tv U.S. Senate CSPAN July 10, 2013 9:00am-12:01pm EDT
small dinner in the washington, d.c. area out in mclean near the cia. this was a turkish restaurant, i'll put in an advertisement. it's my faith restaurant. -- favorite restaurant. and you also see some very interesting people. it's been there for 30 years right near the cia, a lot of interesting people come and go in the restaurant. but we had our area in the back, and i had 12 of the 14 people who i'd invited actually turned up, and we had a great evening. we were just telling stories. and i, there were no formal remarks, but i went around the room at one point and just said two or three sentences about each of the people, the men and women who were there. because i was proud of what we do. and i thought that this passage in my life looked great in the rearview mirror. not everything always does, i can tell you that from my own experience and my own mistakes. but i felt this was pretty good. interestingly enough, one of the
people who was there was steve miller. and steve had done a great job. for me he was, of course, at this time the acting commissioner of the service, had been since commissioner shulman had finished his term five months earlier. and we had talked about you may remember when i was with commissioner, we worked on abusive tax shelters, the kpmg matter. there were criminal indictments. very serious set of issues that i think we confronted and helped to clean up some untoward things that were going on in companies and in the profession. we talked about all that and, of course, that was a centerpiece of what we did. bringing back the enforcement, we used to say service plus enforcement equals compliance. but, so that's -- we were swapping stories about all that. when i got to steve to say something, i said, steve, i want you to know that perhaps the thing that i'm proudest of -- and i made reference to the shelters -- was actually the work we did in 2004 and 2006 in
the election cycle. because we had complaints about politicking by churches and charities starting in ohio on the conservative side, organizations supported by different elements of the republican establishment to try and get out and get out the conservative vote. and there were always allegations about inner city churches politicking on behalf of democratic candidates. so you had these indications of problems. we got after it, we commissioned a unit within this same famous tege, taxes and governmental entities, to look at these complaints, and they did. now, it sort of erupted a little bit right before the election when the naacp made allegations that we were trying to quash the black vote. but we had, i had run this out of my office not in the sense of how we did things or the cases that were selected for work, but
i initiated this review, and for two election cycles we followed it. i gave speeches, a major speech at the cleveland city club which is a major speech venue in this country on the importance of keeping those charitable c3s and other entities clear of politics, and we had enacted a program that was run out of the same tax-exempt governmental entities with career people making decision, and i thought we had done it well. so right before the election in comes this, you know, this broadside. i call up this same russell george who's now so well known from more recent reports, and i said, russell -- i saw russell every month for a standing meeting just the way commissioner shulman did. i said i think we did this right. can you take a look at it, because nobody's going to believe me. and so he did. he did an audit, same thing he did on this more recent tea
party mess. and he came back in four months, and, look, you never get, you never get 100 on your exam by the ig, i can tell you that from experience. [laughter] let alone 104 in today's grade inflation or whatever you get. et just doesn't -- it just doesn't happen. but he said you could have been a little quicker on what you did here, and your guidance could have been better, but there was absolutely no indication of any political bias. the criteria that were used to select the entities for more review were neutral and went across the spectrum and, in fact -- remember, this was the bush administration, more conservative entities than liberal-leaning entities were selected for review. and then it said there was no indication that they were handled in any untoward way either. so that's as good as it gets. and what i just said to steve then on this saturday night was i was proud that we did this in
a balanced way, and nobody laid a glove on us because i thought it was a proper exercise of what we were expected to do under the law. well, jeez, nobody could imagine that six days later the service would be in flames over just this kind of an issue, which it was because it was six days later when lois lerner planted this question on the c4s. several people said the me in retrospect that was kind of like the last supper. [laughter] we were all sitting there, and it was quite a very powerful sort of pairing of moments to see all this happen. so how did this all happen at the irs? i would tell you -- i'm going to go over here and just draw a diagram here. some of you might, may have some problem in the back seeing it, but it helps to understand the structure. of you've got the commissioner
sitting at the top, reports up to treasury, the treasury secretary and the deputy secretary. i was, most of my time was with john snow as the secretary briefly last nine months or so with hank paulson. down below, and here you've got a series of reports that come out that are like the lawyer, the taxpayer advocate, you've got a research arm, you've got congressional affairs, there's a half a dozen or so functions. but the blood and guts of the agency come down below here with two deputies. and i created this structure because i thought the service was poorly managed from a point of view of accountability. one is for services -- excuse my writing -- and enforcement. the other is for ops, operation
support. and the idea was to have the staff functions supervised by one individual and the line functions supervised by another. because what happens in government, there's so much bureaucracy, so much, so much fighting about personnel, about people, about budgets, the congressional oversight, all those things that if you've got one deputy in there, you never -- that individual never spends enough time running the place and making sure the government is doing what it needs to be doing. so we split this, and i've got the tell you, i felt it worked because you have to have absolutely co-equals, and they have to have direct communication with each other. but down here you'd have your finance, your i.t., you'd have facilities, the irs had 800 facilities around the country,
your hr and your security. we had a security mission assurance area and procurement, a bunch of other things. and so this side of the house had, supported the other side of the house. and what was over here? well, you had criminal investigations. those are the guys that got al capone. criminal investigators at the irs are second to none as investigators if you're in the financial arena. and they're brought in to almost any major fbi investigation that involves finance. it's not only tax work. the work, marion jones, barry bonds, those were irs matters because of flow of funds. the irs has very broad authority in this area. what happens is you get referrals from the other elements of the agency or from the public, and the investigators take a look at it,
and if it merits criminal prosecution, it goes into the department of justice. as with some of the, some of the work in the abusive shelters that i already mentioned. so that's a key unit of the irs. you have another piece called wage and investment. that handles those 145 million or so returns. the new york city schoolteacher, the manager of the walmart in los angeles, the filer that has a pretty simple return. now, remember, two-thirds of all americans don't even itemize. they file a standard return. and that's, by the way, just parenthetically why we don't have tax reform. if everybody itemized, if it wasn't simple enough for most people to file either doing it themself or through a return preparer, you'd have much more of an uproar.
but people have to deliver that filing season i talked about a few minutes ago. then you have something called small business/self-employed. and they handle businesses with $10 million or less in assets. now, that is where something called the tax gap, the largest piece of the tax gap resides. the tax gap is the difference between what should be paid under the law and what actually comes into the system. so this is a tough area. of course, it also happens to be the area where they spent $4 billion on a management conference in california inexplicably, another problem that shows how the service came off the rails in recent years. but it's got a lot of challenges in there. that's where a lot of the hair is, the toughest issues, because people are truly not reporting
their income, and there are a lot of difficult issues. the third business unit is over here. it's called large business and international. and that's got the exxons, it's got the general motors, 3ms. it has every business from ten million in assets and above. so there's a real range. it's got those big, multi-national players, but then it's also got a lot of the people that we're working with collectively who are smaller businesses, the closely-held entities, the flow throughs that have 50, 200, 500 million in revenue, 100, 200, 500 employees. these are, a lot is happening here. there's a lot of different issues here and a lot of the very technical issues, if you will. so those are three business units. the fourth business unit which is now the subject of all of this is tege, tax-exempt and
governmental it is a grab bag of different responsibilities. indian tribes, state and local municipal governments. you say why do you need to be auditing municipal government? i was working for mitch daniels until -- i guess from '09 through the middle of '12, and everybody knew i'd been at the service. and indiana came under audit, and somebody said this is because the obama administration doesn't like mitch. i said, no, it's because mitch has reduced the size of the state work force from 36,000 to 30, and the service is worried that people are being reclassified as independent contractors who are actually legally employees, and, therefore, the state of indiana is avoiding paying payroll taxes. that's what that's about. so there is real money here in
the sense of making sure that tax-exempt entities are doing certain issues. even if they're not paying federal income tax. so you've got also municipal bonds are in that piece of the organization. but the the biggest piece is something called excel to exempters, and that is what's begin rise to all of this horrible stuff at the irs. you've got c3s, but you've also got trade organizations and as everybody knows, the c4s. how does that work if -- work? there is, simplify this, there are at least two big pieces. there is the determination side, and then let's call it for lack of a better term, audit. the determination side is the front end. when you apply for that
tax-exempt status, you're going through determinations. once you're in the stream and you're established, you're being picked up for very infrequent audit cans. the audit coverage rates are much lower down here than they are for individuals, high income individuals who are up in here. audit rates are 10% for individuals who have income over a million dollars. the exempt organization audit rates are much lower, around 1%, something like that. wherever the failures. i would tell you, you had failures of great significance down here in the determinations unit, right here in the exempt organizations unit and right here most importantly in the front office. and i don't want say this lightly -- i don't say this lightly, and i say it with regret because marley the commissioner did -- particularly the commissioner did a lot of good work on things like the bank secrecy and other areas of
his responsibility. but this was a debaclement -- debacle. cincinnati. why is cincinnati involved? makes total sense that you have a small group of people who are looking at the family of applications as they come through. irs had something like 800 facilities. when i was there, we'd been shrinking that down. ten large campuses. as you have fewer paper audits, more electronic, bodies, jobs were repurposed in those facilities to pick up different streams. trust and estate or employment taxes or in this case exempt organization applications. and that's a logical and a good thing. they all flowed through cincinnati. but i've said this, some of those people, they just lost their minds. there is no way you should have been having a set of criteria that ran to policies of these organizations as opposed to
activities. you should be looking at activities but not policies. and the fact that a you'd be screened out because of tea party or words like constitution or something, that should never have happened. that list should never have been developed. likewise, the second problem which sort of came on this and wasn't dealt with in the ig's report except by reference to the issue as opposed to detailed work on it was once you had selected -- because this was all about which entities got selected for more intensive review -- once an entity had been selected for review, what happened? and then you went back on this, you went into this incredibly intense and over-the-top set of questions including information on donors and political activities of donors and things that were really too much -- i don't know if any of you saw the
ways and means hearing on this about a month ago. there was a lady from ohio, pro-life group, and basically it was a shakedown where they wanted all of her board of directors to agree that the entity would not picket planned parenthood. just incredible that those kinds of things happened. so you have two sort of things happening. one, the review of the applications in terms of the selection as to who was looked at more intensively and, two, then how it was handled. the result was very intrusive and, frankly, it was this game of rope a dope where the ig looked at something like 300 applications, and none of them were disallowed. you've got a problem with these applications, then turn them down. let the entity then take advantage of its appeal rights and get a different answer. but if you never deny it, you've delayed justice, and that's wrong. so this organization was clearly at fault. eo management, this was
atrocious because this started in march of '10. a year later -- and that was late -- there were clear problems. lois knew herself about it, and then when she got on top of it, it still took another year to get it all cleaned up to where neutral criteria were developed. and then even more recently you saw there were still some problems in this. but the fact that lois -- and, again, remember, i worked with miller and lerner when we did the '04 and the '06 work, so i don't get how this could be so badly bungled, because it's the same set of issues. when you've got front page stories in the post and the times about the naacp, you know -- if you've been through that, you know what's at risk in terms of when the irs wades into some of these issues. so this set of interactions, they both failed at this level. but the real problem was up here in the front office.
because what happened there, if you're doing a job, if you're asked the take on something like the irs and you do, what happens is you are obligated to take care of a certain core set of responsibilities like that filing season that i keep coming back to. americans expect to be able to file their taxes and get their refund. so you've got to do that. then you lay over that certain priorities that you establish. i worked on the abusive shelters. doug did a great job working on this sphwheacial set of issues -- international set of issues. but you also have to manage your inbox. you can't survive if you don't manage your inbox. and by 2011, 2012 there were plenty of questions on these c4s. i would get questions from fox news and other people that'd be calling me up and saying, jeez, mark, can you help me understand what's going on with these
c4s? and i i didn't answer them becae i just didn't understand that because the issue when i was at the irs was the c3s and churches. 4s, as we all know, it's much more murky. but if i was getting questions and people like orrin hatch were writing in saying, complaining about this, how can you not notice what's going on, and how can you not follow up if you're running the agency? you've got to be doing that to protect your own set of responsibilities and your owner the yea. i mean, so how did he get into position where in march of 2012 he made the absolute statement that a there is nothing untoward, there is no targeting in the c4s that what you have is a normal back and forth. that's hard for me to understand.
when you are running the service, anytime i testified before congress, and i did some 50 times, you have a series of prep sessions where i had 90-120 minutes with 20-40 people in the room. because if you're going before ways and means and there are 30 or 35 members, they are going to ask you about what they want to ask you about, not necessarily about not for-for profit hospitals or abusive shelters in some area or whatever the subject of the hearing is for the day. so you get ready, and you get briefed up on what people are interested in, and people were interested in this subject. so it's hard to understand why there was no, why the commissioner wasn't better prepared to answer that question when he gave that statement. and then what is really just unconscionable was when this commissioner learned from his meeting with russell george that there was a problem in this area, why he didn't go back and correct the record.
the answer that he gave subsequently was, well, this was an irk g audit -- ig audit under way, and you can't interfere with that. that's just hogwash. at any one point in time when you're at the irs, there are 30 or 40 audits underway between tigta which is the arm that looks at this and almost a thousand people, one for every 100 irs folks, it's the highest concentration of auditors. that's because the congress views it so sensitive that we get this right. tigta and the gao. and if you took the attitude i'm not going to manage parts of the agent is i that are under audit review, you would just do your crossword puzzle every day, that's all you would do. because that's how much you'd have gong on at any point in time. look, it's easy to do this. you make mistakes when you
testify. you're taking has of questions. -- lots of questions. the first thing you do, if you've got a sensitive area when you testify, you don't get that far out unless you're 100% sure. you say, congressman or senator, you're right, that's a serious issue. we've struggled with this issue. i think we've improved what we're doing, and i think we're in good shape now. and then you may get into a back and forth and you say, oh, i'll provide you that information for the record or whatever, and then there are things that happen, and maybe you didn't do it right and you look bad, but you don't have this crisis of having misled the congress. and then if you do find, if you learn subsequently on the other hand that something you said was incorrect, depending on the seriousness of this -- and thank goodness i never had something that rose to this level -- you have a staffer goes up and sees a staffer on the committee and says, well, the commissioner said we'd spent $112 million on this, we'd really spent 132. but if you've got a problem of
this nature, what you do is you call up the chairman and say, mr. chairman, can i come see you, and you go up and ask for a private meeting, and you bare your soul and say, jeez, sir, you know, i was very forceful when i was before your committee last month, and i thought i was right at the time, but your concerns prompted me to look at this again, i've looked at it again, and i was incorrect. and then you let it, the chips fall where they may. otherwise you have discredited a very vital organ in one branch of government that is accountable to another branch of government, and that is what happened in this case. so you have three levels of failure there and then a fourth failure that was, made this far worse, and that failure was, quite frankly, the way this incident was handled. from the planting of a question in an aba conference followed up by a clumsy press conference and back and forth which gave rise
to just a launch of this horrible set of events to, most importantly, the testimony that commissioner shulman gave where he explained what i just said, that he didn't go back and correct the record because it was an ig investigation. he also said, and i'm paraphrasing here, well, i didn't pay particular attention to this part of the agent is i because it was so sensitive. that's like the secretary of state saying, jeez, the folks in new york, the jewish people are very concerned about israel, and they make a lot of noise about that, so i'm just going to stay out of the mideast. you can't -- just because something is sensitive or challenging, you have to, you have to administer the law that's given to you and the set of responsibilities. you can't choose. you have to, you have to lose your, any partisanship you have when you enter into that job at 1111 constitution, and you need to then say call the shots as
best you may. i always felt that when i was at the the i are, s -- irs that i served the country best and the president who appointed me, and i obviously wanted to see the president do well, he appointed me. i thought you served him best if you called the shots down the middle the way you saw it, and i can guarantee you sometimes the administration probably liked what i did, and sometimes they did not like what i did. and that's the only way you keep the administration, if you will, and the president out of trouble. because trouble at the irs is real trouble for the administration. you've got to do it that way. but you can't say when orrin hatch or others are asking questions or chuck schumer on the other side, your senator is asking questions saying go after these c4s. there obviously was a lot there, and you have to do your best. you're not going to make anybody happy, but you have to do your best. so that wasn't done. and then the worst part of it all was this conversation about
accepting responsibility where, in essence, the commissioner was asked repeatedly do you accept responsibility, and he said with the detailed preparation list, no, i don't. i do understand it happened on my watch, and for that i'm sorry. it just badly eroded faith because it added to the sip schism of -- cynicism of americans towards their government. i was in central pennsylvania about a month ago, and there was a very irate, very almost a regal indian-american man who'd come here at a young age, and he said who are these people that are denying responsibility for their actions? and he was mad that the fellow in charge couldn't say, yes, this is my fault, and i take responsibility for it. go back if you can't sleep, this was an exchange with tammy duckworth. tammy duckworth is just a
first-term congresswoman out of illinois. she's nobody in the congress. you're at the lowest of the low if you're a rank and file congresswoman. you're up on some seventh floor office, and you can't hardly find your way over to the capitol. but she, she, she has a certain dignity. she has no legs. she lost her legs serving our country when an ied blew up. and she was in a conversation with shulman, and she asked him this question, and i can't quite do it justice. i'm, again, paraphrasing. but she said, mr. shulman, do you take responsibility for this? he said for the detailed preparation of this list, no, i do not. and she just said in almost this very moving way, she said, mr. shulman, i've got to tell you we have 25-year-old buck sergeants in afghanistan who understand that when their men and women mess up, they are
responsible. so the idea that we can just absent ourselves as senior government leaders from what happens beneath us is not something that we as americans can accept. that's the situation where we've got to. what's going to happen found? the president put danny werfel in. i have high regard and confidence in danny. he worked for me when i was at the office of management and budget before i went over to the irs. he's a straight shooter. the challenge, he's got a couple big challenges. one, it's a big place to learn and operate through. two, i talked about this generational change at the service. the people around him are rolling off and having -- this is not a time where people enjoy working for the irs, i can tell you that from all of this happening. so people holding on to good managers is very hard. the president's got to get a new sitting commissioner in there. we as a cub would not -- as a country would not accept having no cia director or no fbi director.
jim comey's starting his nomination hearings today, and bob mueller's still on the job, and we're going to have a confirmed commissioner the take over that job. gaps at the cia also are short. of the three agencies we depend upon as americans to be nonpartisan and efficient are the cia, the fb, and i the irs. we can't go on for months without a leader, particularly in these circumstances. ..
section of one of the large -- they have somebody who was targeted because he was the hillary supporter back in 2008. they are convinced of this. so that is not healthy for the system. we need nonpartisan investigation to establish facts, finish the justice department investigation, and the new commissioner who is going to be honest with the congress and the people and this will take a long time to restore trust and the question, minutes, i want to finish with two points, one, tax reform. i don't think this helps prospects for tax reform. there are some who are trying to say this just demonstrates the need for tax reform. obviously in the more conservative corners of the
republican party people are saying abolish service, this calls for simplification. i think not every problem calls for more legislation. if anything we have too much legislation around here. this calls for new management and better management. we need to -- i think we have a very narrow path to tax reform as it is. it is not helped by this. tax reform, i am sure we will get this in the questions, we had chairman camp of ways and means, chairman baucus, they have been working collaborative lee, doing the best with their own committee members and i think they are to be commended. the president has yet -- is not really weighed in on this issue as forcefully as he will need to if he wants to get tax reform through. always the difficult passage, you get to the real cutting of
are you going to change mortgage interests or any of these things, health insurance, all of these different issues they are all back and forth and these are hard things to work through but it will only happen, history shows, if there is strong leadership coming out of the treasury and the white house and the president said he will do everything in his power to get more gun control and do everything he can to get immigration reform. we haven't seen the same thing on a tax reform. i also think the more recent events in terms of the budget picture, cbo shows us $642 billion deficit, down to 4% gdp for this year, that is weighed down from 10.1% four years ago and if you will, that takes a little bit of the impetus for coming up with an
embargo on tax reform, reduces that even if all the projections indicate that those large deficits come ring back. so i see this tax reform issue as being tougher. the other thing i will comment on and take your questions is the affordable care act. this is a very big deal for the services i indicated, a very challenging endeavor we saw last week with the administration delayed for a year mandate that employers provide certain categories of insurance or face penalties. clearly a recognition of the lack of readiness out there in the work force. you have seen a lot of interesting things happen there. i can tell you from indianapolis, i was eating the same day that announcement came out before i heard about it at a
national chain and i don't cook. so i eat out. there are several restaurants that know me well and the manager was -- good restaurant, part of a pretty big chain, telling me it came down from corporate week ago that on july 1st, '75 hours they could only have four our -- who could work more than 40 hours. up until that time their target was 37 hours and their trip wire was 40 hours. then they went into overtime but all of a sudden you have people go from 37 down to under 30. this was the same group of people who didn't have health insurance and whereby design supposed to be the beneficiaries of the new law. this is a very problematic -- for the country because now you
have incentives to reduce hours in the very piece of the economy where we don't need productivity, we don't need fewer waiters and deterioration in my dinner service to make america a better place. we are not losing that battle to the chinese or the mexicans. there are a lot of challenges here that are happening in that law let alone the complexity i talked about. there are so many things happening. that is sort of fairly lengthy but i think reasonably complete overview of where we are despite you want to shoot your hand up and asked a question, there were cards. i don't know if those cards were because you are older and might get your question or if they were going to pass them to me or
whatever. bobblehead. >> thank you. >> i learned -- earlier today, i said i gave up one of my first big speeches, 1500 people in the room and a stack of cards. only after i go on three i realize i don't have to take this question if i don't like it. you can sensor. okay. a contact to work for the executive office of the president given the state department, given the state department has developed a core belief system based on constructive dissent does the irs have a comparable structure
in place? could having one help address the current questions of trust? i think the irs has -- taxpayer advocate is a whole structure, several thousand people who work to give an out of channel access to the service in particular matters and provides direct with the congress. there is something there. i didn't get to this earlier. i also believe there are not more structures that the irs. i believe congressional oversight is important. i don't think congress does a pretty good job writing laws. they do things the strength of the congress is providing oversight to the executive branch. as i indicated i testified 50 times, always felt i learned the business i was accountable for through that process and that was congress at its best because they are asking questions on
behalf of their constituents and you need to understand what you are doing. one of the risks we have here is people who care about the irs in a good way, few and far between, people like max baucus, dave camp and carl levin is retiring, runs the subcommittee on investigations that have of their work is in tax area. max baucus has gone back to montana and dave camp's term-limit as chair of ways and means, i would hope congress would do a better job of oversight. don't necessarily eat -- new structures. oh no, here we are. irs publication 1345 states providers must accept any direct deposit collection to any eligible financial institution made by the taxpayer. can you please comment on the rationale or split between policy decision if you can think of any reasonable exception to
this rule. i don't have a view on this. it is up pretty specific kerri and i don't -- don't -- can't speak to it. why not simply a policy c 4 category? i simply think one of the good things of all this is this area which is very tricky about involvement of tax-exempt in our political life, this point is going to be addressed. i hope congress doesn't react too swiftly to this. i do think there is an important separation of church and state, it is embedded in our culture that extends if you will into our vision of what is proper conduct by not for profits. i believe we are struggling with
this issue of transparency which is so important in the political process, the fact the we now have all these changes, can flow from various sources and get very sophisticated set of rations and i got a lot of questions, the public interest in this is largely receded in recent weeks but i did a lot of -- there were many questions on this and people often ask why isn't something like crossroads gps being audited? we don't know. these are large complexes and they choose not to be examined. unless there is an actual lawsuit, criminal proceeding you
would never know the audit is under way but the problem you have got here is these groups, lots of mom-and-pop little operations that were social welfare operations, your good housekeeping from the irs and they didn't understand the rules and they broke up an application that may or may not have run afoul of law. you can bet crossroads gps had plenty of money and they had excellent lawyers writing up the application before it went through. that would be true of organizations on the other side of the aisle. that is how it works. the big players like the big companies have got very sophisticated set of representatives who helped the navigate these things. the problem is the overall architecture of this and the degree of transparency. one of the good things will be
looked at, i will also go to parts and say the hole tax-exempt sector needs to be looked at because we had in tax reform conversations about the level of deductibility that should take place for charitable contributions. that is not as important conversation to be having as to say what should be tax-exempt and what should not. we have cities and states around the country suffering financially and a lot is about erosion of the revenue base, the use of tax-exempt entities to help lower taxpaying entities. we can't allow everything to gravitate to tax-exempt structure organization and still think we are going to get enough revenues to fund the government. okay. what constitutes an abusive tax shelter? how much time do we have?
a lot of this is the old -- what was it? the old pornography definition, i know it when i see it. that is sort of it for abusive tax shelters too. what gives rise to these shelters is we have a very technical code and as we all know it runs thousands and thousands of pages and a special provision is written into the law by some staffer, financing on ways and means a tax attorney in this city or somewhere else, i gave a speech once down the street, the new york bar association, 99 -- i can guarantee you it wasn't the earned income tax credit taxpayers that were paying for those seats.
it was the bigger players who were trying to find the line and what happens in an abusive shelter is somebody analyzes one of those tiny little provisions in the code and they come back up with something that it is right up next to that line. right up next to that line and they send a letter, we got a pattern, if we do x is that ok? the lawyers look at it and three months later or six months later they say reluctantly yes. they don't put in the reluctantly. they don't like the law or something but what happens is lawyers go back and the next one comes along and they change the fact severs so slightly and by the time you get the fifth or sixth iteration, it is no longer remotely what is being done.
that is when you get to something that is abusive. you no longer are in the same place that you started at either from the black letter law or a reasonable interpretation of it by the service and practitioners and the only way to get after this is you have to have a firm balanced service and you have to have responsible practitioners. we got to a point where that was wrong, jenkins and gilchrist failed as we know, criminal prosecution, that was a big deal, paid a fine of $460 million, people had very serious criminal proceedings and that is because we got to a point where the abusive shelters that this case, people were
saying you could work and still a business against $70 million gain, we will make it go away. that is not the american system. okay. yes? >> thank you for this presentation. i have learned a lot. >> thanks for coming. >> i come from technology and hearing you described a lot of basically v headaches that audits the businesses through, i am wondering to what extent is government discussing how technology can be used to basically make the audit process a better user experience, i don't think it has to be such a headache. i wonder what conversations are happening.
and making that process was painful. >> let me say a couple things. first, technology is the only reason we haven't had tax reform. the fact that you can go and buy your turbo tax, go to questions 17 and it says did you do x, yes or no and if you answer yes comment and how much, you would never be able to go through the 100 some odd page instruction or the 1040 and figure this out by yourself. technology has made this work. the service has made great strides in its technology. there needs to be intervention and monitoring by individuals, common-sense in terms of the reports put forward that need to be looked at before they go out but i do think the story is more
positive than negative. probably the most you could say, the most high risk decision i took when i was commissioner was at the end of 2003 i mandated the tax returns for entities over ten million assets after a delay of a couple years, the service always had this authority, never exercise that authority and that was because the technology wasn't there. we have the authority, why don't we use it? there is no software to electronically file all the tax returns to the big hospital chains and not for profits. y no software? there is no mandate. it is a totally circular argument so we mandated it and a year-and-a-half later because for the next taxable year which
means returns had to come in september 15th, the decision that was made, 18 or 20 months later, something like 17 or 18 to develop a software. this is a hard process. the administration rightly says bringing of the affordable care act is going to take time. that is a real issue. that is normal. that iterative process is real and over time, looking back, people will see improvements from all the technology. what you have to wait out against that are two things. the policies that are under it, i talked about the full time peace but the other is in the news of ed snowden and there is no such thing as i t security period. anyone who tells you there is high tease security you can buy a bridge down the river here
because people will say to me, we are talking about building longitudinal databases that would track the baby from the moment -- somebody help me out. what is the task when you think the baby? what? there you go. new york answer. spain until the kid is okay. write that down, the doctor writes that down. doesn't want to attract you all the way through to death as to what happened in your life and what public policy brought. i said you want all this personal information it is going to -- some day it is going to be discouraged. the systems are great. it is not our system. it is the people and it shows you ed snowden or the wiki leaks guy who is on trial right now, court-martial right now. people can use information in
appropriately, the other side of technology, it is so sensitive, this issue of the global use, thank goodness we haven't had it but there has been a little more breaking a out of the service in the last few years, an erosion of personal behavior but i worry about this. if there was any thing i worry about the most it was about a major data breach because that would be so catastrophic for the american people, the system. >> thanks again for being here today. i have a question redressing back to the -- what is going on today and what happened during your tenure as commissioner. you mentioned before from 2003-2007 sometime during your tenure that you had some scrutiny because there were the inner-city church organizations,
representation of bias, you put some system in place presumably that brought object to the and criteria and the valuation in to the process for determining who gets these audits versus who doesn't. in your opinion, was that throw out by the current commissioner or the current office that deals with this? in your opinion what changed? >> let's go down to this piece here. i think it is stupid as this. that is over here. that was a group in dallas, texas, that was looking at all the complaints that came in about politics by an organization and it went into this group. this was the french end group, a different unit. they are both supervised by the same group of people here and here and it is as though they
never talk tortured these experiences so i do find this perplexing. i don't fink first of all the irs never throw anything out. i don't think it was thrown out or willfully abandoned. i think it was negligence in terms of not keeping after things that were important. other questions? >> there are issues of controversy over tax filings, software companies, for refiling to being available for the public longer, you have anything like that? use of that situation? >> i haven't followed this issue recently. that was something when i was at the service, i left in 2007, that was an issue, there was a
movement that almost ties in to do you want to provide a basic return for all americans wear the irs sent a return and sign off on it there's a whole continuum of issues that gets into potentially damaging commercial entities or practitioners and many of us work collectively could be under certain circumstances damage through simplification or other things. i would tell you i don't have a particular opinion on the free final peace. it has worked well. i would tell you that overall if you increase electronic filing rates, certainly the service and practitioners can be proud of and going back to the decision i made earlier about mandating the electronic filing for business entities the whole goal was to make the process more efficient
because the idea was if you look at the oil companies as a whole and have all the data arrayed you can then say something popped out for shell or bp looks different in this line item and you can only look at that line item and be more efficient, so we benefited from all this technology, asking the same question, i am not an advocate. we have genuine well-founded concerns about size of government and potential overreach of the irs. i am not an advocate of taking everything done in the private sector and bringing it into the government because then you get bad facts like what we just had, it makes it even more -- make for more cynicism. i don't have a particular opinion on that at this stage.
[inaudible question] >> this is a hard area because -- again, i have a great cynicism about the ability to control data. going into this huge debate about the nsa and all the concerns obviously it is a good thing the government can do many things that kept a safe. that is the good thing but you need to be careful about the interoperable the about these things. i wanted more exchange of information between the sec and the irs but there wasn't a stomach for that among people worked with because i thought information goes to the iris is hard for the irs to give information. back to the oil companies if the irs looks and all the oil companies and determined one was that a higher appetite for risk and doing things, that would be
pertinent to the sec making an analysis of what they wanted to spend their time on but there was no view of wanting to do this because of these issues of sensitivity which are real as to the use or misuse of information. two more questions. >> your analysis of the underlying problems, one thing i don't think you addressed is the ambiguity in the statute and the lack of irs guidance as to percentages or other determinations of political activity you can engage in leaving maybe these underlings to flounder for a bit without lack of better guidance. are you aware, do you have any thoughts on that? are you aware of any progress that might be made that might be announced? >> what has happened here as you are probably aware primarily engaged in activity at some
stage 50 or 60 years ago which wasn't in the statutes and somehow that has been sitting there for a long time and been honored. i do think it will be looked at again. i don't have much on this. i am not as warm in this sense of the service is always asked to interpret statutes that have sensitive or ambiguous areas. >> we will leave the last few minutes of this event to take you live to capital hill where the senate is about to gavel in for the day. at noon eastern senators will take a vote on whether to continue debate on a democratic proposal aimed at addressing the doubling of student loan interest rates. the bill sponsored by democratic senator jack reed of long odds would roll back student loan interest rate to 3.4% for one year to give lawmakers more time to craft a more permanent fix.
in the meantime a bipartisan group of senators is working behind the scenes to come up with an alternative that would tie student loan interest rates to the ten year treasury note. the senate may stay on the student loan issue throughout the week. live coverage now of the u.s. senate on c-span2. the presiding officer: the senate will come to order. the chaplain, dr. barry black, will lead the senate in prayer. the chaplain: let us pray. almighty and ever blessed god, we thank you for your divine grace that sustains us and for
each evidence of your spirits leading in our nation and world. lord, inspire our senators to walk in your light, as they grow in grace and develop a greater knowledge of you. make them this day human channels through which your love can flow to bring harmony where there is discord and hope where there is despair. empower them to lift high the lamp of truth to illuminate our nation and world. incline their hearts to follow
your leading, knowing that in due season they will reap if they persevere. we pray in your great name. amen. the presiding officer: please join me in reciting the pledge of allegiance to the flag. i pledge allegiance to the flag of the united states of america and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. the presiding officer: the clerk will read a communication to the senate. the clerk: washington, d.c, july 10, 2013. to the senate: under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable joe
donnelly, a senator from the state of indiana, to perform the duties of the chair. signed: patrick j. leahy, president pro tempore. mr. reid: lp? the presiding officer: the majority leader. mr. reid: mr. president, i returned from nevada this sund sunday. on saturday i had a briefing by the head of the forest service in nevada. and we thought things were going really well with the fires in nevada, and they were. progress was being made. limited, but progress was being made. but since then the fires have gotten much worse. not everyone can see this, mr. president, but i have here a picture that i -- of course i didn't get this until earlier this morning, didn't have chance to blow this up so we could put it on an easel. but, mr. president, this is the beginning of the las vegas strip. this is downtown las vegas. and i.t. calle it's called the r fire. you can see it burning.
it is only about 10 miles from las vegas, maybe 12 at the most. you can see these -- mt. charleston is a 12,000-foot mountain. the names are shooting way above that. the smoke -- we don't get many clouds in southern nevada, but the smoke cloud here is intense. one of my staff indicated that where she lives it's raining ash. this is really a devastating fire. the firefighters are doing the very best they can in a very, very difficult situation. so my thoughts go out to the thousands who have been evacuated from their homes in southern nevada's mt. charleston area. i think hundreds would be a better way to say that where the carpenter 1 fire is -- it's called.
the first responders, my heart goes out to them. they are working really very, very hard. extremely rugged terrain. they are doing a lot of this in the air with helicopters and large air planes. a couple areas have been saved because the firefighters have been able to cut waves so the flames don't jump over into these houses. yesterday the wind changed and one of the roads going up to mt. charleston, jumped that road, so it is getting closer there. some of the homes that they were so concerned about. lives have been saved as a result of what the firefighters are doing. they're working round the clock to protect their communities. unfortunately, mr. president, this is southern nevada where we had heat last week, virtually
every day up to 117. so it's hot in las vegas without this fire. we don't get much rain. we get -- the entire year we get four inches of rain. so the summer heat and these dry conditions and the winds are really working against the firefighters. but they're working very, very hard. but the progress that we were making was erased yesterday as the fire jumped cal canyon road, as i said, spread to new forest and desert land. we thought everyone would be able to return to their homes in cal canyon yesterday. but with the fire having spread the way it did, we're hoping they can go back to their homes soon. we've had a number of hoe tills in las vegas -- of hotels in las vegas who have allowed people who have been displaced to have
free accommodations. as indicated, mr. president, smoke can be seen every place. we have 2 million people now in las vegas. and this fire, everybody can see it. as i said, these flames, you can see them way -- well over the 12,000-foot mountain. the bureau of land management, the forest service are all working with other federal eaght agencies and state agencies that have assisted firefighters in containing the blaze and helping residents to move. there's also a fire burning in reno, south of reno. it is called the buy so the bise largest fire ever recorded in nevada. people in the pipeline canyon area have been urged to evacuate. so i'm going to continue to monitor both of these fires because they are disasters.
i've -- i appreciate all the work done on the state level. i extend -- my office has exte extended support to governor sandoval to assist the state and everything they need. and i'll do everything i can to ensure that every federal resource available will be available to support local officials and fire crews. there are currently more than 20 active fires in 11 states, including nevada's neighbor neis california -- and we all know about the fire in arizona, but there are others, oregon, utah, idaho. i'll do everything i can, i repeat, to help them. in a couple hours, mr. president, we'll vote on whether to debate -- begin debate on our plan to keep loan rates low for students for an additional year.
last month republican okay instruction forced interest rates to double from 3.4% to 6. 8% for about 7 million college students. if we fail to roll back this increase, those students will each pile on lots of new debt to get a college education. these higher rates will be particularly harmful to low- and middle-income families who rely on these federal loans more than anyone else. we have the pell grants, which go to the low-income people, but people who are middle class have to do these loans. school has gotten so expensive, states have cut back on the support they tbif for colleges -- the support they give for colleges, so this is just a very, very difficult situation. students shouldn't suffer because of some senators standing in the way of that compromise. that's why we proposed a one-year extension of last year's 3.4%, so we don't want it
to double. the extension will allow us to craft a long-term solution to mounting college debt without harming students in the short-term. i do say, however, that a number of senators met at my direction this morning at 9:00, and there's progress being made. maybe we can come up with a compromise. while imperfect, a lot of things that happen legislatively, it will be a way for us to move forward. the meeting went very well. it was done in senator durbin's office. democrats and republicans attended that meeting. i think we're making some progress. mr. president, i move to proceed to calendar number 124, s. 1328. the presiding officer: the clerk will report. the clerk: motion to proceed to calendar number 124, s. 1238, a bill to amend the higher education act of 1965, to extend the current reduced interest rate for undergraduate stafford
loans for one year and so forth and for other purposes. mr. reid: mr. president, following the remarks of senator mcconnell, the time until noon will be equally divided and controlled between the two of us, with each senator permitted to speak for up to ten minutes each. at noon there will be a cloture vote on the motion to proceed to the legislation i just talked about. mr. mcconnell: mr. president? the presiding officer: the republican leader. mr. mcconnell: for more than a mornghts month, i have beening e floor to talk about student loan reform. this is an issue that should have been an easy, bipartisan slam-dunk. i have noted that the proposals put forward by both president obama and congressional republicans have been strikingly
similar. we both agree on the need for permanent reform and that we agree on the need to help all students and not just some of them. yet here we are after the july 4 deadline and senate democrats are still blocking bipartisan student loan reform. you have to ask yourself, why? well, because they prioritized politics over helping students. they're basically -- there are basically two different democratic groups battling for sprem circumstance a more responsible, permanent faction, and a more political campaign permanently faction. in the first group are the sensible democratic senators who agree with both president obama and republicans that it's time to finally solve this issue that washington should actually help students and stop using them as pawns in a political chess match. they support the bipartisan compromise plan put forward by
democrat, republican, and independent senators alike. unfortunately, this faction is opposed and outnumbe outnumberee campaign permanently democrats. they are the ones who i suspect would actually prefer to see rates lapse so they can manufacture their campaign issue. and to hear the public musings of some top democrats, you had have to conclude that the democratic leadership is on the side of the campaign permanently and against helping students. as the majority leader put it a few weeks ago, we're not looking for compromise. the majority leader said, we're not looking for compromise. another democratic senator in leadership boasted that a goal in this debate wags to show quote--quote -- "the differencen the two parties on the key issue." this is just the kind of thing that makes people so si so cynil
will washington. they wave their arms to do something but then they appear to sabotage it so they can manufacture a politically convenient crisis. they're doing it on student loans, and they've been doing it with nominations, too. all week it seems they've been breathlessly telling any reporter who'll listen that we've got a nominations crisis around here, a nominations crisis around here. it's really laughable that republicans are holding up the president's nominees. to hear some of the over-the-top rhetoric, you'd think republicans had blocked all of the president's second-term cabinet nominees. but then of course you'd be entirely wrong because the truth is since the president swore his oath of office in january, the senate has confirmed every single cabinet pick that's been brought up for a vote, every single one of them. let me repeat that. every single punk that's been
brought up for a -- every single one that's been brought up for a vote, they have all been confidence. many have been confirmed on the one hand unanimou-- onunanimouss public votes. just last week the e.p.w. chairman gave his support for gene ma mccarthy as the e.p.a. administrator. they're forced to gin up this fake, absolutely fake nominations crisis. it's why we see them bringing out all the nominees who have been appointed to office either illegally or who are exceedingly controversial. democrats themselves have delayed consideration of these nominees literally for months because the majority leader determines the timing. it's the democrats who did that so they could pull them all out
of the woodwork at the same time in the hopes the senate would reject them. democrats are out there just daring the senate to do it. they want it so badly, it appears to be their goal. and there's a reason for this. it's because the far left base seems to be getting fed up with the democratic process. the big labor bosses are sick of waiting for the special interest legislative kickbacks they must feel they're owed, and now they know that altering the rules of our democracy is the only way to get what they want. this isn't going to work. the facts show the truth, and the truth is that any crisis over nominations is a crisis of washington democrats' own making, one they've stirred up intentionally. an absolutely manufactured crisis. by any objective analysis. as of last night, there were 140
nominees pending in various committees. these nominees are under the control of the majority. not us. and there are a little over two dozen or so eligible for expedited floor consideration, many of whom republicans have already said we passed unanimously. why hasn't the majority leader called for votes on any of these folks? clearly if anyone is obstructing here, mr. president, it's the majority leader. because this whole conversation isn't really about making the senate work better, and he knows it. it's all about his power grab. well, let me just caution him again to think long and hard about what he's doing. it's one of the -- as one of the most senior members of the democratic party said yesterday, deploying the nuclear option would mean breaking the rules to change the rules.
breaking the rules to change the rules. as the majority leader himself once said -- and i quote -- "it would ruin our country." we all know why. once the trigger is pulled, there would be no limit to the consequences. not just for republicans or for our country, but for democrats too. they should think very carefully about the ramifications for them when a future republican president makes his own appointments to the cabinet and to the federal bench. look, we know senate democrats are not serious about implementing student loan reform. they've already demonstrated that by blocking just about every bipartisan effort to do so. but on the nuclear option, it is certainly my hope that cooler heads will prevail. i have to believe they'll choose the long-term health of our
democracy and of their party over what, frankly, amounts to the narrowest -- the narrowest -- of short-term political considerations. pulling the nuclear trigger is not something the history books will look favorably on and they know it. and of course there will be consequences. when the president was in the senate back in 2005 and the then-republican majority was thinking about something akin to this, this is what the president had to say. if they choose to change the rules and put an end to the democratic debate, then the fighting, the bitterness and the gridlock will only get worse. the president was entirely correct. senator reid said in 2009, just a couple of years ago, there is no way i would employ the use of the nuclear option. no way. he said it would -- quote --
"ruin our country." he said "it would have destroyed the senate as we know it." hopefully that was not and there is some different standard now. of course you know we had this debate at the beginning of the year. actually we had it it the beginnings of the last two congresses when the senate, the occupant of the chair, had newly arrived here, voted on two rules changes and two standing orders after which the majority leader said, the rules issue for this congress is over. he gave his word in january thin january of this year. we're waiting to see if that word will be kept. mr. president, i yield the floor. the presiding officer: under the previous order, the leadership time is reserved. under the previous order, the time until 12:00 p.m. will be equally divided and controlled between the two leaders or their designees, with senators permitted to speak for up to ten
mr. burr: i ask that the quorum call be vitiated. the presiding officer: without objection. mr. burr: i thank the president. mr. president, i come to the floor today to talk about the future of student loans for america's students. and when i say students, i have to define what that is, because as we know today, we've got students of all ages. we've got financial impact applied to a 19-year-old that's entered for their first freshman year. and depending upon what the income of their family is depends whether under the current system they get a subsidized loan. and the maximum that they can receive under that subsidized loan as an undergraduate is $3,500. i'd be willing to bet that the president and i both can't pick an institution in our states where the tuition on an annual basis is $3,500.
it doesn't happen today. that is the reality that's been left out of the debate so far. this debate has been all about politics, and it's not been about students. and it's not been about how to apply affordability as broadly as we can to marketplaces. let me describe to you where we are today. between 1965 and 1992, the cap on the student loan program in this country was 10%. one-zero. 10%. in the mid 2000's congress politically said we're going to adjust it and subsidized loans are going to be at 3.4%. nonsubsidized loans at 6.8% and graduate loans are going to be at 7.9%. if you're a parent, you're going to have a higher rate. it's in the eight-plus percent
range. now to me, that strikes me as incredibly unfair, because we take two undergraduates, two 19-year olds, two entering the same institution with the same financial obligation, and we say to one we're going to give you a rate on your student loan that's half of the person that sits in the seat next to you. half. 3.4% sitting in this chair and 6.8% sitting in this chair. and understand that the person sitting in this chair, depending upon the cost of the institutions, parents may have an income over $100,000, and they may qualify for a federal subsidy. let me suggest to you that the marketplace is the thing that ought to dictate and decide what the rate is. that's the only thing that's fair to the taxpayers in this country, is the predictability of knowing that it'siegest to yt
the bill that we're going to take up and we're going to vote on -- motion to proceed at 12:00 today -- is a bill that was created in the 2000's, and two years ago we kicked can down the road and said we're going to extend this inequitable student loan program -- 3.4% for some, 6.8% for others, 7.9% and 8%-plus for parents. why? because we're overcharging some to subsidize others. let me say that again. we're overcharging some. we're overcharging some undergraduates, 19 years old, freshman in college, 6.8%, so that they'll subsidize the 3.4% that we're charging subsidized loans. now, let me just point to a chart that i've got here, madam president. and it shows undergraduates under the student loan.
and this is a comparison. let me move to another chart just real quick. because i think this one best displays what i'm talking about. 26% of our nation's kids are undergraduates and subsidized. 55% of the eligible students are either undergraduates or graduate students that fall under a 6.8% interest rate. so, when the senate majority leader came to the floor and said somewhere upstairs trying to negotiate a deal, he was 100% accurate. the but the reality is we're still going to have a vote on only one plan at 12:00. there is no option for members of congress. and what i would suggest to you is that here displays why at best there should be two options, and at worst we ought to vitiate the motion to proceed and see if we can come up with
another bipartisan agreement. you see, the option the manchin bill is a bipartisan approach. it's democrats and republicans coming together and saying we can agree on something that we think is fair and equitable and financially sustainable. but this is the plan we're going to have a vote on at 12:00. 55% of the population of students, quite frankly, is being screwed. they're overpaying, they're paying 6.8% for interest. it would be hard for any american to be charged 6.8% to borrow money today when a home mortgage for 15 years is 3.8%. yet, we're charging students 6.8%, and we're saying that to go to this is an injustice to our students, where all of a sudden we take 64% of the kids and we treat them all alike and we charge them 3.66%.
something is inherently wrong in the debate we're having. if this is about kids and affordability, this is the plan that we should be having the motion to proceed, not this one. this plan merely kicks the can down the road for 1 more month s -- for 12 more months. this plan wasn't created by joe manchin or richard burr or juror senator king or senator alexander. this plan was created by the c.b.o. the congressional budget office in 2011 in their march report to congress, they came up with the idea of tying the interest rate to the 10-year treasury bond, except the c.b.o. said it should be the 10-year treasury bond plus 3%, and you know what? that's what senator coburn and i introduced. and when senator manchin, senator king, senator alexander, senator carper, others got involved, we decided that what we needed to do was continue to
have a blended rate. but we all agreed that an undergraduate student shouldn't face an interest rate schedule that is not equitable to all undergraduates. so instead of applying it to 26%, we applied it to 100% of the undergraduates. we're going to give you the best rate, which is the 10-year bond plus 1.85%. that's fair. it's understandable, predictable, consistent, a year in advance you know exactly what your rate is going to be because it is determined based on the 10-year bond every may. now, my good friend, senator harkin, came to the floor and he said that we were balancing the budget on the back of this student loan program. the student loan program is $1.3 trillion program. let me say that again, $1.3
trillion -- with a "t." based upon the c.b.o. score, it had a .7% surplus. now, by washington standards, in a $1 billion program, .7% would be a rounding error. this is a $1.3 trillion program, and let me assure the president and my colleagues, this is a rounding air. i can't look everybody in the says and say, it might not cost us $^1 00 billion, might save us $100 billion, but we're certainly not balancing a $17 trillion deficit -- debt on the back of the student loan program. let me assure you of that. and for any that suggest that we are, it is in fact disingenuous. let me suggest to you, madam president, that this is the first time i've been accused of
balancing the budget on the backs of our kids. but in 2010 as part of the health care reform act, democrats ended the federal family education loan program -- feel -- fell -- at a sakes of $61 bsm of that the democrats directed $19 billion to deficit reduction and the rest to help pay for obamacare. or the affordable care afnlg ac. if i have being accused of balancing the budget on .7% determined by c.b.o., and in 2010 the democrats voted to eliminate the f program and save $60 billion and applied $19 billion to deficit reduction and the rest to help for the affordable care act, then they've plowed this ground long
before me. in 2007 as part of the college cost, reduction and access act, the democrats found $27 billion in savings and spent a good amount on new programs and then directed $1 billion to deficit reduction. i said earlier, i have great affection for senator harkin. senator harkin said, this should be part of the higher education reauthorization act that may or may not happen next year. well, we made changes to the interest rate on student loans outside of the higher education reauthorization, in 2012 with a one-yier extension of the 3.4%. we did it in 2010 with the elimination of the fell program. we did it in 2005 under the ccra anchts the deficit reduction reduction act. senator harkin's appropriations
committee has made changes to the eligibility rules to the pell grants each of the past several years outside of the higher education authorization, including the elimination of summer eligibility, ability to benefit, and lower of the automatic enrollment for low-income students. i mean, it -- it's just not fair to come and say, to me, that i'm doing an outside higher reauthorization. there is a track record continually of the person that accused us of doing it of doing it himself, of let me say that he is accurate. i'd be happy to yield. mr. manchin: if i could, i want to thank the good senator for working in such a bipartisan manner. this bill haif this bill has bed as belonging to one party or the
other, it is wrong. we sat down together, senator cobun, senator a aalexander, senator burr, and we had senator carperrer and looked at how we could fiction something. this deadline hit, we knew one year ago when we extended it, they said it was a political at most spheerks we we had to extend it. we knew that year would come. it has happened here -- like everything else, nothing gets done. if you want to fix it, you had to understand the programs. i think now they're saying that -- aaccusing that the students are paying profit so that we can pay down debt. whether there's profit built in or not depending on the accounting procedures used by our federal budget, it was built in. you can blame whoever you want to blame. but it is built moo it. i think what i would ask, we have provening that we're willing -- all of us -- no
profit will be made on the backs of students. what we can determine through our bill that we're working on, right? mr. burr: correct. mr. manchin: so we've all come to that agreement, democrats and republicans t should all go to lowering the rates? mr. burr: that's correct. mr. manchin: we agreed on a long term fix, ten years, rather than kicking it down the year. that's what we've coming to the conclusion. and we've also agreed, quis different than what the house sent us, and i applaud you all for working with us to put a fixed rate so if it's 359.66% this year and i am a able to qualify. i am a subsidized at $3,300 that the taxpayers will be paying, that $30eu6 6% is fixed for the life of the loan. we agreed on that, correct?
mr. burr: that's correct. mr. manchin: when they say it is the republican bill, that's so erroneous. this will truly a bipartisan effort. we're working with all of the colleagues in my caucus and i know y'all in your caucus to understand that if i'm a subsidized stafford loan, that means that the federal government, the taxpayers of this country will pay my interest while i'm in school. correct? mr. burr: that's correct. man at the end of that, then i pick up whatever interest rates have accumulated and i take from that day forward. what they didn't understand and a loot don't understand, i can't make it just on that $3,500. i've got to go and borrow more money. now i am borrowing more money ifgy with my colleagues on the democratic side, i've got to borrow -- that is 6.8%. we were able to bring that to 3.66% for all undergraduates s
sna. mr. burr: you're correct. i might add in this chart shows exactly what he talked about. that under the plan thafs that we will vote at 12:00, because of the need for 1250u7b9ss in the subsidized category to borrow additional money at 69.8%, at the end of their process, they owe $78 a month where under the bipartisan bill wherever graduate is treated the same, they owe $e7 5. it is actually cheaper even for the undergrads that are subsidized. mr. manchin: the money that i have to borrow, even though i qualify because of my income for a subsidized loan, i don't have to pay the interest on an annual basis. i don't make it on that so i do have to pay it. so by bringing it down to one low rate, make up a much lower payment.
it is less hardship on me as a clothe student to make sha that lower payment than it would be to make the higher payment just because the optics were we want to help the subsidized, the really poor kids. might be poor, but i can't make it on just what you give me 689 i have got to have a little more help. we are not looking at the whole picture here. then on top of that i want to go to graduate skew school. then you pump me up on the 6.% again. ours brings it down to 5.21%. i know the senator agrees to it. i might ask our senator from tennessee, my colleague from tennessee, whoever with a like to start, to talk about this. but let's say that right now we know we have a consolidated cap at 8.25%. let's say i graduated and wentsdz to school during higher resession of times. so tend i have an 8.75%
acumulative interest i know. i can cap that and go in and consolidate 8.25? correct? mr. alexander: if i may respond to the senator from west virginia, first i'd want to congratulate senators march chin and bur for helping the if you are senate understand this issue. this is hick a lot of issues we have to fairks not simple. i used to be a college president. i used to be a ayes secretary of education. i had to reeducate myself on this legislation. i still made some mistakes. i was saying last night that there are only 2 million subsidized loans. what i was forgotten wrasse the point that the senator from west virginia makes, which was 80% of the students who have subsidized loans shall the low-income students, also have the
unsubsidized loans. so when you only take rare of these stied loans, you're leaving 7 million students with unsubsidized loans up here hang high and dry and nobody taking care of them. so you're hurting both the middle-income families and the low-income families when you have an ink complete solution. so the senator from west virginia posed the question, is it right and let's say i graduate from the university of tennessee. i have are a had two loans, the sighsesighed the loan. if i'm like four oust five student, i have had an unsubsidized loan. so i have paid that interest. some of the interest rates have gone up for me because, well, the country's interest rates have gone up to 10%. what i can do is take both those loans. i could take all my government loans at once and turn them into
an 8.25% loan. so that's in effect a cap on my loan. mr. alexander: and that means -- and then i would have the choice and i would say this back to the senator from west virginia or north carolina, when i consolidate my loan at.25%, i've heard some senators say, well, that just means the student is going to are to pay a lot of interest because it spreads the loan out over a long period of time. but does not the student have that choice? isn't it like -- if you want a 15-year mortgage, you have higher monthly payments but pay less interest because you pay it off quick. mr. manchin: what they are referring to and might be yes understood is everyone will take the longest period of time. i'm understanding, and i think i'm accurate and correct on this, that okay i want the smallest payment. i gist got out of school so i want the smallest payment. now i'm getting better jobs.
four or five years out, i can afford to pay $300 or $4 00. there is no penalty for me to shorten that, as there would be in a conventional market. is that how you understand it? mr. alexanderz madam president, i ask unanimous consent that the senator from west virginia and i be permitted to engage in a colloquy for a few minutes. the presiding officer: without objection. mr. alexander: that's how i understand it. i would say to the senator from north carolina, if -- i would presume a graduate of the university of north carolina would be smart enough to make that decision for herself or himself. wouldn't you think? mr. burr: i think they would. one of the agreements we came to is students ought to be in control of decisions of their loan rate based upon what was available to them. if a student goes through the next four years and they have a combined interest rate of about 4.5% for the life of the loan,
why in the world would they be excited at an 8.25%? if for some reason somebody got out of school and their combined interest rate was 9%, we give them the option of going back to 8.25. i think the senator from west virginia made an extremely good point. for the most subsidized student, they can only borrow $3,500 that's subsidized. you think of the institutions that are out there, none of them have an annual tuition of $3,500. we know they're going to borrow out of the 6.8% pot. what we're offering is the pots are the same and that the subsidy is that for students that qualify for the subsidy, they're not responsible for the interest rate while they're in school. that subsidy still exists. it's just we're not overcharging one group and we're certainly not overcharging the ones we just subsidized because they've got to borrow more money to complete their college education. mr. manchin: let me just say
that i graduate now. no matter what the interest rates are, no matter what they might have been, i graduate and economic times are tough. i find a job. it's not what i think my value is, but i find a job at $40,000. and $40,000, i'm married now and i have a child or two. don't we have in our bill a protection which has been in place for a long time, both democrats and republicans have supported this protection, which is called income-based repayment? i'm only, by law, i can only pay 15% of my disposable income. and i think that breaks down to my payment can only be $142? $142. isn't that a subsidy too? would we be subsidizing that to a certain extent? i'm also understanding if my economic condition doesn't improve and that's all i pay, by the end of -- by the end of 25
years, it's exonerated. i pay nothing. i'm done. mr. alexander: if i could respond to the senator, the answer is yes. i think it's fair to say that the consolidation option that a student has in case the rates go up at 8.25%, can be called a cap. not a hard cap, but it's a cap. and the second cap is this income repayment provision that you speak of. if you make -- if you're making $40,000 a year after they apply the formula, you probably aren't spending more than about 10% of your income. it's something called disposable income. you can be required to pay on your student loan. and that continues for about 20 years. and if at the end of 20 years, you haven't paid it off, the loan is forgiven.
so any student who has a loan has that opportunity. they can consolidate at 8.25% and income repayment limits the amount they have to pay each year. so they have that. and then one of the things i noticed about the manchin-burr bill that i'd like to ask the senators to talk about a little bit is that you've come up with a really, what i'm beginning to understand as i study this more and more is a very significant contribution. the idea that all of the undergraduate student loans, which as i understand are about two out of three of the loans ought to have the same interest rate. one, it's confusing the way it is now. but the other reason is about 80% of the people who have subsidized loans -- low-income students -- also have unsubsidized loans.
and so your contribution is to say let's simplify it, provide certainty over a long period of time and treat all undergraduates the same. otherwise it seems to me you're leaving seven million middle-income students who have unsubsidized loans high and dry, and the 80% of the low-income students who also have these unsubsidized loans, you're not helping them either. so i wonder if you could comment on your -- on this idea. and i notice without a cap, you're able to get the interest rate for all undergraduates' loans down to about 3.66%, which is a pretty low rate. mr. manchin: let me just say very quickly, i'll use $10 million hypothetically that's borrowed every year. $10 billion, $10 million, whatever you want to use.
25% of that money goes to the subsidized. just 25%. i understand that's close to about 40% of the students that participate in borrowing money. but the volume of money is about 25%. one-fourth of the money that's loaned out. if we're keeping the rates low on one-fourth of the money, that means that we artificially have much higher rates on three-fourths of the money students need to get an education. what we're saying is we're going to bring a larger majority of that down to the lowest rate. and we think it's a good policy that we should be discussing and talking about, and that's where we are. that's why we've come up with the plan that we did. but we reduced all the rates. the plus loans, i think, senator, went from 7.9 -- 6.21. and then we had the graduate loans went from 6.8 to 5.21. but if you do all of the
undergraduate, it would go from 3.4 to 3.66, a point a quarter. .26. mr. burr: for the undergraduates not subsidized they would go from 3.8. today subsidy goes to 26% of our students. 55% of our students pay the 6.8% rate. under the bipartisan bill, 64%, all undergraduates get 3.66. so if this is about afford ability, if this is about what provides the greatest flexibility for students to afford it, then the answer is clear. it's on the chart. but it also computes in the
monthly payments that students are obligated to. and the fact is for a typical student in their first year, taking $5,000 out, $3,500 comes as subsidy. $5,500, $3,500 comes as subsidies. $2,000 comes from the 6.8% rate. they actually -- i'll be happy to yield for a question. mr. harkin: on that undergrad student, for how many years does that hold, that 3.66%? how many years? mr. burr: it holds for one year until the readjustment of a ten-year bond. it could be higher, it could be lower. higher today than it was in phaeufplt. mr. harkin: what does the c.b.o. project interest rates will do? mr. burr: i'm sure the senator has come with a chart from the c.b.o.. let me say we've got an 8.25%
consolidation cap. the reality is that if you're going to move to a market-based system, the question that we have as senators is how do we drive interest rates to the lowest for our nation's students? if you put a hard cap of 8.25, all of a sudden this interest rate goes up. if we're hitting to a zero surplus, it's not going to cost us anything, we're not going to make anything. 3.66 goes up. it doesn't go down. by having the flexible cap at 8.25, where anybody can consolidate at any time, we're able to do it at the ten-year bond plus 1.85. this is all c.b.o. numbers. we're using the same source for this. but i think at the heart of this, and i say to my good friend from west virginia, the real question is are we going to let 26% participate in an attractive interest rate or are we going to extend it to 64%,
which is the entire class of undergraduates? mr. manchin: that was a bipartisan agreement we had, and i appreciate very much. let me say one thing. here's the last ten years. if we would have used the last ten years with the bipartisan bill would have been kicked in, this is what the students that basically are paying the higher rate now at 6.8% frozen would have been able to take advantage of the lower rates. they never got a chance to take advantage of the lower rates. all we're assuming is if rates go up in three or four years they're going to be paying higher rates. we never assumed the market, that's the reason you fluctuate with the on the ten-year t-bill. if it was a ten-year t-bill look how much lower rates would have been paid in the last few years. we can all use figures any way you want to use them. but the bottom line is it's either going to be market -- which has always been market before. and there's been caps that have been much higher. and we're trying to find something that's going to be affordable. but the bottom line is do we try
to protect at the lowest rate -- most undergraduates have the hardest times. once you get your undergraduate degree, you've got a much higher percentage of making it. if you want to get a graduate degree and a higher ph.d. degree, you've got a much better chance. the bottom line is we want to keep the rates as low so when you go out you're not burdened with the highest payments. and we have a lot of protections built in that i think a lot of times go misunderstood and is not explained properly and i'm glad we're having this colloquy back and forth. mr. burr: would the senator from iowa like another question? mr. harkin: i have a statement to make but not a question. mr. burr: i'll wrap up in a little while. you know, -- mr. harkin: if we want to get into a colloquy, that's fine. mr. burr: i'd rather make my points that i need to do. at 12:00 we're going to vote on one bill. we're going to vote on a 3.4% extension, kicking the can down
the road for 12 months. not fixing the problem, not finding a solution, and continuing to overcharge some students and subsidize another pool and go to bed at night and feel good about this. i think the reason that we have a bipartisan agreement is there's some that don't feel good about that. we look at it and we say the united states senate hadn't done what people sent us here to do, and that's to get as close to right as we can. again, i say to my colleagues, and i go to the c.b.o. again. the c.b.o. scored the bill and c.b.o. said the bipartisan bill is within .7% of having no cost and no surplus. i'm not sure that you can get any closer than that. and they have also told us verbally and showed us in scoring, put the cap in and you raise the interest rate on all students, all post graduates, all parents. and our objective, when senator
manchin and senator king, senator coburn, senator alexander got into the discussion was how do we get rates as low as we can? our focus was on the affordability for the students. secondarily, the sustainability of the program, which was long term, something that we didn't visit every one or two or three years. so let me just get into specifics because there are four proposals out thr-fplt one of them has already passed the house of representatives. the house of representatives has a ten-year variable rate that fluctuates annually for unsubsidized loans, the rate is 4.31. for subsidized loans the rate is 4.31, for plus loans 5.74. it removes the consolidation cap. removes it. and it creates caps of 8.5 and 10.5%. now, the vote that we will have at noon, i think everybody
knows, it is a 6.8% rate for most students. 26% get a subsidized rate of 3.4%. the plus loans are at 7.9%. and that's 18% of the loans at 7.9%. under the president's proposal, the unsubsidized is, i think this is backwards. i think it is the subsidized at 10-year and .93, the unsubsidized at 10-year, 2.93. the plus at ten-year plus 3.93. and it's uncapped and fixed for life. so it brings us to the bipartisan bill. the senator from west virginia said it well. what were the agreements we made? we're not going to make money and we're not going to lose money on it. we're at .7% according to
c.b.o.. undergraduate is an undergraduate. we shouldn't cheat one to subsidize another. but there should be a subsidy for low-income, for at-risk students. the subsidy is they're not responsible for their interest payment while in school. the reality is we extend the same ten-year bond plus 1.85% to all undergraduates. to graduate students we bring the rate down to 10-year plus 3.4 and for plus loans, 10-year plus 4.4. and we keep in place the consolidation cap that has been in law. let mae remind my colleagues what i said earlier before they came. from 1962 to -- 1965 to 1992, the cap on student loans was 10% -- 1-0 -- 10%. if we put that in today, it is going to raise the percentage that each individual is going to pay.
mr. manchin: would the senator yield again? mr. burr: sure. mr. manchin: i i voted for the extension a year ago. mr. burr: as did i. mr. manchin: and i don't intend to vote on it again for an extension because we haven't fixed it. if by voting on this extension, what we're voting on is 3.4% just for the subsidized, and everybody at 6.8% and at 7.9% for plus loans. correct? so when you're talking about that, the difference of savings, senator, between our bill -- if we got a vote on our bill, the compromise bipartisan bill --, l would save close to $9 billion in interest that students wouldn't have to pavement i think we agreed on that, correct? mr. burr: absolutely. mr. manchin: if we vote on the bill, that's about $2 billion. in west virginia that's lot of money in savings of $7 billion that i don't and students don't have to pay in interest.
and that's across the board 689 and that's most of the students who have the subsidized and unsubsidized loans. that's the point we're trying to make and we hope we get that through. and i know that you hope that i do, we get a vote on this. mr. harkin: will the senator yield? mr. manchin: i think he has the floor, sir. mr. burr: i would be happy to yield. harass harold just samr. harkiny that we're trying to get to market rates because we've always had market rates. i would say, when i first went to college in 1958, 1959, 1960, 1961, i borrowed money under this program. it came into being in 1958. so 1959 was the first year i borrowed money. it was called the national defense education act or the eisenhower bill at that time. so i went back and looked to see what the treasury -- 10-year treasury note was at that time for those three years that i
borrowed. the 10-year treasury note at the time ranged between 4.2% and about 4.8%. i borrowed money at 2%. that's not a market raivment i say that to my friend. plus -- plus, not only did i borrow the mornings but all the time i was in college, i paid no interest charges. i spent five years in the military, no interest charges. i then went to law school, three years in law school -- no interest charges. then i had a one manufacture --a one-year grace period. no interest charges. so the interest rate clock never started ticking -- mr. manchin: no matter what service you performed in the military. everybody in college during that period of time borrowed at 2% with no interest at all? mr. harkin: that's right. mr. burr: let me say to my
colleague -- harass heart reason mr. harkin: the reason i raise that is why was our generation so special that this country was willing to subsidize my education? but for these young people here we're saying, no, no ... you got to pay market rates. mr. manchin: might have been that congress did a better job of getting its financial house in order than we have. mr. harkin: we made a commitment toen vest in a generation of -- to invest in a generation of americans. it seems now -- i want to make it -- it has not always been so. mr. burr: if i could say to my colleague, what didn't exist -- what didn't exist when he went through college and graduate school was that we didn't have an income test for repayment. we don't charge anybody over 15% on an annual basis. when the gentleman went through the system, he was responsible to pay become 100% of it. weren't you? and today after a certain period
of time on the subsidized loans, we forgive t we've got a lot of programs that didn't exist when he went to school. we have got pell grants that is not obligated to be paid back, $4,000. we've got student loan higher education tax credits that didn't exist when he went through education. we've got a basket of products. and what we're looking at is we're looking at how can we take one program, which is the rate-based program, and make it as attractive and affordable for students as we possibly can and under this scenario, we're able to accomplish that for 64%. under what we will vote on, we only do it for 26%, and you can't help but make the act, you're overcharging here to subsidize here. and i agree with my good friend, who i have great affection for, from iowa. that i want it make sure every student has an opportunity to go to college and it is affordable
for all. but we've got a system right now that we goal 100% of it the federal government. when i would good friend went through chej, there were private lengedders -- through college, they were private lenders that competed with the federal government. we have no private lenders. we legislative eliminated the private sector for competing with student loans much it is all dominated by the federal government. so at least we can try to get as inexpensively those loans as we can for the largest group of college students. so let me suggest to my colleague, i am going to ask a unanimous consent request, and i hope that we will entertain this because i think not only is the debate worthy, a vote is worthy. so i would ask my colleagues -- i ask unanimous consent that if cloture is not invoked on the pending motion to proceed to sses 1238, the jack reed bill on the student loans, then it then be in order to move to proceed to s. 1241, the manchin bill on student loans, further that the
cloture motion which will be at the desk be considered filed on the motion to proceed and, further, notwithstanding rule 22, the senate then immediately proceed to a vote on the motion to invoke cloture on the pending motion to proceed to the manchin bill, s. 1241. before the chair rules, let me just state that this agreement would allow us to have two votes on two versions of student loans rates that start at noon today. the presiding officer: is there objection? objection is heard. mr. burr: madam president, this is an important issue. and i want to thank my colleagues who have engaged editorialier this morning to try to find an additional solution. i want to thank senator manchin, senator king, and senator
carper, because they were willing to try fix this problem. and i'm convinced that my good friend from iowa, we're doing this in good faith. but now is the time to find a solution. it's not a year from now. i.t. not a month from now, not a week from now. it is today. mr. manchin: if i may ask one question, in the spirit of a colloquy to my dear friend from iowa. they are saying one year. they're look the at a compromise of the bipartisan bill that we've worked on, three or four years from now rates may go up because market rates may change. if we're only looking at one year, is there anybody problemmive in our bill that we couldn't go back a year if now if we see a better solution, if we get an education bill that we could say, hey, here's the grand bargain now, which is better than what we thought we had? still yet ours saves $9 billion and my dear friend's -- and my
caucus only saves $2 million. so we help more people save more money and we can still go ahead and rewrite another bill in another year. are we able to do that? mr. burr: permanent is defined aes a two-year session of congress. the next one could easily change it. man so if you look amr. manchine year for one year. and 7.9% for plus. under ours is 3.66% for all undergraduates and every rate comes down, correct? mr. burr: creact. man so that's $9 billion versus $2 billion. mr. burr: dishow that compute to the average student? it means a lower monthly payment. under the bill that we will vote on, the current extension, kicking the can dow down the road, $78 a month. under the bipartisan bill, $75 a month. on the graduate stafford comparison by month, that person who borrows under the graduate
program under the kick-the-can-down-the-road program is going to pay $251. under the bipartisan solution they'll have a monthly solution of $230. for the highest group, the plus loans, in a the love cases those are parents, the monthly obligation is going to be $197 on the kick-the-can-down-the kick-the-can-down-the-road. and under the bipartisan solution, the obstacles is going to be $180. it exactly makes the point that my good friend from west virginia said. why would we not take the opportunity to make this cheaper for everybody for the next 12 months and if we find a better way to do it, let's change it 12 months from now? mr. manchin: and i think, senator, what we're talking about also is that they're saying, if it consolidates, it strings the payment out for the maximum of 3 years which means they're -- for 30 years which
means they're paying a lot more back in interest. that's the argument i've heard from different people. so why would you have an automatic consolidation? with that being said, i'm understanding that with the government-run loan right now, there's no penalties for me. if i string it out to get the lowest payment for 30 years and then i say, i want to have 10 years, i can do that, correct? that's able to be done. so i can reduce that amount of time and amount of interest for my affordability to pay more. mr. burr: you're exactly right. i am going to recognize that there are others on the other side that would like to speak. so, madam chair, at this time, i would reserve the balance of the time on our side and yield the floor. mr. harkin: madam president? the presiding officer: the senator from iowa. mr. harkin: i know that senator stabenow has an important meeting she wants to go to. i want to respond to my friend from north carolina 1 to say whi
objected. i don't believe in all of these reservations for objections. i am going to explain why i objected because if we vote for cloture at noon on this underlying bill, then what the senator from north carolina wants, they can add as an amendment. they can offer that as an amendment to the bill. the bill will be open for amendment, to any amendments that anybody has. so the reason i object is because we have a bill. it's under regular order. we have cloture. the bill is open for amendment and the no as if in morning business from north -- and the senator from north carolina or tennessee or west virginia or anybody else can offer any amendments they want. that's the way the regular order ought to proceed. with that, madam chair, i yield the floor. ms. stabenow: mr. president? the presiding officer: the senator from michigan. ms. stabenow: thank you, madam president. i think what we are witnessing today are people who have a difference in philosophies, who both want to solve problems, have differences in approaches, and i believe that the issue before us at noon is a vote on
doing no harm. let's start because there isn't an agreement on both sides of the aisle as to whether or not we keep the student interest rates as low as possible for an ongoing basis or whether we tie it to market rates going up, so this go up over time. there is not agreement on that. i would hope we would have an agreement to do no harm. and so the vote at noon is, let's keep it at 3.4%, which is where it has been. market rates now, you can go out and get a car -- and i encourage people to gout and buy an american-made automobile -- you can do that for about 4%. you can go eight mortgage for about 4%. doubling the rates makes no sense. and putting something that students are asking us not to do, which starts where we are and goes up over time, does not make sense eemplet so let's do
no harm, let's vote "yes" to give us a year. we have people that care about this issue. we can sit down and spend that time, working under chairman harkin, who is committed to addressing in a comprehensive way, not just the interest rate on subsidized stafford loans but on all of the issues because there is a whole range of issues, not the least of which is $1 trillion in debt that students are carrying in this country and families are carrying in this country, which is more than the credit card debt that we have. but let's start with do no harm. if we do that then 7 million students are not going to be hit with the interest rate hike that is going to be in place. and if we do that, we're going to be saying to students,e, we e not going to see the government making billions of dollars in profits on the backs of students because the loan rates have gone up. so i would encourage everyone, people of different philosophies, to vote "yes" to give us the time to work out
what is clearly a broad, comprehensive issue, to make sure that young people and people going back to college a the opportunity -- have the opportunity to dream big dreams, to have the same opportunities that many of us have had. i went to school on student loans. i went to school on tuition and fee scholarship because of my own family situation growing up. and the reality is that we have the opportunity to do no harm and then work together on something comprehensive that does not down the road see students paying 7%, 8%, 9% or in the case in the house, they top out one of their rates at 10.5%. colleagues on this side of the aisle reject that. let's vote "yes," do no harm and then get to work in a bipartisan way on the larger problem and
solve it. i yield the floor. a senator: madam president? the presiding officer: the senator from rhode island. mr. reed: madam president, let me commend senators stabenow, hagan and alexander, a cosponsor of the legislation i propose that we keep the interest rates, the subsidized stafford loan to 3.4% while we deal with a very complicated and complex set of issues. it's not just the rate structure. it's the issue of providing appropriate incentives to control the cost of higher education. it's also the issue of refinancing existing debt and prospective debt so that this huge wall of debt, this, you know, avalanche of debt affecting college graduates and professional school graduates today can be addressed. and i don't think we can do that because these are complicated
programs off the cuff, as we're attempting to do today or in the last several days. it turns out that if we do not extend for at least a year this rate, then the contrary proposal will eventually raise rates on students across the board. and that's because the lowest calls for now, a 6.8% for stafford subsidized loans and other unsubsidized loans and other specified rates, in order to score this as a zero in terms of the congressional budget office, we have to over that time make up all that interest. so the proponents of the alternate approach are suggesting we will go with a lower rate now.
but that simply means mathematically we'll have to have higher rates in the future. and the question of when future arrives is a function of the way interest rates will be moving in the overall economy, and every indication is those interest rates will start rising and perhaps quickly. the federal reserve has already indicated that they are beginning to pull back on their quantative easing, which means rates are likely to go up. we've seen a significant rise in the ten-year t-bill rate just in the last month. it's gone up almost a full percentage point. so you're in a rising rate environment moving from a fixed rate to a floating rate without a cap. without an effective cap. so what we know is it might not be next year, it might not be the following year, but very relatively quickly we could likely see and will likely see
students paying higher than the 6.8% rate. and without a cap it could be significantly higher. and so if we adopt the proposal that's suggested by my colleagues -- and they have been working with great energy and great sincerity to come up with a solution -- i'm afraid we're going to end up ultimately seeing students paying much, much more. and that's not what we should be about. we have a situation right now, even with the 3.4% that just doubled july 1, 6.8%, where the federal government is making about $50 billion this year between the cost of funds and the repayments being made by students. so students have become profit centers for the federal government rather than, as i think the intention of the program, that the federal
government is going to help students go ahead and get through college so they can help us as productive workers in our economy. and it's projected that these federal programs between now and 2023, the ten-year period, will make $184 billion for the federal government in terms of the difference between what students are paying back and the cost of borrowing for the government. and so there's a lot we can do, i think, but not in 24 hours to redesign our program, so that students essentially are not being hammered with huge debts, and we are benefiting, profiting from those students. the c.b.o. estimates that under this bipartisan student loan certainty act, students would pay an additional $37.8 billion
more on their loans than they would under the current rate of 6.8%, between 2017 and 2023. it goes to my initial point. the first few years it's been designed so that the interest rates will be lower than 6.8%. but according to the c.b.o., between 2017 and 2023, so if you're a high school student right now, you're looking at paying a lot of money if you intend to go to college, about $37.8 billion more, because it all has to balance out to effectively a 6.8% interest rate, which is the current loan. students know that. that's why they've come and said, listen, thanks but no thanks. this short run discount of a few years in terms of the interest rate, we know we might be paying it if we're just starting out in
college. we definitely know our younger brothers and sisters in high school and another generation of americans will. and so, i don't think we should take that approach. i think what we've said is listen, let's wait. we have a lot of work to do. we want to look at proposals that might actually align the real cost of federal borrowing for college education and the real charges that we impose on students. right now my sense is that what our colleagues have done in their bipartisan approach has been essentially to make sure that the first few years look really good. they're certainly less than 6.8%. close to 3.4%. but then they have to put in a rather arbitrary dell taxer an increase in costs -- delta, an increase in costs because at the
end of the ten-year period they're going to have to make up the interest that would have been charged at 6.8%. that's not the way, i think, to approach fundamental reform of college loans in this country. there's another point i think that's important to make too is that we have always either had a fixed rate or an adjustable rate with a cap on each loan program. a cap on subsidized stafford loans, unsubsidized stafford loans and on a plus loan for families. now we don't have a cap. there's some discussion that if you consolidate your loans, you'll get an 8.25% cap. but consolidation can only take place after repayment. and before you're in repayment, all that interest on the unsubsidized stafford loans and the plus loans are accumulated, it's accumulating and being capitalized in what you owe.
and so when you consolidate, you have a much, much bigger principal to pay o. there might be a cap of 8.25%. but it is a much bigger principal. by the way, it's extended over a longer period of time. you also have to pay for that longer extension of time. that's not the cap we've had before in the context of these programs. it's been a cap on the individual loan, a cap on a subsidized loan, a cap on an unsubsidized stafford loan, a cap on a plus loan. and that, i think, is a major sort of fault within the proposal that we're seeing today. and the other issue too, and it goes to the index, is that it shows in a ten-year t-bill interest, typically we've chosen the 91-day t-bill interest. a 91-day t-bill is cheaper, frankly. so that you start off with a much lower index that the student has to pay, and then you
add other costs to it. the discount, estimate of default, all those things to come up with the final rate. but we're going to a ten-year t-bill rate, which means that students will be paying morell alternative to a 91-day -- more relative to a 91-day rate. i don't think that's the way we want to do. we want to take the time to try to address this whole set of issues, to do it in a thoughtful way, to understand that one of the big challenges we have is not just the issue of what rate. it's how do we keep college costs in check? how do we provide the kind of education? how do we deal with the interaction between all of these different types of loans? how do we go ahead and, again, this might be one of the biggest challenges we'll face here going
forward, is how do we somehow allow these students who are drowning in debt to effectively refinance these loans so that they can buy homes, they can buy cars, they can participate in the economy? that is not included in this proposal. and indeed, one of my concerns is if these rates are locked in and this is long-term legislation, then we won't have the incentive, the proper incentive to effectively deal with these issues. we'll just let them slide along, and i think that would be to our great, our great detriment and, more importantly, the detriment of families throughout the country. there has been, you know, and appropriately so, comments and criticism of this short-term approach. we should have fixed it last year. well, we haven't fixed it, and i
think we have to give ourselves the time to fix it. there is a suggestion that we're just dealing with a portion of the loans, the subsidized stafford loan, and that everybody else won't get a benefit. but from the numbers that we've seen from c.b.o., one thing is certain, that in the last few years, from at least 2017 to 2023, everyone -- subsidized, unsubsidized, plus loans -- will be paying more. so the one sort of conclusion we can draw if we go to the alternative approach is that eventually every borrower will be paying more. and i, therefore, very strongly would urge that we move forward with this cloture vote to get on to the legislation. as senator harkin rightly pointed out, once we're on the legislation, it's open to
amendment. at least we can have the proposals from all of my colleagues that could improve or change or modify. but if we don't get to cloture, then we're not moving forward. and i think we should at least move forward. and with that, madam president, i would make a unanimous consent. madam president, i have seven unanimous consent requests for committees to meet during today's session of the senate. they have the approval of the majority and minority leaders. i ask unanimous consent that these requests be agreed to and that these requests be printed in the record. the presiding officer: without objection. mr. reed: thank you. mr. harkin: madam president? the presiding officer: the senator from iowa. mr. harkin: i know we're still on our time. is that correct? the presiding officer: the senator is correct. mr. harkin: i understand senator hoeven wanted to take
five minutes. mr. hoeven: madam president, i want to clarify for the esteemed senator from iowa that i do intend to speak in support of the student loan certainty act, which he may not be in favor of. so i want to be clear on that. i was going to ask unanimous consent to speak for up to five minutes while preserving the two minutes remaining for the distinguished senator from north carolina prior to the vote at noon. so i want to be clear so that the good senator from iowa understands as far as whether he will want to object or not. a senator: if the senator from iowa, if it influences him at all, i would allow my two minutes to go to him if the senator wouldn't object to him having an additional two minutes. mr. harkin: that would be fine. mr. hoeven: my understanding is we preserve the two minutes for the senator from north carolina. i rise to speak on the permanent solution being put forward on a
bipartisan bays, that's the -- bipartisan basis. that is the student loan certainty act. this is a bipartisan solution. senator joe manchin, a democrat from west virginia; senator lamar alexander, republican from tennessee; senator richard burr, republican from north carolina; senator angus king, independent from maine. i guess tri partisan. this is truly a bipartisan effort. senator tom carper, democrat from delaware; myself and others, this is a bipartisan effort to come up with a permanent solution. so i've been listening to the debate and what everybody says over and over again is that we need a permanent solution and that's exactly right. a year ago i served on the conference committee for map-21, which was the reauthorization for the highway program. and we included in that conference report an extension -- a one-year reauthorization -- of the federal student loan program so we could do what?
put a permanent solution in place, not come here a year later and extend it again for a year. and so that's what the vote at noon is all about. it's yet another one-year extension, and we need to put a permanent solution in place. our bipartisan plan is simple and straightforward. it provides students with dependable, low-cost financing on a long-term basis. we call it the student loan certainty act because it provides just that:certainty our students and families. not another one-year extension. there's been a lot of discussion here and it is easy to get confused. but let's go through for one minute. how does to work? this is a simple, straightforward plan cht the plan would tie all student loan rates to the 10-year treasury note to a flect current market -- reflect current market and employment conditions. so right now that index rate, the 10-year note rate is 1.8%.
then both subsidized and unsubsidized stafford loans would be 1.58% over that rate. graduate stafford loans, 3.4% over that rairkt that rate. plus loans, 4.4% over the 10-year treasury rate note. this athose rates are then fixed, locked for the life of the loan. the student knows that that is a fixed rate then for the life of the loan. until it is paid off. so let's compare the programs. compare the existing student loan program we have now, dmair to what we're -- compare that to what we're proposing. subsidized stafford loans -- right now tear a actually at 6.% because the existing program spierksd didn't it? but the old program -- under the
old program they were at 3.4%. 3.4% for the subsidized stafford loan. under our proposal, 3.66%. 3.4% ... 3.66%. so it's about the same, isn't it? those rates have gone to the 6.% because, again, we go year to year. this program expires. so we're really bringing them down. so even if it hadn't expired, it's about the same rate. 3.66% versus 3.4%. unsubsidized stafford rates, again, under our proposal, you get the same rate as a subsidized student loan program, 3.66%. that compares to 6.8% under the existing program. that's a big-time savings for 60% of college borrowers. big-time savings. 3.66% versus 6.8%. which would you rather have? big-time savings. 60% of the undergraduate
borrowers. graduate student loan rates under our proposal, 5.21% versus 7.9% under the existing program. parents, plus loans, 6.21% versus 7.9% under the existing pravment in bodge cases again-- --in both cases, lower rates. that's a cap. we keep that in place. 8.25%. in essence providing students and families with a cap. another safety feature -- there's also another protection measure in the bill. the good senator from north carolina just referred to it a minute ago. under the income-based repayment level provision, student loan payments are limited to 15% of income. so your payment amount is limited to 15% of your income and after 25 years, if the loan
is not paid of course, the balance is forgiven. okay? so you've got both cap and a repayment limit provision to protect borrowers. furthermore, this program is designed solelloy for students and their families. what do i mean by that? this program is solely for students and their families. unlike the existing student loan program, it does not subsidize hick. -- subsidize health care. the current program provides a disci to obamacare, it provides a subsidy and the students pay for it. why would we do that? why would we continue that? okay? so we're -- what we're talking about is a vote at noon to extend the current plan. it's a one-year extension meaning we're going to be right back here one year from now doing the same thing. furthermore, it is paid for with
a tax increase on withdrawals from retirement accounts, a permanent tax increase to pay for a one-year extension. that don't make any sense. what are we going to do a year from now to make up for the revenue? a permanen-- and the third poinn the world are we using a student loan program to subsidize the affordable care act, obamacare? that don't take sense. why would we do that? so again i come back to the point i started with, the point i made earlier that i think reflects on really the debate, the discussion we've all had here. there is a desire to come together. i don't think we're very far away. i think there's bipartisan dpsh thi-- ithink this bipartisan mes very close to something we can agree on. the senator from iowa has said himself he wants to have a permanent plan in flais place
that takes care of our students. irthink we're close to doing that. i think the student loan certainty act really provides that bipartisan framework that we can now gather around. it may need some modification, but we can gather around it and get a permanent solution in place. i know that's what all of the members of this body want. and i ask us to join -- and i ask you to join with us so we can get that done and we can get that now, not extend for a year and thoap get it done. let's get it done now for the by benefit our students across the country and their feassments thank you, madam president. i yield the floor. mr. harkin: madam president? the presiding officer: the senator from iowa. mr. harkin: i think we've had a great debate here and colloquies on this bill. at noon we will be voting, sinsdz it, on a cloture petition on whether we're going to have a
bill on the floor. that's all we're saying. will we have a bill on the floor to which amendments can be offered by anybody? so i say to my friends on the republican side, if they have an idea and some of them do, that has some democratic support -- and there's some of that -- the best way to flush this out and to see whether or not the senate ras a whole agrees is to vote on cloture on the bill at noon. that meanings the bill is on the floor. that means it is open for amendment of that means that if senator burr wants to offer an amendment that incorporates his whole bill, he can do that, and we can have a debate on that. i would say to my friends on the other side, it only takes 51 votes, not 60. it only takes 51 votes to adopt an amendment. so it seems to me the prosecutor
way, if you want to -- so it seems to me the proper way, if you want to vote on this is to vote on cloture that brings the bill to the floor. in my friends from west virginia, or north carolina, or wherever want to offer amendments, they can do it. it only takes 51 votes. i don't know why they would be topped voting for cloture on the underlying bill tbhaws moves us to a point where 51 rotes is controlling. so i hope that we'll get the 60 votes in he is to move ahead with this very important bill and this issue. now, a lot has been said this morning. my friend from west virginia said there's a lot of numbers floating around. there's a lot of charts floating around. everybody has a chart on this and numbers on that. and no one is trying to befuddle anyone and no one is
deliberately trying to mislead anyone. it's just when you get involved in an issue like this, it's complicated. it's just very complicated. because if you do a little bit on this one thing -- let's say on a cap -- then it does something on other interest rates, if you do something on consolidation, it affects -- all of these things bounce around. and, you know, you can look at what an interest rate would be today, but you don't know what it is going to be tomorrow or what it is going to be next year or the year after. all we have to go on is c.b.o. estimates, congressional budget office estimates. i'd be forthright, i would say honestly, i can love c.b.o. one day and hate them the next. because of the way they figure things, and sometimes almost inscrutable on how they figure things. but nonetheless those are the rules that we have to sort of play under here. so we have to look at what the
c.b.o. scores and how they score all of the various proposals. now, my friend from north carolina had all these charts out there and different things about interest rates and all that. i asked the question, how long is that 3.66% interest rate last. he said one near. but then he went on to talk about what would happen in the future. here's yet another chart that i present for the senate. and their bill is s. 1241. that's the burr-manchin, alex an dire, et al. bill. what we did is plotted it out to what would happen in the out years. as you can see, if you look at this line about right here, 6.8 6.8%, that's where the student loan interest rate is today because on july 1 they disubl from 3 340eu% to 6.8%.
and 6.8% is permanent law. so that's where it is today. now, if you look at the s. 1241, the burr-manchin, et al bill, they are quite collect that in the first two or three years the interest rates are lower than 6.8%. that's why he asked the question. he mentioned 3.66% down higher. that's good nor next year. but we can only go by c.b.o. estimates, so we asked c.b.o., what are we projections of the 10-year treasury notes? that's what we have to go by. if you use that and you look what the their bill proposals, you will see almost like a classic bait-and-switch for the first couple years, interest rates are lower than 6.%. but beginning in 2016, two and a half years from now, both the
graduate stafford loan and the plus loans go way above 6.8%, up to 8.6% and 9.6%. so you say, someone looked at that and said, well, you know for the first couple two, three years, it might be okay, but how about these students? students getting ready to go to. and their families are paying these high interest rates. that's why we heard from so many student groups saying, that's not a good deal. we don't want just a good deal for a couple of years and then stick the students in the future with higher interest rates. and then for the undergraduate stafford loans, which is right now at 6 6.8%, the burr-manchin bill and others goes up to 7.1%. but that's not much of a difference but it is more.
in every single case by 2018 the interest rates under the republican bill is higher -- higher -- than if we just stuck with current law, which is 6.8%. that is a fact. they cannot dispute that. unless they want to say they don't want to use c.b.o. figures. but that's the rules that we have a pliesm i've asked -- and i make the request again, any of the supporters of s. 1241, if yu go if you disagree with this chart, please come to the floor and tell us why this is not right. i challenge anyone to come here and tell me why this is wrong, if they think it is wrong and why they would think it is wrong. but that's exactly what will happen under their bill. now, it seems to me we have a couple of courses here. as i said, the first thing is to do what we can to keep interest rates low and then to address this in a comprehensive fashion.
the bill before us, the bill that we're is going to vote cloture on, is just a one-year extension at 3.4%. extension of 3.4% for one year. and, again, that has a cost. and so, c.b.o. told us what the cost was, and so we had a pay-for, as we say around here, a pay-for, how do you pay for it? by closing a loophole in the i.r.a., the individual retirement accounts. as we develop those, those were to be used for retirement. but current loophole in the law allows very wealthy people to build up a retirement account in an i.r.a. and use it as an estate planning gimmick, so millionaires, billionaires can pass on millions in their ira's for decades. that is never what they are for.
it's a loophole. it's got to be closed. i think in anything coming before this body in the way of a tax reform, i can assure you that loophole can be closed. we're saying for one year we'll close it and use the savings from that to keep student loans at 3.4% for one year. now, am i saying that we've got to keep student loans at 3.4% forever? no, i'm not. what i'm saying is that this whole area of student loans and interest rates is one piece of a jigsaw puzzle. the jigsaw puzzle being how are we going to do two things? one, make college more affordable in the future. and how are we going to address the $1 trillion-plus that's in student loans out there right now? so this is just one part of that. and when you take one part out
of that jigsaw puzzle, it affects everything else. and so that's why i have argued for a long time that our committee, the help committee, needs to address this in the higher education act reauthorization. the higher education act expires this year, so we have to reauthorize it. my good friend, senator alexander, is the ranking member on the committee. we've already had discussions about the higher education act. and i believe this is the proper way to proceed. so that we can have experts come in and tell us, okay, if you jig tkpwel this number a little bit, if you do this on student loans, how does that affect pell grants? if you do something on pell grants, how does that affect college work-study? all of these things fit together. we need to address a
comprehensive measure on college affordability on making sure college costs are transparent to our students and their families. comparisons. why does one course of study at one college cost $200 a credit hour and another college, the same course costs $400 a credit hour? why is that? and shouldn't parents have a good comparison chart? what can we do to encourage colleges to have a better graduation rate in four years or five years? secretary duncan has talked a lot about promoting an idea of having high schools graduate kids after four years, and they can get an associate's degree if they study hard and do advanced placement and stuff, they might graduate from high school or shortly thereafter with an associate's degree. these are interesting ideas, and
we need to pursue them. but if you take this out, if you take out the student loans, it sort of messes up the rest of the formulas. and that's why i, i think we should extend the 3.4% for one year, pay for it with closing that loophole for one year, and let our committee do its job. we've got good people on our committee. senator alexander, senator burr is on our committee. we've got thoughtful, smart people who understand this. and i think generally we work pretty good together on our committee. this issue, now of the student loans, again, reminds me of all my time here in the senate. now i'm marking 39 years. it seems that every time we rush to judgment, where we have a deadline, that's when mistakes are made. need i go any further than to talk about the sequester? it's a horrible mistake, but
faced with a deadline and we've got to do all this, then you rush to judgment on something like this. and i think we made a terrible mistake on that. and so i plead with my fellow senators to just put this over for a year, let our committee do its work so that we can address the whole issue of college affordability, college completion rates and how we address also the issue of the trillion dollars that's hanging out there. that may be more of an issue for the finance committee, but it may be partial jurisdiction for both the finance committee and the help committee. so, again, last year we extended the 3.4% for one year until july 1 of this year. and i know, i've heard some say, well, we did that for one year and we didn't address the issue.
but again, i remind my fellow senators that last year was election year, campaigning, we weren't here that much, had a big election in november. then we had all this budget things facing us at the end of the year. and with the budget problems we had earlier this year, there just wasn't time to do anything. plus the fact that the higher education act does expire this year, and so we're, it's incumbent upon us to address the issue of higher education. and this is where this belongs. so i would, again, hope that we would just extend the 3.4% for one year and let our committee do its work. so i urge my colleagues to support the one-year extension. my friends on the other side, they said they want a long-term solution. i have no problems with that. but let's do a long-term
solution based upon rational, a rational approach, one that comprehensively looks at all of the issues surrounding college affordability, and the way to do that, as i said, is through the committee's work. i just want to -- there was one other point that was made here this morning that i want to address myself to, and that's consolidation. everybody thinks of consolidation as such a hot deal. i pointed out before, for example, we took a $41,000 stafford loan borrowed in school. $41,000. and used that as a baseline. then we said under current law, the student would pay $21,716 in interest over the ten years. under the republican bill,
s. 1241 they would pay $28,607. under consolidation, they would pay $69,000. so consolidation is not the big deal that people think it is. now here's even a more drastic look. again, the $41,000 in stafford loans and $30,000 in plus loans borrowed by a graduate student. under current law, $43,760 is what they'd pay back. under s. 1241, $52,198. if they consolidate they would pay $148,000. $43,000 to $148,000. that's under consolidation. wonder why students don't consolidate? because they realize they are going to be paying three and four times as much back in interest charges than if they never consolidated.
the other point i wanted to make on consolidation is you only get to do it one time. one time. so let's say that you graduate from college, and you decide, well, i want lower monthly payments. i want to stretch it out for a longer period of time. and you do that. and you consolidate. then let's say you want to go to graduate school. you can't consolidate after that. that's it. you're through. and so if you have to borrow money at higher rates and stuff, you can't consolidate those later on. i think that's what some of my friends forget. you can only use consolidation one time. one time. so consolidation and having a cap or whatever it is on consolidation is certainly not any kind of an answer to these high interest rate payments that students are making.
so, again, what we're looking for, again, i know people want to have a long-term solution. they want to get to something that's revenue-neutral. i understand that. i hope that we get cloture and we can move to the bill, and republicans can offer their amendments. as i've said, it only takes 51 votes to adopt an amendment. but, if not, then let's just extend this for one year. i don't think that's too much to ask, to extend it for one year and let us do this in a comprehensive fashion. so i would hope that that would be what we would do and not double these interest rates on students right now. i think both sides agree on that, even under the s. 1241, next year interest rates would be i think 3.66%. i'm all for that. on 1241 they want to keep interest rates at 3.66% next year. that's fine.
that's pretty close to 3.64%. the problem is what happens in the out years, as i pointed out? if we kind of both agree, if both sides agree in the next year interest rates should be down around here at 3.6% for the undergraduate loans, 3.4%, 3.6%, not a heck of a lot of difference. why don't we extend 3.4% for that one year and then fix this in the higher education act? so i would agree. if they want to keep it at 3.66% for one year, fine, but there's not that much difference between 3.4% and 3.66%. i think what we all agree on is that in the next year interest rates should not go up. should not go up. we're we're not agreeing is on a -- where we're not agreeing is on a long-term fix. if you can't agree on a long-term fix then at least
let's do no harm. let's extend the 3.4% for one year and take care of the long-term solution in the higher education act reauthorization, which we could have on the floor sometime next spring. with that, madam president, i again ask my colleagues to vote for cloture on the bill. let's extend the 3.4% for one year and let our committee do its work. with that, madam president, i yield the floor and reserve whatever time that we may have remaining. and i note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:
mr. reed: madam president? the presiding officer: the senator from rhode island. mr. reed: madam president, i would ask to suspend with the calling of the quorum. the presiding officer: without objection. mr. reed: madam president, we are just about to take this vote. it's vitally important. the proposal is very straightforward, to extend the current interest rate for subsidized stafford loans, 3.4%. it is fully paid for. it will allow us to work through a very complicated set of issues, and it will allow us to avoid raising rates this year and working towards a proposal that we hope will avoid raising rates in the future. the alternative proposals eventually raise rates on every student. not immediately, but c.b.o. indicates by at least 2017 rates will be up. and this is on top of a huge cascade of student debt that we have to deal with. in fact, one of the major issues
we should deal with is how to we finance existing rate and the increased rate coming from proposals on the other side. i would urge all my colleagues to support tkhroer and move forward to -- support cloture and move forward to debate this bill and yield the floor. the presiding officer: the clerk will report the motion to invoke cloture. the clerk: we the undersigned senators in accordance with the provisions of rule 22 of the standing rules of the senate hereby move to bring to a close debate on the motion to proceed to calendar number number 124, s. 1238, a bill to amend the higher education act of 1965, to extend the current reduced interest rate for undergraduate federal direct stafford loans for one year, to modify required distribution rules for pension plans and for other purposes, signed by 18 senators. t the presiding officer: by unanimous consent the mandatory quorum call has been waived. the question is, is it the sense of the senate that debate on the motion to proceed to s. 1238, a bill