second part of that is senator hatch and them just talked about revenue neutral positions. when you start that conversation talking about achieving several hundred billion dollars more of revenue versus a petition of neutrality -- a position of neutrality, how do we bridge that gap? >> i do not think bill and i can tell you how to bridge that gap. revenue, no revenue that gap cannot be bridged.

>> i kind of agree. >> if you cannot bridge that spend some time doing something else. i think however that the question is -- can you put together a small group of people on this committee that have sufficient clout within the committee as bob said earlier that you could spend the time to come up with something that was pretty good? more taxes -- you have to figure out which taxes in the trade-off style leg consumption tax versus cutting social security. that is not something that we are going to decide. that is something that you have to decide. i said earlier, all that i know

is when you are in that room with seven people and you're making abodes and doing things and affecting this part of the economy, that is a lot of fun. if you are just coming in and having your two sides make their statements, that cannot be too much fun. >> it can't be too much fun. that is correct. we are looking for other things to do with our time straight. the good news is that senator hatch on the other hand has taken a good approach to finding some common ground and working across the aisle and looking persuade spots. yes but together some working groups that could be beneficial going for it. one of the areas that have great passion or interest in is why simplification of the tax code actually benefits all. i think senator bradley, you said that tax loopholes are for politicians to spend money without going through the appropriations process. with more opportunity to go through the upper --

appropriations process, the more difficult the tax code comes. when i started my business, i do not think about loopholes when it relates to starting a business. i thought about bringing a profit and changing the lives of family members and employees. i would love to hear you chat a little bit about the notion of simplification. either view esteemed gentleman talked about the civil vacation and the natural outcome of allowing money to find its best place through the private sector. >> when i was speaking about this every day for four years i went on the david letterman show. that was when he was late, late. i took out a card and said you ought to be able to do your income tax on this card. that is not quite true. but we do know that the vast

number of americans have income from wages, interests, and dividends. guess who has all that information on the individuals question mark the eye rests. -- guess who have all the information on individuals? the irs. they can send it to the people and they can find it or have an account and do it. that would be a dramatic simplification. quest in 1986, i have a younger person on the joint tax committee -- i cannot render who it was now. give me just a ballpark estimate with what you can do with the lat tax which is certainly simple. he said at that time that you can have a flat tax as individuals and raise the same amount of money that we are now raising. as a widow with two kids who paid no taxes, they would now pay $1100 in taxes. what about if you exempt both

families under $30,000? he says 19%, but it is slightly skewed toward the rich. i was curious. you realize that when you are going to get rid of every deduction that mankind conceivably has, you're mainly talking about people who are rich and not sally who works at the mill and fills out a 1040 easy -- 1040-ez. if 19% were the norm, you can keep the same productivity and keep the same percent on the lower ends. this was the head thought. it is worth running to see what you could do. then senator, you could have the simple factory how much did you earned? it is that simple.

quest that is interesting. thank you, senator. we had over 30 theories -- 30 hearings on this. >> there is one quick story about, bill -- about bill. bill was in portland at a new time luncheon for democratic candidate for governor. my campaign manager was a tough woman and she that you are up for election this year that you are not going back. but bill was going. well portland was stuck, i asked if i could get a charter plane to san francisco -- nothing was flying out. i was having a press conference of next day at 7:30 a.m. and the president was going to call me after you finish signing. he said you can come after the

press conference if you like to come. early next morning, you can caught my hotel. i asked where is that press conference? the president comes and talks to me and the local network affiliates are there. the president talks to me and chatted a bit. i said, by the way, mr. president, bill bradley was here and you know how valuable he was . he comes on and speaks to bill now. then, he irritates me. he makes national television. from appearing on the local affiliate in portland and i do not get covered nationwide. [laughter] >> the more relevant point is it was because of my respect for bob packwood that i decided in the middle of this campaign to join in a press conference. [laughter] that probably not happened a lot. >> i was well done.

>> i have a lot of respect for both of you. you are both great senators and you both have done an awful lot for this country. we are very proud of you. >> i'm going to be very brief and thank you both for that simplicity in discussion because i have thought for a long time that this insanely complicated tax code plays right into the hands of the special interests and the lobbyists. it is going to be even more challenging today than it was in 1986. there are these wonderful descriptions in gucci gulch about lobbyists who would wait in line outside of the ways and means room for a phone booth. today, a lobbyist is going to sit in the back of the room and set in motion a tweet that is probably going to go to

millions. that is from the back of the room. simplicity is going to be hugely important. i think there are contenders for how to do it and senator bradley mentioned one in respect to the information that the eye rests and effect has been giving the citizen an option of having the irs mail something that would required to be an option. you can almost put a tax return on the back of a w-2. that is something worth exploring. i'm also interested in following up with the two of you on the idea that if you tripled the standard induction and a number of senators of both political parties are interested in a significant increase in the standard deduction, how many people will be itemized? that is another possibility.

know that we will follow-up on these simplistic. i want to wrap up with one last question. that is -- is there one thing you regret about what happened in 1986 and you would counsel us in terms of what to do for the future? in other words, it is always easy to think about what is possible today in the abstract. u2 went through. is there anything you regret and would like us to change? there's one thing that i regret about 1986i was a junior congressperson. it is senator bradley is right one -- when no future congress can bind a future congress when they unravel it. u2 went through it. is there anything that you would tell us to be careful about? >> i regret the deal that i had to make with the all italy's --

oily's, but i needed their votes on the floor. what they wanted to not cause much money. do i wish i didn't have to put that in? you are right. that is one of those decisions that you make on the spur of the moment. i made it the night that we were doing the final markup and i did not bounce it off of my group of six because i knew it -- they would vote against it. i would rather put it in half them mad and vote on it then have a filibuster. >> even in this world of great equality among senators and among the group of seven that senator packwood talks about there was still the chairman's prerogative. i think that is what that was. nobody question that because we had been through the whole process. do i regret anything?

i regret that the bill lasted only a short period of time. as i said, it was a humbling experience and counsel was the edge of the ocean. the only commitment from members of this committee and from presidents -- succeeding presidents. president clinton had a totally different idea taxes. suspended a tax code. -- he liked to spend through the tax code. he no longer treated capital and labor the same which is what we did. he raised up to 39%. there were intimate numbers of hiding places. my favorite being the one that says if you wreck your house for two weeks, you pay no tax on that income. there was once a senator from georgia on this committee who had a lot of friends who were at the masters golf tournament. they had big houses around the

golf tournament. these things happen, right? i do not regret that. i do think that you have to find somewhere -- some way. i regret that it didn't last. >> mr. chairman. >> thank you, both of you. though someone that was with you at the time that -- >> bill? [laughter] bill was the chief of staff at the finance committee at the time. he was absolutely critical in this. he was especially critical in dealing with the administration and dick durbin. it would not have passed but for him. >> and i agree with that. it is still legendary. i want to thank both of you. it means a lot to me personally. i have admired both of you for a

long time. you are premier legislators and people who really care for people and you both are extremely intelligent. this has meant a lot to me and i appreciate it. with that, we will recess until further notice. >> thank you. >> on the next "washington journal," we have representative martha mcsally. she was -- will discuss the military force against isis and the conflict in eastern ukraine. for more, there's representative marcy kaptur of ohio. she will talk about her groups call for military assistance in the ukraine.

later, a bus tour of historically black colleges and universities continues. john wilson, president of morehouse college. washington journal is live every morning on c-span. you can join the conversation with your phone calls and comments on facebook and twitter. british prime minister david cameron takes questions from parliament. you can see it live starting at 7 a.m. eastern on c-span two. >> here's some of our featured programs for this presidents days weekend. c-span2, saturday morning at 9 a.m., live coverage of the savanna look festival on topics like the disappearance of michael rockefeller, the british company of elephants in world war ii, and for women spies in the war.

on "afterwards co" david axelrod on his years in politics. beginning at 8:30 a.m. on c-span3, the 100th anniversary of the risa the film -- release of the film, "the birth of a nation." sunday at 8 p.m., what we can learn about the first president did the paintings. find a complete television schedule on c-span.org. you can e-mail us a comment at c-span.org or send us a tweet at c-span/comments. >> cyber security combating

security threats. she made remarks at the wilson center and washington, d.c.. >> thank you very much for the very kind words. it is very nice to be back. as jane mentions, my first job in washington postcollege was here at the wilson center. it was a paper quarterly. it has now gone digital. before i get to my main topic today though, with your permission, jan, i would like to say a few words about very sad news this morning. it is with deep sadness that we have confirmed the death of kayla gene mueller. today, our hearts go out to her family and my thoughts, in

particular, are with her parents carl and marcia mueller, who have shown such grace and strength and dignity over many, many difficult months. my thoughts are with carl and marcia, kayla's brother eric, and the rest of her family because kayla represented the best of us. her generous spirit and her legacy of compassion and herself was works for those in need should serve as inspiration to all of us. so thank you again jane, for having me. i want to thank the wilson center for hosting me. the job that i hold, as jane rightly observed, is not what you normally see in the basement of the white house.

i get to go see the sunlight. you do not serve up any windows in this room. as a presidents homeland security and counterterrorism adviser, i briefed him every morning on the most significant destructive, and frankly horrific threats facing the american people. i'm often times, as the president reminds me, the bearer of bad news. since i began this job two years ago, i can tell you the increasing terror of the bad news that i've deliver is unfortunately on cyber threats. in just the last nine months, we have seen a growing list of high-profile targets. home depot jpmorgan-chase, target, sony pictures, and the u.s. postal service to name just a few. we are at a transfer the hit --

transportation will moment and cyber threats. the actions that we take in the actions we fail to take will determine whether the cyberspace for maine's a national asset -- remains a national asset or increasingly becomes a liability. it could become a source of old mobility. today, i want to talk about the threat we face in the administration's approach to countering it, drawing on counter tests and -- counterterrorism learned in last decade of war. let me start with the facts. according to a recent united states government assessment cyber threats to our national security and economic security are increasing in their frequency, and their scale their sophistication, and the severity of impact. the range of cyber threat actors, methods of attacks targeted systems, and victims

are spanning added unprecedented clip. the peso cyber intrusions have also picked up substantially. annual reports of data breaches have increased roughly fivefold since 2009. and the seriousness of those breaches is also rising, causing significant economic damage. no one it seems is immune. from health-care companies and universities to the tech industry critical infrastructure and the entertainment sector. just as i noticed last week, anthem announced that hackers breached a database containing personal information of 80 million customers and employees. inside the united states government, we know that states and nonstate actors, terrorists hackers, and criminals are

probing our networks every day seeking to steal, to spy, to manipulate, and to destroy data. at the state level threats are coming from nations with highly sophisticated cyber programs including china and russia. and nations with less technical capacity, but greater disruptive intent like no -- iran in northern korea. they use the espionage for the commercial gain of their company. politically, the attacks are growing and they are growing in reality. this is what we saw with north korea's attack on south korea and their banks and media outlets last year. as for nonstate actors, threats are increasingly originating from profit motivated criminals, so-called "hackers for hire," those who would steal your information and sell online to the highest bidder.

transnational criminals use cyber as a vector for profit and there are the ideologically motivated hackers and terrorists . you have groups like anonymous that thrive on creating disruptions on companies websites and lanky personal information online. you have groups like the so-called syrian electronic army which conducts cyberattacks in support of the brutal regime in syria. and then, there is isil which is a propaganda machine which is recruiting people to their hateful message around the world. most concerning on the cyber front perhaps is the increasingly destructive and malicious may picture -- nature cyberattacks, as we saw with sony pictures entertainment last fall. this attack stole large amounts of data and rendered inoperable

thousands of sony computers and servers. it was a game changer. because it was not about profits , it was about a dictator trying to impose censorship and to prevent the exercise of free expression. at bottom, it was about coercion which the united states believes is unacceptable and is why we took the extraordinary step of publicly identifying north korea as responsible for the attack and responded swiftly, imposing additional sanctions on kim jong-un's regime. in short, the threat is becoming more diverse, more sophisticated , and more dangerous. and i worry that malicious attacks like the one on sony pictures will increasingly become the norm. this is unless we adapt quickly and take a comprehensive approach just as we have in

other contexts. which brings me to the counterterrorism model. now to be sure, there are many differences that make it difficult to apply all the lessons learned on the counterterrorism experience to the cyber realm. the private sector plays a more central role in responding and responding to cyber incidents than it does in the counterterrorism wrote -- realm where the government largely takes the lead. having observed the nation's response to terrorism post-9/11 from three different purchase and united states government, as the fbi, the assistant to the attorney general, and now at the white house, i can tell you that there are structural or organizational and cultural shifts in the counterterrorism realm that also apply to cyber. we need to develop the same

muscle memory and the government response to cyber threats as we have for terrorism incidents. structurally since 9/11, our government has done the very hard work of breaking down walls in our car owner terrorism agencies every people together -- in our counterterrorism agencies in bringing people together to get the best response to threats. whenever possible, we get partners to share information and extend our operational reach. this model has made our counterterrorism mission against a revolving enemy more effective and more sustainable. like counterterrorism fighting cyber threats requires a hold government approach, one that uses all the tools available to us including our global diplomacy, our economic clout, a law enforcement expertise, our competitive technological edge,

and, when necessary, our military capabilities. those who would do us harm should know that they can be found and they will be held to account. in the cyber contacts, we need to share threat information more broadly and coordinate our actions so that we are all working to achieve the same goal. and we have to do so consistent with fundamental values and in a manner that includes appropriate protections for privacy and civil liberties. we need to sync up our intelligence with our operations and to respond quickly to threats against her citizens our companies, and our nation. make no mistake. over the last several years, we have developed new and better ways to collaborate across all levels of our government and with our partners in the private sector.

this includes at the operational hubs at a government that are charged with monitoring threats issuing warnings, sharing information, and protecting our critical infrastructures. at the white house, we have taken steps to improve our policy response. last summer, following a rising number of breaches and intrusions to both public and private networks, we created what is called "the cyber response group" or the c rg. you know it is official because it has an acronym. the c models on the very effective and long-standing counterterrorism security group. like it's terrorism analog, the c rg paul's knowledge about ongoing threats and attacks and coordinates all elements of article governments response at

the highest level. despite the steps in the progress that we have made, it has become clear that we can do more as a government to quickly consolidate and analyze and provide assessments on fast-moving threats or cyberattacks. as president obama said last month, we will make sure our government intergrates intelligence to combat cyberthreats just as we have done to combat terrorism. so today, i am pleased to announce that we will establish a new cyberthreat intelligence integration center, or ctic. currently no single government entity is responsible for producing coordinated cyberthreat assess ams ensuring that information is shared rapidly among existing cybercenters and other elements within our government and sppingt the work of operators

and policy makers with timely intelligence about the latest cyberthreats and threat afters. the ctic is intended to fill these gaps. in this vein ctic will serve a similar function for cyber as the national counterterrorism center does for terrorism. integrating intelligence about cyberthreats providing all sorts of analysis to policy makers and operators, and supporting the work of existing federal cybercenters. network defenders law enforcement communities. the ctic will not collect intelligence. it will analyze and integrate information already collected under existing authorities. nor will it perform functions already assigned to other centers. it's intended to enable them to do their jobs more effectively, and as a result, make the federal government more

effective as a whole in responding to cyberthreats. ctic will draw on the existing cyber centers to sbert integrate their expertise and information to improve our collective response to cyberthreats. now, responding to today's threat is only part of the task. the real challenge is getting ahead of where the threat is trending. that's why the president's national security strategy identifies cyber as a critical focus area to ensure we both meet the challenges of today and prepare for the threats we'll face tomorrow. the president's budget backs up this commitment with $14 billion to protect our critical infrastructure, government networks, and other systems. and later this week, at stanford university, president obama and i and several cabinet members will join hundreds of experts, academics, and private

sector representatives for a first of its kind white house summit to discuss how we can improve trust, enhance cooperation, and strengthen america's online consumer protections and cyberdefenses. but to truly safeguard america online and enhance the security of what has become a vast cyber ecosystem, we're going to have to work in lock step with the private sector. the private sector cannot and shouldn't rely on the government to solve all of its cybersecurity problems. at the same time i want to emphasize that the federal government won't leave the private sector to fend for itself. partnership is a precondition of success. there's simply no other way to tackle such a complicated problem. it requires daily collaboration to identify and analyze threats, address vulnerabilities, and then work

together to respond jointly. to the private sector, we've made it clear that we will work together. we're not going to bottle up intelligence. if we've got information about a significant threat to a business, we are going to do our utmost to share it. in fact, within 24 hours of learning about the sony pictures entertainment attack, the u.s. government pushed out information and malware signatures to the private sector to update their cyberdefenses so they could take action. we want this flow of information to go both ways. the private sector has vital information we don't always get unless they share it with us and the government has a unique capacity to integrate information about threats, including with noncybersources, to create the best possible picture to secure all of our networks. when companies share information with us about a major cyberintrusion or a

potentially debilitating denial of service attack, they can expect us to respond quickly. we will provide as much information as possible, as much information as we can about the threat to assist companies in protecting their networks and their critical information. we'll coordinate quick and unified response from government experts, including those at the department of homeland security and the f.b.i. we'll look to determine who the actor is to hold them to account, and as we respond to attacks, we'll bring to bear all of the tools available to us and draw on the full range of government resources to disrupt threats. i want to commend companies that have shown strong leadership by coming forward as soon as they identify breaches and seeking assistance so we can work together to address threats more rapidly. this is good for the company.

it's good for the consumer. and it's good for the government. across the board, we're tearing down silence increasing communication, and developing flexibility and agility to respond to cyberthreats of the 21st century. just as we've done in the counterterrorism world. moving forward, as our live become more and more dependent on the internet and the amount of territory we have to defend keeps expanding our strategy will focus on four key elements. first, we need to improve our defenses, period. in particular, using the framework used last year would enable every organization to manage cyberrisk more effectively. even just employing basic cyber hygiene could stop a large percentage of the intrusions we face so we've got to start by getting the basics right.

second we need to improve our ability to disrupt, respond to and recover from cyberthreats. that means using the full strength of the united states government, not just our cybertools, but to raise the costs for bad actors and deter malicious actors. third, we need to enhance international cooperation including between our law enforcement agencies, so that when criminals anywhere in the world target innocent users online we can hold them accountable, just as we do when people commit crimes in the physical world. and fourth we need to make cyberspace intrinsically more secure replacing pass words with more secure technologies, building more resilient networks and enhancing consumer protections online.

president obama will continue to do everything within his authority to harden our cyberdefenses, but executive actions alone won't be enough. we need durable long-term solutions codified in law that bolster the nation's cyberdefenses. this is not and should not be a partisan issue. the future security of the united states depends on a strong bipartisan consensus that responds to a growing national security concern. everyone shares responsibility here including the congress. in december, congress passed important bills to modernize how the government protects its systems and to clarify the government's authorities to carry out its cybermissions. today, we need the congress to build on that progress by passing the package of cybersecurity measures that president obama announced just

last month that encouraged greater information sharing, set a national standard for companies to report data breaches, and provides law enforcement with updated tools to combat cybercrime. and we look to congress to pass a budget with critical funding for cybersecurity, including at the department of homeland security. the administration is ready to work with congress to pass these measures as quickly as possible. cybersecurity is and will remain a defining challenge of the 21st century, with more than three billion internet users around the world and as many as 10 billion internet-connected devices, there is simply no putting this genie back in the bottle. we have got to get this right. our prosperity and security depend upon the internet being secure against threats reliable in our ability to access information, open to all

who seek to harness the opportunities of the internet age, and interoperable to ensure the free flow of information across networks and nations. we are at a crossroads, and the clock is ticking. the choices we make today will define the threat environment we face tomorrow. all of us have a responsibility to act to practice better cyberhygiene, to build greater resilience in our networks so we can bounce back from attacks, so break down silos and improve information sharing, as well as the integration and analysis of threats, to pass cybersecurity legislation, and to ensure that we take a comprehensive, whole of government approach to respond to cyberattacks, just as we do in other con texts. these are hard and very complicated issues, but i'm confident that working together government industry, advocacy

groups, the public, and the congress our networks can be safer, are privacy protected, and our future more secure. i look forward to tackling these threats with all of you. thanks very much. [applause] >> i'm going ask you a few questions and then we'll open it to a conversation from this room and from the overflow room. i hope somebody will give me questions from outside this room. first of all i noticed as a recovering politician your gentle pitch to congress on a bipartisan basis, and i hope congress is listening. it has occurred to me for years that the terrorists won't check our party registration before they blow us up, and this is

obviously true in the cyberrealm as well. the attacks on all of this infrastructure that you've listed, not just the private sector, but also the postal service and so forth, didn't target democrats or republicans, did it? >> nope, it did not. >> so this is in essence one size fits all, and i hope everyone in congress is tuning in and realizing that there's more to do. you made a list of things that congress has to do more information sharing a standard setting, tools for law enforcement. you didn't mean immunity. is that adequately dealt with, or does more have to be done there and can you explain? >> sure. it is a essential feature of a package that president obama announced last month, and it goes directly to the heart of the first list that was recorded there, information sharing. the president's legislation that he announced last month makes it clear and propose to

see provide liability protection for sharing from the private sector with the government to the department of homeland security and in order to incentivize the private sector to provide that very, very critical information that i talked about in my speech. >> now, not everybody is a lawyer, so why would a firm be liable for sharing information? >> there's any number of reasons. i'm a recovering lawyer, as you know -- >> so am i. >> as you noticed. but as we have heard from industry across the board, small, medium, large businesses , that they face real choices and concerns about sharing information about breaches or hacks or intrusions into their networks. they want to share information with the government about the origin and what they find out about those breaches, but in doing so, there are concerns

that it would -- the information they provide could include consumer information or they could be sued for seeming to include consumer information. so what the president's proposal does is it says straight out provide liability protection targeted and narrow liability protection for the purpose of a corporation providing that consumer security and cybersecurity information to the government after taking reasonable steps to remove private information consumer information so that the government can get that information in, look at it, compare it, and analyze it, along with all the other sources, classified and otherwise, that the government has, and return that information to the public sector, to the private sector, state and local governments and the private sector holders of a huge, something

approaching 85% of the cyberinfrastructure. >> i was going to go there, but let me ask one follow-up question just so everyone understands what you're saying. company x thinks it's hacked. the reason it should tell the government about this is what? and the information will be used how? >> so a few things. one, we may have seen exactly that signature, that set of ones and zero that is a particular malicious cyberactor uses to use its district or denial of service or other attack that may even go to the integrity of data. so we may, once we look at it and put it together with all the other intelligence and information we have, we may say, we know what this is, we know who it is, we know how it's going to affect your system, and most importantly, we want to tell everybody else. we want to tell if that company that provided that information to us is a power plant producer

or owner. we want to get it out to the rest of the energy sector. >> so when company x comes forward and is protected in a limited way for doing so, company x benefits. >> company k benefits. >> in addition to they're being patriotic and helping the rest of the government that may provide, or not the government, but the rest of the internet. >> this is why i talked about an ecosystem. we are all intertwined as you noted in your remarks. one person's vrblet, frankly, is everybody's vulnerability. and so that's why -- that's why it's so critical that we are working together. >> well, i don't think there's a lot of pushback from congress on the immunity issue, so why isn't congress doing something? >> so this is what we're really hoping we can galvanize the congress to act because once you compare the leeblet

protection that is targeted in the way we've described with reasonable privacy protections, this ought to be the kind of thing that we can get behind on a bipartisan basis. >> the other thing i want to draw you out about, because again, i don't think there's a lot of public understanding of it, is the portion of critical infrastructure that is in the private sector. people should be aware that there is dot mills an internet system for our military. there's dot-gov, a system for our government. and then there's dot-com. how many people have some form of internet account that ends in.com com? -- that ends in dot-com? ok. how many of you are clueless? no clueless people don't come to the wilson center, ok. so lisa, can you talk about the percentage of -- let's just start with the private

sector,&why leaving the private sector with inadequate tools exposes all of us. >> so, you know, like most statistics, they're all over the place, but by any measure, you know, there's references to 85% of critical infrastructure and the backbone on which we ride whether you're a power plant, whether you're a financial company whether you're a shopping center all of that resides, the vast vast majority of it resides in private sector hands. state and local government or privately owned. that means that the dot-gov piece or the dot-mil that is sole until control of the united states government is a very very small portion, and so we are incredibly reliant for all the services we rely on, that are critical in many instances to our life and

sustenance whether it's a hospital or whether it's your financial bank account. you are vulnerable if you are hooked up to the internet. >> so, in my brilliant introduction, i referred to rail switches, water mains, power grids. >> yep. >> what percentage of all this is in the private sector? >> all of it. >> all of it. everybody hear that? >> state and local government, private sector, privately owned. it's not the federal government's responsibility. it doesn't come under the control of the federal government. >> in any oovept, if you're hooked up to the internet, you're vulnerable. my former boss and somebody you know well, jane, former director of the f.b.i. robert mueller, said and has been quoted often there's only two types of company owners, those who have been hacked and those who will be hacked. >> well, the wilson center has been hacked, and we're pretty

careful about things, and we are taking precautions every day. has anybody here never had an experience being hacked, or does here not know someone who's been hacked? all right. yes, one person. we're going to call on you later to explain how you're so lucky. well, moving along. something we brag about at the wilson center is how good our people are. that's of course, why we're now in the top five think tanks in the u.s. but my question is about, how good are the people the government can hire to work on cyberissues? i ask this, because i'm well aware, and i know everyone here is, that the private sector pays much, much bigger salaries. >> look, we have the same -- or i should say greater recruiting and retaining challenges that the private sector has.

now, we can offer something, jane, that the private sector, not all the private sector can, and that is obviously a tremendous sense of mission. but we've got to do more to be able to hire top-notch cybertalent. we've got tremendously talented people working in the n.s.a., in the f.b.i., in the department of homeland security, in the defense department. these folks are top topnotch. but they also can be hired away for vast sums. >> so what do we have to do to get these people to come and to stay? by the way i was at the n.s.a. recently being briefed on some aspects of our programs, and they said that really good kids coming out of college are turning down much bigger salaries because they're patriotic and they want to protect our country. >> so we've got a sense of mission that we can offer, and that's a huge recruiting tool. but we need funds. we need the funds and the

authority and the flexibility in particularly in the department of homeland security to be able to do that extra hiring. this is the wave of the future. >> is another obstacle to hiring some of these kids our clearance system? >> well, look, there is -- there's always ways that we can do better to streamline the security clearance system. always the president's counter terrorism and homeland security advisor, you're never going to hear me say anything that would seem like we're scrimping on security, but there's more that we can do to streamline that process and to get people in who are patriotic who have huge skill sets, and who we can put to work. >> well, obviously i'm not encouraging more edward snowdens to apply. got that message. knowing we all got that message. but what about a kid who incorrectly downloaded music for free, which is not ok, on

his -- one of his systems? what about that kid who answer that is question correctly? will he be cleared? >> you know, not having recently gone through my security clearance, although i've had many, i did not have that question trip me up. but, you know, look, what i would encourage folks who are patriotic, the first thing is be honest on your security clearance form. but something that is a crime is going to be something to talk about. >> last question for me, and we'll have 20 minutes for audience questions is about the only criticism i've heard since news that you have just made here was printed in the newspaper this morning that's ok, as long as you came here to deliver the speech, we're very happy. but the criticism was, is that you're building an unnecessary bureaucracy with the ctic. what's your answer to that? >> so my answer to that is,

look, as i laid out in the speech, this is filling a critical gap. the national counterterrorism center did nothing to take away the mission or the role, the responsibility of c.i.a.'s counterterrorism center, of f.b.i.'s joint terrorism task force, or its operational hub. those are operational arms and operational centers that have clear responsibilities and clear missions. what we need, the gap that the ctic fills is critical rapid coordinated intelligence to feed those operations so. it's not duplicative at all, jane, and i think what weave seen with nctc is operators and policy makers are very, very well served in facing an evolving threat by having a source of rapid, integrated

intelligence at their disposal. >> well, expressing my personal opinion, i was there when first the terrorist threat integration center was set up by president bush, and then it was renamed nctc, and then congress codified it as part of the 2004 intelligence reform law, and i think nctc is terrific and shout out to the people who work here so. if you're building something comparable to that that's going to work as well as that, my own view is you're on the right track. >> well, thank you. we think so. >> all right folks, 18 minutes and 40 seconds, please identify yourself and ask a question. do not give a speech. right here. wait for the microphone. >> thank you. i'm with energy wire. could you elaborate on the second of your four action points, how can the government use all of its capabilities

more effectively to disrupt serious threats to critical infrastructure before they occur? >> so it's a very good question. what i met by that is, and the reference in the speech is using all of our tools. again, the terrorism model is instructive. we get around, literally get around the table in the situation room. our diplomats, our intelligence community, our military, our prosecutors and law enforcement officials, and we discuss what is the best way to disrupt this threat to deter this actor, to determine how to address the threat. that's what i'm talking about with respect to cyber. you see us using all of those tools, diplomacy in trying to work with other governments to establish cyber norms of behavior on the military side, on the intelligence side on the law enforcement side.

just last spring the department of justice, the national security division, something i know a little something about, brought indictments against five members of the people's liberation army in china for conducting cyberespionage in this country. that is an effort to say we will take account of these actions. we will determine who has committed these malicious cyber actions and go after them. and then there's, of course, sanctions. you see that in our response to the actions of north korea. the idea is, you're going to look at all your cybertools and you're going to look at all your tools, including your cybertools, and determine which is the best one. >> i know it is u.s. policy not to do economic espionage. could you explain the basis for that? >> sure. the president's been quite clear about this. we are not conducting and will not conduct economic espionage

for the benefit of our companies. that's what the president has said, and that's what the intelligence community adheres to. >> today, the house homeland security committee investigates the threat of home grown terrorists and foreign fighters. we'll bring you live coverage starting at 10:00 a.m. eastern on c-span3. and later, the house oversight committee examines the g.a.o.'s assessment of waste fraud and abuse at federal agencies. you can see that hearing live starting at 2:00 p.m. eastern, also on c-span3. >> the political landscape has changed with the 114th congress. not only are there 43 new republicans and 15 new democrats in the house, 12 new republicans and one new democrat in the senate there's also 108 women in congress, including the first african-american republican in the house and the first woman veteran in the senate. keep track of the members of congress using congressional chronicle on c-span.org.

it has lots of useful information there, including voting results and statistics about each session of congress. new congress, best access on c-span c-span2, c-span radio and c-span.org. >> up next, "washington journal," live with your phone calls. at 10:00 a.m. eastern, the house returns for speeches. later, debate on the keystone x.l. oil pipeline, already passed by the senate. >> coming up in 45 minutes martha mcsally of arizona. she will discuss the president's request for the use of military force against isis. at 8:30 a.m., marcy kaptur of ohio, founder and cochair of the congressional ukrainian caucus

will talk about her call for military assistance to ukraine. at 9:15 a.m. it a tour of historical black colleges continues with john solon ilvanus wilson. caller: ♪ ♪ >> today on capitol hill, homegrown terrorism and foreign fighters. it you can watch this after the program on c-span3. reports say the request will offer clear specifics when it comes to how troops are used. all this comes on the death of kayla mueller. an interview with president obama. he said they will bring to justice the terrorists