tv Politics Public Policy Today CSPAN March 30, 2015 3:00pm-5:01pm EDT
and prevent genocide and other human rights violations around the world. the council on foreign relations hosts the event.ñ8u4 tonight on american history tv programs on the 50th anniversary of the selma march. at 8 p.m., selma 50th anniversary commemoration ceremony with president obama and one of the participants in that march, congressman john lewis. at 9:10 p.m. abc news footage of march 25 1965 voting rights rally in montgomery alabama. after that president lyndon johnson's address to congress on voting rights. then the selma 50th anniversary brown chapel ame church commemorative service. all of this coming up tonight on c-span3.luy next, an update from this morning's "washington journal" on the future of the iranian
nuclear program from a reporter covering the talks in switzerland switzerland.ucefore >> with a day to go before that reakth deadline, how close are we to a breakthrough and whatneju$) needs to be negotiated here in the final hours?troubl >> sure. i think there were actually troubling signs overnight for ioned, those who want a deal. as you just mentioned, "the new york times" is reporting that ting t iran is backing away from an agreement that had been made a few weeks ago where it would ship its nuclear fooel fuel to russia rather than keeping it itself and trying to dilute it. that was something that was a nice symbolic step, if nothingv#? else, for the u.s. and other is people and our plus one allies to say, look this fuel is goingan outside of iran. it will increase the sort ofn#o breakout time iran has to be able to make a nuclear weapon. but theeb
describing that as no a deal-breaker itself. what seems like a bigger issue right now is the question of sticki sanctions, which has been the big sticking point throughout the entirety of these negotiations. iran obviously wants these sanctions to come off as quickly and as comprehensively as possible. while the united states and other countries are interested in sort of phasing them in as iran kind of takes concrete steps to nuclear program. iran is under a lot of pressure to pre start delivering the sanctions relief to its people ba as quickly as possible. and so they want those things pulled back.that no but the u.s.ué# wants to see concrete steps. we know no matter what, we we won't see anything until june, when the technical details of the framework are put out. how quickly they come off after kind of how quickly they come off after that is the major sticking point right now. >> as you mentioned some
concerns in the final days of these negotiations. how hard of a deadline is that this is what's beingc+ñs described as a preliminary deadline for a later june deadline, if you can explain that. >> sure.rl.ñ so, the white house has made very clear they see this deadline this week as a hard one to have a firm political agreement that hits a couple major goals. in terms of -- meaning to lock in with the year-long breakout time for a nuclear weapon and they need to lock in at least ten years of an agreement. so this would be some sort of political deal that spanned the myñ] decade. what the white house and the other negotiating partners haven't said is this agreement thaedz reached this week needs to have all the
iran will take,"pw dismantling certain centrifuge so those sort of(]eqjájt(s details are what[ywk negotiators hope to iron out going into the summer. but in terms of the actual framework of a deal, it really needs to happen over the next couple days. >> and justin sink is a reporter for bloomberg news white house reporter. what is the white house doing to prepare for a potential announcement? how would it work if an agreement is reached? who would be announcing it at the white house?w >> well, most likely the first word of an agreement will come out of europe. the eu is reallyp0l5 running point on this. so we expect to hear word from them first and possibly secretary kerry, who has been involved in the negotiations, but pretty quickly after that i think we'll start to see
president obama and top cabinet officials really try to sell this deal. there are many skeptical in congress, including some democrats. and a big concern for the white house is congress will pass legislation, and even(t-% pass legislation with a veto-proof majority saying theynxpg could review and possibly vote down any deal. that's a big concern for the white house. and something that we're seeing administration officials and the president himself lobby pretty aggressively against in these final days as we get closer to a deal. >> we'll keep watch negotiate final two days of the negotiations. justin sink is with the bloomberg news. we appreciate your time on the washington journal this morning. áin february, the senate finance committee held a hearing on the u.s. tax code. hearing from former senators bob packwood and bill bradley. both of whom were part of the 1986 tax deal under president reagan.
senator orrin hatch of utah chairs the committee.mevñf+t>ó' >> today's hearing is about the need for tax reform and what lessons we can learn from the tax reform act of 18986. the last successful overhaul of the united states tax code. we have before us today two former senators who were key to that effort. i don't know why they call you former senators. i think you're always going to be senators to me. i look forward to hearing their thoughts and advice, and i think we all do, during today's 8>(l hearing.07ytñ before we engage meaningfully in tax reform, we need a clear
vision of what we want success to look like. a vision is not a specific system of rates, of deductions or credits. instead, a vision is how we want to change the opportunities for american families and the rewards that americans receive from their labor. entrepreneurship, and investment. a successfully reformed tax rç$ system will help make america the best place in the world to < work, conduct business, invest, nk1g and prosper.a?)ñ a successfully reformed tax system will be one that provides economic growth, and is simple and fair. v this, more than anything else, should be our vision for tax reform. the landmark tax reform act of 1986 was developed by then-chairman bob packwood through a careful and methodical partisan -- bipartisan process that relied heavily on member input. senator bradley was a key part of that process. i don't want to leave out congres jjuá)r nd a whole raft of others in the white house at that time.
but these two are the two great leaders in the senate at that time. the 1986 act signed in law by president reagan reformed a costly and complicated tax system into a simpler one, with lower tax rates for american c.m households and businesses, affording them greater personal prosperity. over time our tax system has once again become costly, complex, it's impeding growth, standing in the way of shared prosperity and placing american workers and businesses at a distinct disadvantage. put simply it is pass time for congress to stand up once again to fix our broken tax system. if you've been around washington over the last few years, chances are you've already heard me talk about tax reform. i've been making the case for tax reform on the senate floor, here in the finance committee and public appearances and written materials and in private convuw6gions.
in december the republican staff of this committee produced a comprehensive report outlining the need for tax reform and providing some direction to our overall efforts. i'm sure everyone here has read that report cover to cover. i've already publicly laid out seven principles that i believe should guide our tax reform efforts. i will not go in to much detail on each principle today, instead i'll just talk about them briefly. the first principle is economic growth. tax reform, if it's done 5w cí growth, and significantly reduce eiy;imic distortions that are present under the current income tax system. the second principle is fairness. the income tax base which has become riddled with exclusions, exemptions, deductions, and credits, should be as broad as possible. tax reform should broaden the .>. tax base by eliminating or reducing a number of tax expenditures along with lowering tax rates and removing distortion. the third principlvtoh simplicity. the taxpayers and businesses spend over 6 billion hours a
year complying with tax filing x é][kowr?j requirements, with annual compliance costs in excess of $171 billion.,í p which is more than the gross domestic product of new zealand, for instance. simplifying the tax code will result in greater clarity and compliance, and will free up resources for families, job creation, and other productive uses.2ch7umtmw the fourth principle is revenue neutrality. tax reform should be revenue neutral and not an occasion to raise taxes on american households or businesses. general revenues already exceed their historic average as a share of our economy and greater revenue should not be an objective of reform. the fifth principle is perm8í[y' jt the joint committee on taxation lists almost 100 provisions of the tax code that will expire over the next decade. this is unacceptable. families and businesses should ñf be able to plan for the future without wondering if the tax code is going to change from year to year. the sixth principal is :
competitiveness. the combination of a high corporate tax rate, worldwide fuf taxation and the temporary :ga3ç nature of some tax incentives nqjx makes american companies less competitive when compared to their foreign counterparts. tax reform should reduce burdens on businesses, large and small, to allow them to more effective compete on the world stage. the seventh principle is the investment.;,$"ñ many aspects of our currés(añ system discourage savings and investment, thereby hindering savings and investment help build the capital stock, providing fuel for economic growth, and it generates prosperity for american workers m-go and businesses. these seven principles are the 2b(g guideposts i will use when looking at tax reform proposals. i think we're going to have an interesting hearing today.b-(ñ leaders, chairman packwood and senator bradley, to see what advice they can give us if we >yo undertake our tax reform efforts[5
in this congressø]h,] i did read showdown in guchi j7e gulch and did get some indication of how difficult this was. if anything it may be even more difficult today, because of the mess that has occurred since, none of which you deserve to be blamed for. senator widen? >> thank you very much, chairman hatch. as chairman hatch noted, the finance committee is joined this morning by two legislators who are at the heart of the last major overhaul of the u.s. tax code in 1986. chairman packwood spent more time than anyone figuring out nx how to make the numbers in tax ÷5ga reform work. that is the tough work of legislating. senator bill bradley was the intellectual godfather of the reform plan that broadened the base, closed loopholes, and kept progressivity in the code.+++
ago needs to happen again. turning the impossible into the possible. the congress and president reagan came together to pass theúf$5i]p what i caé(ys%9%a1ñ"no$í93tinb÷fp[r(tfonhp÷lï$ekrbipartisanship. ñci the other side wanted to close loopholes and guarantee that the tax code treated everyone fairly.
both sides said we're going to v set aside the partisan attacks look for common ground and each side came away with the feeling that it had upheld its principles. when president reagan signed the bill into law, he called it an historic overhaul of our tax code, and a sweeping victory for fairness. he continued, and i quote here, it's also the best anti-poverty program, the best pro-family measure, and the best job ñ creation program ever to come out of the congress of the ko united states.ht those same objectives ought to guide the finance committee and the congress as it works again to modernize our tax system. reforming the tax code is always a herculean task. but the same strategy of vñw3 principled bipartisanship can work once again. the congress can turn the impossible into the possible. however, policymakers need to recognize that the process is going to look different.
not every part of a 30-year-old game plan for tax reform can work today.ñ china and india are now e &e)5 economy.ñi which is a much bigger factor inók the tax reform debate. the gulf between wage earners in the top of the income ladder has widened. and america is at its best when a rising tide lifts all the boats, and it should be obvious that making that reality -- that a reality once again is going to take some hard work. the status of the middle class in oregon and across america is at the top of the list of compelling issues for tax reform to address. it's fundamentally ] middle class wage earner could pay a higher tax rate than an affluent person whose earnings come entirely from investments. the tax code should not be used to punish the wage earner in v america. many tax incentives for college education and retirement savings
are simply out of whack. the support those incentives &ñ provide don't always get -- get and that ought to change. another challenge is making america more competitive in the global economy.u today you often look and come away saying our country is trying to win a road race in a 30-year-old car. our competition, meanwhile, trades up to more efficient models. america hasn't done enough to nb drive innovation at home, and worse, the tax provisions for research and development eú year after year. in 1986 there wasn't a lot of talk about the tax code. for example, and a clean energy future for our country. that's something else that has to change this time. and finally, modernizing our tax code has to be done in a fiscally responsible fashion. tax reform cannot become an exercise in slashing rates at ano@ájy
the biggest lesson from 1986 is m.p that tax reform is possible, when democrats and republicans set partisanship aside, come together, and focus on shared principles. frequently with senatorpeátkxd about how tax reform is always totally, completely andñi thoroughly impossible until that moment when it happens. the finance committee today has two experienced, knowledgeable witnesses who are going to help and finally, modernizing our tax code has to be done in a fiscally respo1 rjjy tax reform cannot become an ht and i think the chair very much.t( i'm in an intelligence briefing on iran, but i wante join the committee and its leadership in welcoming the most outstanding united states senator new jersey has ever had#çzy
prior to his time in the senate senator packwood practiced law in portland, oregon, for four years, elected to serve for three terms. he received a bachelor's degree from william university portland oregon and law degree from new york law school. we feel honored to have you here today. we know you can help us in many ways to understand some of the difficulties we're going to have to get through. and hopefully give us some advice on how to get through it. our second witness is another great human being who i greatly admire and admired before he came to the senate, and that's senator bill bradley. senator bradley represented the people of new jersey here in the senate for three terms. beginning in 1979. as a member of the senate finance committee, he played a pivotal role in the drafting and passage. tax reform act of 1986.
of course prior to his time in the senate, senator bradley was a great professional basketball player. he's a two-time nba champion and a member of the basketball hall of fame. senator bradley holds a bachelor's degree in american history from princeton university and a masters degree from oxford university where he was a rhodes scholar. he's the author of six books and currently hosts "american voices" a radio show highlighting the accomplishments of both famous and unknown americans. we welcome you senator bradley as well. we thank you both for being here today and we look forward to your testimony. senator packwood, you go first. >> and senator bradley also holds a record for the most points ever scored in the play of basketball playoff in portland, oregon, when he scored what, 64 points? 58. mr. chairman, when i was
contacted, everyone asks, how do you do it in '86, and are there any other parallels till today? there are some but the circumstances were different. in our era, fairness was the issue, not income and equality. and the next to the last page of my statement, you will see a list of newspaper stories about people that paid no taxes at all. industries, defense industries at the time of the reagan buildup that not only paid no taxes, they got money back. and the public and the members of congress, could not understand how wealthy corporations and wealthy individuals could pay nothing. it wasn't fair. so that was the premise we were operating under at the time. you will find -- you will find in my statement on occasion the word diary. that means it was taken specifically from my diary at the time. now, what happened.
first, tax reform is not a new idea. stanley surrey who was president kennedy's assistant treasury secretary for tax came up with the idea of tax expenditures. you can lower taxes and get rid of them. bill bradley and dick gephardt in their fair tax said the same thing. studies treasury one and treasury two, all the same thing. we all knew how it worked. we all knew that you could lower the rates if you could get rid of deductions. it's pure mathematics. the house had public hearings for a year in 1985, and they had a lot of individual votes on things as they went along. and they picked up enemies. they picked up barnacles because some of those interests lost their votes. and there's lots of single issue groups. and i don't mean nra or right to life. but you touch mortgage interest and you got realtors. you touch 501c3, charitable
contributions, and you've got every organization in the country opposed. and the problem with the -- the house bill is that they had enough of these barnacles attached to the bill, when they finally came out of committee that the votes were not there on the floor to pass it. it would have failed but for the fact that ronald reagan literally came up on the hill. met with the republicans and said, please vote for this bill, i will veto it if it passes in this form, but send it to the senate and see what they can do. with that, enough republicans changed their vote and the bill passed. although you'd never know if they changed their vote because it passed on a voice vote in the house. comes to the senate. and in those days the senate didn't get going as quickly as you've gotten going now. we didn't get going until mid-february or march. i finally started having some hearings on this bill but we
didn't need many hearings because in the summer of 1985 we had about 30 hearings on the subject of tax reform. just in case the house would pass something. because if they passed it, i knew we'd have to act relatively quickly, and i didn't want to have a lot of hearings at the same time. so, we pretty much cleared the deck of hearings. but there's one thing that caught my mind at the time of the hearings. and i would ask witnesses, how low would the tax rate have to be before you didn't care whether there's any deductions? how low? 30%? 20%? 25%? it was always in that range. i didn't think much about it at the time but i was intrigued that almost every witness i would ask, that's what i would get. well, all right. we come to the spring of 1966. i'm frankly making no progress in committee. we're not making the bill any better. we're not making it any worse. we just aren't getting anyplace. so on friday april 18th i
simply adjourned the committee and said, we're done with the bill. somebody said, you mean we're done for the day? i said, no we're done with the bill. in is the end of this bill. and at that stage i called them -- and this is where things moved so rapidly. i called david brockway, who was then the chief of the joint tax committee said give me three bills, 25%, 26%, 27 high. he says 25% you'll have to get rid of mortgage interest. and, bill i remember you saying how much trouble mortgage interest gave you on your bill. so i asked him, what about 26%? that's friday. the following tuesday he comes and he gives me three, not bills. they weren't bill form but three plans as to how you could get 25%, 26%, 27%. and i looked at them and then i was delayed for 2 1/2 days, because at this stage, up came fast track for the canadian free trade agreement. it's one of those things where the president can't move unless you give him fast track
authority, and there was a deadline. if congress had not acted by, this is tuesday, the next wednesday at midnight, he got it. the house had not acted. it fell on our side to take care of it. i thought it was a slam dunk. i was sure we were there. turns out i didn't have the votes. i was missing one. and it was sparky who was mad, from hawaii, that the president had not answered his letter on macadamia nuts. and i had to get over that hurdle and bring him around. we finally succeeded in doing it but it was thursday before i was done. then on thursday i present to the committees at the same time our committee, just the outlines. we have no bill. just the outlines of what might be possible. and they seemed to like that. so i thought to myself, the meeting's over and i'm getting toward the weekend and i'm thinking at this stage, how are we going to do this? and i thought the only way it can be done is bipartisan,
quickly, and behind closed doors. the bipartisan because i could see any bill that was utterly partisan on the republican side would have no success with the house conference. any bill that was not done quickly, but hung out like the house bill did, would pick up enemies all along the way. and it would have to be done behind closed doors. it was helpful to have the president on board. at the start. it wasn't critical, but it was helpful to have him basically tilting the same way we were going to go in the senate. on that weekend, on saturday and sunday, i called six senators. bill bradley, george mitchell, pat moynihan, jack danforth, john chafee and malcolm wallace. and i said would you be willing
to meet in my office starting next tuesday at 8:30 to see if we can work out a bill that would be satisfactory to us and the president? every one of them said yes. and now passed starting that tuesday the most extraordinary experience in my life in politics. we met from tuesday to tuesday, bill was at every meeting. they were all at every meeting. every morning at 8:30 i'd meet with this staff at 7:30, this core group, a cabal, as i called it, at 8:30 we'd work out what we thought should be in the bill. we had one or two open committee meetings but basically the committee was just marking time waiting for us to finish. and you could tell although the meetings were behind closed doors, there's no secrets in this town. and the word was getting out. we were having the meetings but no one exactly knew what it is
we were doing. but on the thursday between these two tuesdays, came a phone call that became very important in this whole process, and i will read it to you, because it's from the diary. back again to tax reform in closed session was interrupted by a phone call from daniel rostenkowski. bless his soul. he said pal, i've been thinking of coming over there and without fanfare, without press, just to say, i've been through it. i know every day you go through troughs and onhills and i've been bleeding for you. but i think what you've got in terms of tax reform is the best thing congress has seen in ten years. you get this through the senate. and between the two of us we're going to put out a bill that for a generation of americans will look like a pinnacle. god, i appreciated it. what he was saying, what the ways and means committee chairman was saying, write this
bill into senate which the ways and means doesn't say very often. we continued our meetings through friday, and then we had a public meeting friday afternoon and i said to everybody, we're done. and we're not going to meet this weekend. by this time, the hallway is packed with lobbyists, we have speakers out there. committee, we're done. we're not meeting at all this weekend. cheers in his office. and then i said, to the core group, but we will meet tomorrow. bill had already planned -- you went to kentucky that night for a speech. canceled the ken derby and came back to be with us the next day. on that saturday the seven of us met all day, from about 8:30 to around 4:30 or 5:00 in the afternoon, and that tied up all the last of the things we needed. joint tax needed a couple days to get it together. but they would have it for us monday or tuesday. and we were ready to go on tuesday night, until i finally had to make an odious deal with the oilies to get their support. not in committee. we could have beaten them in
committee. but to get their support for something we needed desperately on the floor. and if we lost this particular issue on the floor, the bill was dead. and that was it. we vote that night and most of the committee had not ever seen the whole outline of the bill or the whole bill until that night. so from tuesday to tuesday the seven of us work, that night the bill is adopted 20-0. now, can you do the same thing now in this committee? here are the things that would be critical. it's helpful to have the president on board, to have him with you from the start. but at a minimum, you've got to make sure that he's not against you or gives the impression that he's not sure if he's going to vote for it or he has some questions because you're not going to get your members to take tough votes on things that the president might veto if you put them in a bill. so, at a minimum, he must say
i'm open, send me a good bill. two, i think you're going to have to do it in much the same way we did, which is behind closed doors. but that's not uncommon in the house and the senate, even today. behind closed doors, and try to do it quickly, and present it in one grand bill. we did it combining both corporate and individual into one bill, and then used the money we raised from them to lower tax bills for everybody else. if you look on the last page of your statement you'll see who the major groups were we hit. it was almost all corporations and rich individuals. and do it in one bill so that people don't have to pick out a particular thing that they don't like and are forced to vote on it. you give them this, give them the whole bill, and i think they'll go for it. and so that's what we succeeded in doing. and believe it or not, hitting businesses as hard as we did, raising their taxes about $140
billion, we managed to lower the corporate rates from 48% to 34%. lower the individual rates from 50% to 27%. and keep the bill revenue neutral. you can do it. but orrin and ron, the two of you, are going to have to make an agreement as to what we're trying to get. and the thing i like about the fact that the two of you are doing it -- ron, you may recall about ten years ago we ran into each other in the dry cleaners. and you were working on tax reform then. and i know, orrin, you've crossed party lines many times. i remember you working with ted kennedy on things. you both show a willingness to work across party lines and on some occasions when it didn't please your parties too much. so it can be done but it can only be done if the majority and the minority at the start are on the same page. thank you, mr. chairman. >> well, thank you.
that was fascinating. we're very appreciative to have that overview. senator bradley, we'd love to hear from you. >> thank you very much, mr. chairman. it's always a pleasure to be on a panel with senator packwood. he's an extraordinary leader, and he ran the committee with great effectiveness, not only on tax reform, but on a whole series of other issues. this is also a first for me. this is the first time i've been in this room since december 1996. i notice it hasn't changed. but what i'd like to do is i'd like to give a few thoughts about structure and make amplification on two things that senator packwood said. first, what is the ideal income tax system? i believe the ideal income tax system is a system that provides the greatest number of people
the lowest rate. in terms of principles, and these were the principles that i think we used in 1986 to determine what it was in, what was out, one was efficiency. it's a basic threshold question for members of the finance committee. and the efficiency point is, i believe, the mark of a more efficient allocator of resources than is a member of the ways and means committee or the finance committee. so that was one principle. the second principle is an equity question. horizontal equity. equal incomes should pay equal taxes. not somebody has the same income and next door somebody is using loopholes to reduce their tax rate. third is fairness. which is essentially vertical equity. and that is those who have more should pay more.
in other words, the progressive nature of the system. and fourth, do whatever you can to make the system less complex. we live in a time where few people fill out their returns, and where tax fraud is estimated to be $80 to $100 billion. those are the principles. efficiency equity, fairness, simplicity. and you measure everything against those principles. now, what do you need to pass tax reform? drawing on our experience. i think you need at least six things. the first thing you need is the exact thing president packwood said. you need a president who is
going to put his prestige and clout on the line to drive things through when the inevitable obstacles appear. second, you need a treasury secretary who is the president's designee to deal with it every day, and you need a treasury secretary who has an incredible person that constantly monitors that. of course, in 1986 the president was ronald reagan. and his secretary of treasury was jim baker. and his assistant was dick darmin. all of whom played critical roles in this. i can't tell you how important it is to have a treasury secretary who can speak for the president. so he didn't have to run back to the white house all the time to check this or check that. and, in fact, as bob remembers, we got down to the critical strokes at the end of this process.
there was some difference of opinion. and jim baker was in the room, doing the negotiating. because he knew enough of the substance and had paid attention to it. i remember him convening a meeting during the period when there was treasury one and treasury two, which were things that ronald reagan tasked the treasury department to do. and he convened a meeting with jack kemp at his house, and me, and i think bob or a few other people. i think it's important to know the longer-term journey of tax reform. when i came -- one of the reasons i ran for the senate was i wanted to reform the income tax system. i remember reading an article by milton friedman many years before when i was a basketball player about how you could have a tax system with 16%, and i thought that's pretty interesting. and i read all of stanley surrey
from harvard, joe peckman at brookings. and i remember in 1984 i went to walter mondale, who was the candidate for president for the democrats, and tried to convince him to do tax reform. i said it could take the issue from the republicans they're out there talking about tax cuts. here you could talk tax cuts and equity. he had been a member of the finance committee. and charlie rangel was his adviser on this issue. and i think the combination of those things made him unwilling to take what he thought was the big risk for a hopeless cause. and so it passed. however, as everything in politics, nothing's secret. it leaked that maybe mondale would be doing tax reform.
and so that's when ronald reagan in the middle of the campaign called for a study by the treasury department, which was treasury one. and it so happened that the people at the treasury department in the tax area were really great people. and so they took the charge seriously. and they produced a document that was an outstanding document laying out the boundaries and the parameters and the specifics of what tax reform is. naturally, when you threw it out there, as i'd experienced when i threw out the gephardt/bradley bill in '82 you float out something specific and everybody chews on it. everybody chewed on treasury one and how terrible this and and how terrible that is. and you ended up having treasury two. and treasury two dk ated some of those interests, stiff-armed others but it was an improvement over treasury one. and so that's how the treasury
department got involved. and you absolutely need a commitment from the treasury secretary. so, you need a president, you need a treasury secretary that likes it knows it, can cut the deal for the president. the third thing you need is a chairman of ways and means and finance who want to get this done. who see that some of their own political interests are served by getting this done. and bob mentioned dan rost rostenkowski. in 1981 we passed the bill which reagan put forward cutting rates to 30%, and dan rostenkowski ended up being labeled the king of special interests. and so i think that what he saw in this was an opportunity to seize the good government mantel and push forward with a challenge that would make him an
historic chairman of ways and means. and i think the senate was very fortunate to have bob packwood as the chairman. because -- i don't know specifically what your political interests were, but i sensed it was that you wanted to do something that no other chairman of the finance committee had ever done before, and you wanted to do something that would affect 100 million americans in a positive way and potentially change the way we think about taxes. without bob packwood and dan rostenkowski and jim baker and president reagan this never would have happened. you have to have those -- those parts in place. and then you have a chance. and then the fifth thing you need is maybe a zealot. that's the role i played in 1986. i did nothing but talk about tax
reform for four years. every speech would be tax reform. it got so bad i remember i was on a sunday morning interview show that was recorded on a thursday night and rebroadcast on sunday. and at that time my daughter was about 8 or 9 years old. and she had a girlfriend of hers staying with us. and i said hey, dad's going to be on tv. and as the guy said, eyewitness news conference, on the air, senator bill bradley. stick around, dad aes going to be on tv. so, she elbowed her friend and said, come on, let's go all he's going to talk about are loopholes. and, indeed that is all i talked about for four years. and i also tried -- recognized i did not have the power. the power was with bob packwood and dan rostenkowski, so i had
to be supportive and i tried to play that role. the sixth thing you need, if you're going to get it passed, is a committed, knowledgeable staff. i remember bob's staff absolutely first rate. and the key thing in this is that they can cut the deal on a lot of issues and everybody knows they speak for the chairman, and they say the same thing to everybody. they don't say one thing to one person, another thing to another. but they keep their word, just like the senator keeps his or her word. so, i think that those are the six i think you need. you need a president that's committed, a treasury secretary who's committed and knowledgeable. you need a chairman of the ways and means committee and a chairman of the finance committee. maybe or maybe not need a zealot. and then you need to have a staff that is competent and
honorable. and has absolute integrity. the last thing i think you need, and this is probably the most importance thing, was epitomized by a visit that we made to the white house to meet president reagan. i was a democrat, kind of a junior member. and i wasn't invited a lot to the white house to meet president reagan, but there i was. seated around the table in the west wing. and if you recall, each of us could go around the table and tell the president what we thought about tax reform. and he was listening mainly, not talking. so, when it came to me, even though he'd made his commitment and even though he's made his position clear, i said, mr. president i know you're interested in tax reform which means lower rates because when you were an actor, the rates were 90%. he kind of nodded.
and i said, mr. president, i'm interested in tax reform because when i was a basketball player, i was a depreciatable asset. which, in fact, i was. in other words, what that story says is, there's got to be something for each party in a deal. it can't be all one. there's got to be something for each party. each party has to know what they want and then if they do there's a chance to get something done. i'll make only two other quick comments. bob talked about writing the bill in a short period of time with seven people. again, the only reason that happened is because bob packwood wanted it to happen. he was the chairman. if i had called seven people, they would have said, yeah okay, meet you in the cafeteria tomorrow or the next day or two years from now. but when the chairman called, you show up. and so it was because of him at
that committee, that small committee of committees worked. but he also mentioned that when we were headed down the path that the house did for a long period of time we had 30 hearings about tax reform. bob presided over every one. i was at every one. and we asked questions of every witness. and the question that he mentioned was one of them, which was, you know, how low would the rate have to go before you'd give up this, that or the other thing? i asked, how low would the rate have to go before you give up capital gains exclusion? and in the latter the answers came back if you were silicon valley, the witness would say, i don't care if the rate is 10%, we still need a differential for capital gains because that will affect capital appreciation, capital formation.
and -- but a lot of other people came in, i don't want to say just silicon valley, but there was a certain kind of person that said no matter what, have you to have a differential. other people said, well you know, if you got the rate down to about rate down to about 28%, 29%, we'd give up that differential for capital gains. and that is indeed what we did. we got the rate to 28%, and that 28% was the rate that applied to both capital and earned income. so mr. chairman with those thoughts, i would thank the committee for the opportunity to come back to the room once every 25 years. >> well, we're honored to have both of you here. i think anybody listening to this has to realize that you went through a very trying time, very difficult. congress was split.
republican president. i just want you both to know how much i respect and appreciate both of you. let me just ask this question. according to cbo, revenues as a percentage of gdp have averaged 17.4% over the last 50 meers. revenues in 2014 were 75% of gdp trending up to 18.3% of gdp by 2025. in other words taxes are higher now than their historic average and headed even higher. since taxes are already higher than average and raising revenue in tax reform makes enacting it less likely, shouldn't we do tax reform in a revenue neutral basis? start with you, senator packwood. >> i would much prefer you do it on a revenue-neutral basis,
although i would combine both corporate and individual into one bill. then you have a little more wiggle room using either side of that equation to be able to reach a revenue neutrality. >> okay. bill? >> we, of course did it revenue-neutral. i think the times today probably might require some additional tax. but i believe that that's something that the committee has to work out itself. if you really do tlurhorough tax reform, what you find is -- at least we found that upper income americans will pay a higher percent. for example, we cut the rate from 50% to 28%, and yet the top 5% paid a higher percent of the total tax revenue after that reduction than before.
>> well, the u.s. is 1 of 5 major economies operating on a worldwide tax system. meaning it currently taxes the income of its companies wherever that income is earned. even if it is not in our country. currently companies have the option of bringing the profits they earn back to the u.s., but they face a tax of 35% minus foreign tax credits. if those businesses would rather not pay that additional tax and keep their earnings abroad. the current u.s. law allows companies to defer the tax indefinitely. president obama's proposal released in this year's budget would substantially limit deferral since it imposes a minimum tax of 19%. do you think we should go to a territorial tax system with base erosion protections like most other major countries in fact most all other major countries,
or not? >> mr. chairman i thought so the last 30 years. we have to compete overseas and here's the advantages they have." and one of the advantages they have is territorial. i think we ought to go to the system that the rest of the principal industrial countries use which is, if you vest overseas and you make profits overseas and you pay your taxes overseas, you can bring back whatever profit you have to this country and they're not taxed. i think that's a good system. >> of course when you have profits overseas and you're taxed in a particular country at the rate that that country charges, all of those taxes are deducted against your liability in the united states. the tax credit. so i think you have a clear view of how these work. the president's proposed two things. i think one is a 19% tax on the
deferred income going forward, and a 14% tax as a toll on the tax that's abroad. i'm not -- i think that the committee will have to work its will on that. i think that territorial tax makes sense in terms of the overall picture. but in reality you're going to have to figure out is there some other way -- i don't think that's going to happen -- is there some other way that you could bring the money back. i think you embodied in the president's proposal of the 14% is the possibility that maybe it is not 14%. maybe it's 10%. maybe it's not 19%. maybe it's less. but somewhere in there, like when we did -- where do you give up capital gains, at what rate, because a willingness to bring the capital back.
>> my time is up. >> thank you, mr. chairman. the two of you have told inspiring story this morning about bipartisanship on a major economic issue. and colleagues we just looked up the vote that attests to what happened. it was 97-3. . original vote coming in the senate. then on the conference report 74-23. and in the house it was more than two-thirds. so. kind of work paid off. what i'd like to start with is asking you about the process because as far as i can tell, in this effort to promote bipartisanship, every step of the way, you said we're going to use the normal process because the normal process in the senate really promotes bipartisanship. and you have to have 60 votes and certainly neither side today has 60 votes. so you use the normal process and it really forces bipartisanship. the alternative is to use what's
called reconciliation which, in effect, is 51 votes. one side now has 51 votes, they could have their way on tax reform. my question to both of you -- either one who wants to start -- is it your view that using the normal process, which you all used in 1986 was helpful and is it your assessment that using the normal process helps promote bipartisanship? either one of you. >> absolutely. but for a variety of reasons. one, every member of this committee ought to have misgivings about reconciliation and using it to jam as many things into a bill as the majority wants because they're not sure they can get it passed any other way. what that lends itself to is more and more the decisions moving up to the leadership. in my era, let alone now, even in lyndon johnson's era no majority leader would have ever thought of taking a bill away
from committee. reconciliation just holds out that as use it this way. i'd much prefer the regular order for a couple reasons. one, it -- still the arguments against it we had no chance. we didn't get to offer the amendments. there was a time limit. and if you win it in the normal process, you've got a lot better credibility than if you jammed it through in reconciliation. >> senator bradley, can you top that? >> no. though i have a comment or two. your question was what, mr. chairman? >> normal process. i mean normal process and fighting bipartisan, reconciliation, going more -- >> i think that we did it i would agree with senator packwood 100%, that the normal process is better. you know, also has to do with what's the cloud of the
committee in the larger senate. we had agreement among members of the committee that whenever a vote would come up on the floor none of the committee members would break from the bill that was reported out of the finance committee and would stay with the committee bill. and that was a point of personal anguish for me because in the committee -- in the committee as it related to what senator packwood referred were the oilies, senator packwood was the chair, and at that time senator russell long louisiana, was the ranking member. and he had a few interests in the oil patch. and i, of course was going to go after it. we had to go after that. we can't leave that out. we were meeting in secret back there and we had a vote in the
back room and it was 11-9 against me. and i viewed that -- this was in the back room -- that there was one senator who was taking it public he wouldn't vote that way. and so i then raised the issue in the committee full committee, and i saw senator long's head go like that. and i called for the vote. and the person who/thought would switch didn't switch. and right up there against that wall afterwards russell long got a hold of me said if you ever do that again! but life went on and, you know the screw turned. we got to the senate floor and then republican senator lowell wyker offered the exact amendment that i had offered in the finance committee. but because we had a deal that
we were all going to stay together, i voted against my own amendment. so the cloud of the finance committee in the senate as a whole is instrumental in getting a bill passed. because most of the other senators don't know a whole lot about taxes. you have a few opinions about this, that and the other thing. to the extent that you can speak clearly, authoritatively and hang together, you have -- you won't need to have any kind of reconciliation. >> senator hatch if i could ask one other question. because this was a remarkable feature of the '86 bill. i think it would be helpful for the committee to know how you two got to common ground in '86. in 1986, you were able to say that income from wages, and income from capital was treated equally. senator bradley talked a little bit about his views on it. but i think it would be very helpful to know how you two
reached that judgment that by today's standards would be remarkable. in fact, today people say if you could just reduce the difference between the way income from capital and the income from wages was treated that would be a huge reform. how did you two in 1986 get to common ground on treating wage income and capital income the same. >> well, realize we wanted to keep the same progressivity that we had in the existing law, but we were going to lower the rates tremendously. so in order to make sure that the very wealthy still were roughly in the same progressivity incline, we had to get rid of capital gains and the differential. it was as simple as that. in fact, it didn't even really bother the committee that much. it was a small issue. malcolm wallop had some misgivings about it. i do say to his credit, we agreed. remember, bill, we made the rate
the same but we didn't put it as a separate section of the bill because malcolm wallop says you put that in the bill and get rid of capital gains, the word, pretty soon congress will start to raise the rates with capital gain and it will go right up with them. he was right. but it was to make sure our progressivity was the same. >> just in a little addition to that, i exactly agree with what senator packwood said. there was a provision in the bill since we got to the magic number of 28 for both capital and earned income. we had a provision of the bill that said if the general rate ever went higher than 28%, the capital gains rate would be 28%. in other words, you would never tax capital higher than 28%. and i remember, oh might have been four months after the passage of that bill, people
were then saying you need differential capital gains. my point was if you take a differential in capital gains, you're going to end up with a much higher general rate. and indeed, that's precisely what happened. president clinton came in, capital gains went back in, and the rates went to 39%. and seems to me that there is a lot more coherence in a bill with a lower rate that treats capital and labor the same. >> thank you. senator grassley. >> thank you both for coming. i want to start with something you both touched on in your opening statement. but to get more specific so i'll start with senator packwood but i'll ask senator bradley the similar question. it deals with the process and presidential involvement. do you think tax reform, senator
packwood, do you think tax reform would have happened if president reagan had not made tax reform a priority in his administration and a administration. and a follow-on, then isn't it going to take at least that much commitment and involvement with president obama and his own party and congress to get a tax reform bill enacted? and then for senator bradley, could you share your thoughts on the importance of presidential leadership in accomplishing tax reform? senator packwood. >> well president reagan was immensely helpful. if you're asking me is it absolutely essential that the president be there from day one and pushing, i don't know. it's like saying this committee couldn't reach its own conclusion without the president. but it was very helpful. and one morning there was a small breakfast at the white house. it was just danny and me the president, vice president, jim baker. and at the end -- it was
before -- bill had passed here but before conference. president took danny and me aside right at the very end and said if you can keep this revenue neutral and keep the rates the same, you have my support. that's how critical it was. we knew we had his backing. absolutely. but bill touched on something. that was about the treasury. jim baker was up to his neck in the negotiations with us and was especially as assistant treasury secretary dick darmin because in the last seven days where i talked about where this was all done, baker wasn't here. he was in tokyo with the president in one of those economic multi-nation meetings. and all of the final negotiations for the administration were done by darmin. on the last paragraph of my testimony you'll see an interesting exchange on the phone between darmin calling baker in tokyo and telling him what to tell the president.
so is it critical. i don't know if it's "critical." is it immensely helpful and was it immensely helpful. yes. >> senator bradley. >> i think presidential leadership is essential. i believe that there are so many times when things happen that you need to have -- be able to get the white house's clout. and that can be manifested through the treasury secretary. it's not you talking to the president all the time. but i also would say, going back to my anecdote i think the president was viscerally in favor of lowering tax rates because when he was an actor he had a 90% rate. 90%. and i was viscerally in favor of this because of the depreciable
as set as a basketball player. in other words closing loopholes had traditionally been what democrats were for. lowering rates were traditionally what republicans were for. the question is can you bridge that divide and bring something together. the answer is yes. but if ronald reagan had not said i put my imprimatur on this be with nothing would have happened. >> bill said something right there, senator grassley. democrats wanted to get rid of unjustifiable deductions. republicans were not adverse to going along with that if they could use the money to lower the rates. and as president reagan had said i'm not signing unless it is revenue neutral. if you got rid of a lot of deductions and produced a pot full of money and you couldn't raise revenues with this bill, you had to use it to lower rates. but you had a willingness on both sides for different reasons to want to reach the same conclusion. >> my last question deals with something we have to tackle here
in a basic way. so both of you in your view, how important was it that the '86 bill was comprehensive tax reform package rather than focusing only on business or on the other hand individual reform in getting support for its passage. >> well for us it was critical because we needed a lot of the money we raised from business. don't confuse rates with revenue. we raised an immense amount of revenue -- more than we were raising from businesses before. but we lowered the rates. and we used a lot of their money to lower rates for individuals. we mixed the two of them up. i would have misgivings about trying to do just business. and then later on we'll try to do just individual. i think you're better off to try to do both of them at once in one big bill. i want to use the word grandeur again. you come out with a big bill that you've agreed upon and if you do and it touches a point
bill and i have talked about. before the bill ever gets to the floor of the senate, you're going to have immense newspaper support, academic support across the board, liberal to conservative and you will be be glad in retrospect that you combined it all in one. zblm >> i agree we should -- you should -- you should combine both corporate and individual. because if you just do corporate, it's not like you're going to have an easy path if you do anything that's serious. for example, when we did the individual and corporate essentially the business community split. large percent of the business community were for the reform. another segment of the business community was against reform. guess what was the dividing line? what tax rate they paid. if they paid less taxes because
the rate went from 50% to 28%, they were for it. if they paid up more they were against it. but the key was constructing a coalition that included a significant part of business. this is where bob was brilliant. and so i would argue that that's very important. you also might get to a point where you might have more flexibility if you do individual and corporate. because they're both -- they both are essentially two sides of the same coin. for example, you might decide that you want to cut the corporate rate to 10%. or 15%. and you might want to offset that by increasing the taxes on the individual side on dividends and capital gains. that's what they do in denmark, for example. you wouldn't have that
flexibility if you didn't have both individual and corporate put together in the same bill. >> senator isaacson. >> thank you mr. chairman. thanks both of you for being here. i was a real estate guy in 1986. and had a development company and a brokerage company. so i have a question for both of you. first of all thanks for being on the nine who voted against selective treatment in terms of passing laws. i think that's right, both of you voted against that if i'm not mistaken. but looking in a rear-view mirror, had some transition been applied to those investments made prior to ' 6 so that the tax treatment could have continued, and the tax treatment on passive laws been prospective rather than a claw-back did you ever think about doing that, or if we go into something again could we do it that way? >> we did not think about it at the time. he's absolutely right, if there is an industry that we hit, it was real estate. we drove the s and ls out of
business who were one of the principal financers of real estate. we did not do it retro -- we did it retroactively. we found passive losses in such a grievous way for rich people to shell their money and pay very little taxes that we got rid of it. but senator you're absolutely right. the real estate industry was hit hard and the oil industry got a particular favor because of a deal that i made because i was going to need their votes later on on the floor on a particular issue. >> senator bradley. >> i agree that real estate industry paid more. if you phased it in, of course you have not as much revenue and you also skew the distributional tables. but in regard to real estate, keep in mind that was at a time
where there were, i would say, real estate tax shelters that were not -- investment was not based on the need for apartments or office space but was based upon the individual taxpayer getting a tax deduction offset against all his other income, or her other income. i had a call some time in this period from paul volcker who was then the federal reserve chairman. and he said, you know, i really like what you guys are doing up there. i said why stlais that? he said because i can't get at these banks who are simply throwing money at uneconomic real estate investments. and it has to be through the tax code. so i think that's one of the reasons. at least for me that i felt that we were on strong ground.
>> i think you did the right thing with -- because it was abused. my point was, if you could have transitioned prospectively in terms of the treatment of passing laws rather than claw-back, you moo it have prevented the collapse of the savings and loans and creation of the reits which is essentially what the ramifications were. >> i think you're right. >> one other question i have. >> i wouldn't say savings and loans collapsed because of the tax reform act. >> no. it was the last straw i guess. >> yeah, maybe. that's a better way to say it. >> my other question is did you consider in 1986 -- or have you thought since -- about going to a retail sales tax or consumption tax instead of a progressive income tax? >> i have often thought to myself what kind of a deal could be made between the republicans and the democrats that would result in some increased revenue? i thought what happens if the
democrats were to offer this to the republicans -- we'll gr to an electronic funds transaction tax which i prefer to a retail sales tax, and we will cut in half the corporate and individual income tax and you will allow the tax, however, to produce an additional $500 billion in revenue. and now the republicans are thinking, wow, it could cut the income tax in half and corporate in half and we're not really -- we've always kind of supported a consumption tax anyway. is that kind of a deal possible? we will go to it one day. there is no question in my mind. the danger of any kind of a consumption tax -- this is probably why republicans are more afraid of it -- it is so easy to raise. need a little more money? you raise it half a percent. take a look at your sales taxes in different states that started
at 1% or 2% 30 years ago. they're now at 8% or 9%. look at the european value-added taxes. i don't know of any major country in europe that's not less than 20% on the value-added tax. but to answer your question, yes. if you could combine it i think there's a possibility that you could possibly i can maybe see the republicans shaking their heads -- you could possibly make an argument for some increased revenue in exchange for dramatic reductions in corporate and individual taxes. >> out of time but real quickly senator bradley i'd love to hear your comment. >> i think that what senator packwood said about electronics transfer tax is extremely interesting. if i were the chairman i would task the joint tax committee to do an analysis of that in terms of revenue that could be generated. because you got to know what revenue you're going to generate before you decide how you want
to spend it. on the consumption tax issue in my testimony i make suggestion, basically the point is that we should tax less those things we like such as wages and tax more those things which are bad for us or dangerous. which are pollution, for example. and i think here there could be a very interesting tradeoff between employment taxes -- social security, medicare and unemployment -- and a gasoline tax. or a tax on things like volatile organics or sulfur dioxide. or lead or nitrous oxide or whatever. right? it is just a numbers game. and if you did that, it would be -- have profound impact.
for example, if you were able to dramatically cut both individual and corporate social security employment taxes you would, in essence, be giving individuals a tax cut and corporations a tax cut. at a time where jobs are needed. the fact that there is this 15% hurdle is -- it affects different industries in different ways. for example, if you're mckinzie or microsoft and -- or google or you want to hire real talent, you pay them more because you really need that talent. so that you pay them more to offset the employment tax. if you're working in a lumber yard in oregon or somewhere where there's a surplus of labor, you don't pay them more to offset it.
so the irony is that it ends up hitting the lower-paid guy and the struggling industry more than it hits the person who's in the consulting or technology industry. so reducing those employment taxes are -- have many benefits. for example, 24 million people or 25 million people who are working part-time now could very well be brought into the workforce. you can find people that weren't working that could be brought into the workforce. so that's the good news. the question is what are you going to use to provide the money to do that? and, you know i know the committee's looked at it, it is probably not possible, but who knows? they said tax reform wasn't possible in '86. you could take a $1 gasoline tax, or you could take a carbon tax and use all that money to reduce those employment taxes. and i think the net benefit
would be greater job creation and economic growth. it would hit certain sectors more than others, obviously. but let's just take the $1 gasoline tax. never could it be offered would it be a better time to do it than now when prices are where they are. but let's say you phase it in as you suggested you do on the other things. if you phased in a gasoline tax over five years and the automobile industry was going to require improvement in miles efficiency, at the end of that five years, since the individual would be getting more miles with less gasoline, they would be paying no more for gasoline with a $1 tax that could be used to reduce social security taxes and employment taxes than they're paying now without that. >> senator nelson. >> and could also senator
bradley, improve the roads and bridges that are crumbling. this has been a fascinating discussion for me and thank you very much. i take your ideas and try to put them into today's politics. offsetting, lowering employment taxes and going after something like nitrous oxide. and that's much more difficult today because of the climate debate that is going on, getting the votes. i think about what you said, senator packwood that president reagan was so critical in tamping down the opposition among republicans in the house. well, how are you going to get president obama to tamp down
that opposition? today, just over the knee-jerk reaction of some republicans to the word "tax." so it's hard for me to make the transition from your success in '86 to today. and it really puts a real burden on the shoulders of our chairman and ranking member. >> well, that's why this committee, at least in bill's and my era, there was much more nonpartisanship in the senate than there apparently is today. i can't tell you whether or not you can put it together. but 1986, it appeared to us just as difficult to put it together as it appears to you now. there are different issues than we had then. and nobody can make the right circumstances. you can't buy them you can't wish them you can't coerce them. all you can do is be around when
the circumstance comes and hope you can take advantage of it. maybe there is a possibility. but if we're going to say the republicans say no bill if there's any ref flew increasevenue increases totes total. and if the democrats say no increases unless they include work issues you might as well work on the transpacific agreement. >> a lot of your success has been we're in this kind of herky jerky patch at the 11th hour. tax extenders, for example. you want to give us your thought about how we take this illogical approach to taxes?
do you have to do it in the overall global kind of big deal in order to get it done? >> tax extenders are lobbyist for employment act. >> yes. >> you have to bite the bullet and make some decisions, what should be permanent, what shouldn't be permanent. and there are always questions of revenue so you always -- you want it to go out a year or two, but not three or four because that would affect the revenue. and i just think that the practical reality is that people would probably say extenders are necessary. but they're necessary only because fundamental choices are not made about the tax code. what kind of tax code do you want? what do you want in what do you want out? not what do you want in this year, because then we all know that means you lobbied every year about the same thing and
quite frankly, it becomes boring, i would think, for you. you know the arguments before they come on. so i -- on your earlier point about nitrous oxide, you know you would be cutting some taxes, social security. recall a couple years ago you cut the social security tax, then there was a quiet deal, you let it go back up and nobody said anything about it. right? not one party attacked the other party. well, that's the kind of thing you could get here with the employment tax reduction and the increased taxes on essentially either pollutants or gas orrdk carbon. >> i have mixed feelings about extenders. you maic some of these permanent, you're going to play hell ever getting rid of them when the time comes you think you ought to get rid of them. at least with extenders, you are forced to look at them at least
and think should this be kept. and then of course, everything falls apart and you extend them all. but let's say you made them all permanent. now you don't have to look at them until somebody says i think we should look at this. so you kind of pay your money and make your choice on it. >> senator coates. >> well, mr. chairman this has been fascinating for me. i'm a rookie senator sitting -- i can't use the basketball analogy but i can use a baseball analogy. in the left field bleachers here with my friend from nevada. and to extend the roster i'm here to being a date the three of us. >> that's the right field. >> well, that's home plate. that's home plate. i figure i'm in the left field. although i would prefer to be in the right field. nevertheless, having had the opportunity to serve with these
two distinguished former senators, just sitting here listening to them talk throughlk% the process has been fascinating. and so often we take an issue and we start with the substance of the issue and nobody pays attention to the process until everything comes to a grinding halt because the process wasn't set at the beginning in terms of how are we going to -- what is it going to take to get from here to there. so it was fascinating to me that both of you outlined the principles of the process that you had to work through in order to accomplish the goal. it occurs to me, mr. chairman that a buy-in of the committee with the principles up front to prevent us from having to be
seduced away either through ideology or through special interest group pressure on particulars -- well okay, i can get behind you if you exclude this or include that traps us from getting from the batter's box all the way around to home plate. so i think it is a fascinating lesson in history here and i had the great pleasure of serving with both of you. being in the house in 1986, but watching what was happening there as a somewhat neophyte member of the house. and now all of a sudden having the opportunity sitting here thinking, could this really be be done? and what you've left with us is
yes, if you avoid -- if we as a xwhit can avoid the pitfalls of making prejudgments as to what ought to be in, what ought to be out, and look at how we could accomplish something of enormous impact for the future of america -- for a whole generation, i think that's what we're looking at here. what a legacy that would be to you, mr. chairman, to ranking member, to all of us on this committee. it appeared to me that there are some stars lining up here between the house and the senate given the personalities the experience and background of the leadership of the ways and means, as well as the finance committee here. question mark in terms of where the occupant of the 1600 pennsylvania starting from
relative to their situation relative to their income level and the things that cause them to eureka moment to say, yeah, i want to get on board there. i'm just going on here, but it seems like the real challenge here is to address the question of how a lower rate and cleaner product can result in the kind of growth and dynamic economic impact of something that we would do and how -- where that money should go. should it go back into government for expenditures as perhaps appeal as it might be? how many roads could we pave and how many bridges could we fix? or do we let the market
determine how that capital is better invested. it is really not asking the question but if the panelists want to comment on that. i was actually making a statement. i'm over my time here. >> i'll comment only in one side. senator, you may remember my predecessor for whom you work at one time. he used to use the expression, "give me the control of the procedures of democrat asnd i will control the substance of democracy." this process in 1986 was not really a planned procedure. the house pretty much askeedcceded to us to write the bill. but i wasn't following any process of normal procedures. only when the thing was not moving at all that i came up with this idea of how br a half-a-dozen of us getting together as quick as possible. in that group we had four
republicans, three democrats. we had an agreement if any four of us could agree on something, it would be put in the chairman's mark. i recall no vote that was four republicans, 3three democrats. i recall a number of votes where i was on the three-side. but it was that bipartisan in that sense. but it wasn't planned. it was nothing else has worked. and yet the circumstance was there to make something work. and that's how it happened. i don't know if the circumstance is here. you feel it. you don't plan for it. it arrives. i'm not sure i know how to make it arrive. >> i'm trying to get that feeling. >> thank you, mr. chairman. senator wyden to chairman packwood packwood, to my friend bill bradley, it is great to see you.
just great to see you. i was talking to brian sealander who you signed up to my senate race. one of the reasons why i'm here today is because of that kind gift along with sean barney and couple of brothers who came as well. so thank you for all of them. now i serve on this committee where you once both provided great leadership. we were having a hearing on deficit reduction a couple years ago. we had a bunch of people here to talk to us that day, too. allen blinder, previously vice chairman of the federal reserve, as you may recall. he's back now teaching economics at some school in new jersey. starts with "p." princeton. that's it. in his testimony he said to us he said in terms of deficit reduction, 800-pound gorilla in the room is deficit reduction.
came my time to ask a question. i said dr. binder, you say health care costs are the 800-pound gorilla in the room. what's your advice to us? he sat there for a while. thought. then he finally said, i'm not an economist. i'm not an expert on that stuff but he said this would be my advice to you. find out what works. do more of that. that's all he said. find out what works do more of that. i said you mean find out what doesn't work and do less of that? he said yeah. we're happy you're here. we're happy to find out what worked all those so many years ago. one of the keys that's clear to me leadership. most important in leading any organization, whether it is a basketball team, or whether it is a military unit in the navy,
army, air force marine corps, whether it is a college, university or business. most important here, most important ingredient is leadership. we can't pass laws to create leadership but every once in a while come along and provide graed great leadership. talk about what leaders in this committee need to be doing. please. >> as i said earlier leadership starts with the president, the treasury secretary, chairman of ways and means and chairman of finance committee. that's the leadership structure. if anyone of those isn't on board, it is not going to lap. i would also make the point when senator packwood talked about the seven people in the room voting 4-3 whoever voted -- he lost sometime, i lost sometime. but four republicans three democrats. that was fun.
legislating was fun with the right people. you can do something very important and you can enjoy what you're doing because you never know what's coming around tomorrow. if you're in that kind of negotiation. and it requires you to know what you're talking about, and, you flow, i just hope you guys are having that much fun. >> i've got -- >> fun would be good around here. >> i've got to tell a humorous story about bill. because i -- >> remember i only have a little bit of time. >> oh with be go ahead. >> no go ahead. if you could just answer -- i'd love to hear the story about bill but question about leadership. i think what senator bradley told us is very important. right on. >> well, all of us in politics have seen natural leaders. some of them are inside leaders like lindnd
like lyndon johnson. some are outside leaders like ronald reagan. everyone in the senate -- there is a small fraternity -- we all know who are the stand-out leaders. we knew in my era scoop jackson, sam nunn on defense were good for seven or eight votes in a tight vote any time. we knew that dick lugar on foreign policy was good for six or seven votes. they were leaders in their area. all of you on this committee know who the half-a-dozen leaders of this committee are. i don't know who they are but you know. and certainly the ranking member and chairman know who they are. and a coalition of those can be put together. but the key is not do you have the leadership. there is a does the little leadership group agree on the goal that they want to reach. if they don't agree on the goal, no quantity of leadership is going to make any difference. >> all right.
thank you. second question deals with, you did all this work in '86. no sooner was the ink dry on all that legislation and we started clanging it. a whole lot over time. did you ever think at a time that we'd see this kind of change that quickly and in such -- to such an extent, and did you ever think at the time about what can we do to sort of preserve for what we have at least for a while? i don't know how many changes we've seen but i'm told like 15,000 or something. maybe more since '86. should we be thinking about -- should we be looking for some way to preserve for a while at least what work we're going to do? is that just a fool's errand? >> well, tom, that was a real lesson for me. obviously one congress can't bind another congress. you can pass something, which i thought and i think bob did, and
people generally, as significant as tax reform, and it can be like a sandcastling with on the edge of the sea. it could be washed away the next year. which means you have to be humble whether you do these things and you have to -- i don't think there is an institutional fix to make things permanent. maybe there wasn't permanent because this wasn't something that bubbled up from. the country saying you must do this. this was something that happened because people who had responsibility on this committee assessed what was the right thing for the country. >> senator packwood just very briefly and my time will expire i am afraid. thank you. >> senator heller. >> mr. chairman thank you. i want to begin by thanking our
distinguished guests for being here today. as a relatively new member of the senate and a new member of this committee it is great to get this historical perspective. so thank you very much for taking time. mr. chairman, i want to also thank you and the ranking member for being committed to this effort. i know it is not going to be easy, but it's good to see that there is real work, real work moving forward. i appreciate your seven priorities and i share those with you and look forward to getting that done. to our witnesses the further you get out here in left field, the more general the questions. but the good news is it is good to know both of these started where i am today. so there is hope for the future. i want to move to five years ago in the bowles-simpson proposal. did either of you testify or have an opportunity to put any input on that particular
proposal? >> i did not. i was not called as a witness. i followed it very carefully in the press. but i was not a witness before the committee -- the commission. >> can you give me any perspective what you thought of that report? >> well, i thought the report was excellent in the sense of here's where this country is going if we don't do something. i've often put it when i speak i put it in a different version. i am less concerned about the deficit than i am about the increased spending. if you're rich enough, you can afford a deficit. as long as you stay rich. you can afford to pay the interest on a debt. but i look at spending and the figures are not that necessarily good from a century ago. but as best we can tell, a century ago, all of the governments in this country -- federal, state local water districts, fire districts --
spent about 10% of the gross domestic product. today the same governments spend around 40% of the gross domestic product. and that same pattern has been true in all the major industrial countries. they just started at a higher point a century ago than where we were. but if you look at the simpson-bowles report and you see what's coming in medicare medicaid, social security, that 40% figure is going to go up. and the debate we ought to be having in this country is not -- you can debate can we afford to carry the debt. i think we can. but do you want this country to eventually spend 45%, 50%, 55% of all the available assets in this country on government? and that debate doesn't get discussed very often because it gets mixed up with the deficit. >> thank you. senator bradley, i propose the same question to you. >> no, i did not testify.
i always talk to my buddy al simpson. but we didn't spend a lot of time talking about taxes. >> he's one of my favorites. alan simpson. i was on the -- when i was in the house, i was on the ways and means committee and dave camp was my chairman. as you know, bowles-simpson was dead on arrival. camp came up with a proposal last year. as you are well aware of, got no hearings and was frankly dead on arrival. what lesson do we learn from these efforts? >> you're discouraged. i read the proposal. i thought it was a good proposal. i thought it covered a lot of the bases that needed to be covered. you are a he right it was dead on arrival. this is one -- again, i'm not going to badmouth the president but it irritated me that he appoints this commission and as soon as it comes out he just
gives it the back of his hand. well, that practically kills it right interestthere. i thought the commission did a first rate job. >> i think camp had some interesting ideas. what happened? he kind of started too late. people knew he was going out the door and he did his own thing. and put something specific forward, which is a necessary prerequisite. member treasury one treasury two. the two bills i put in. you have to put something specific, because then the interests clue it up and you figure out what can be swallowed and what can't. i just think that you into ed to see the total picture. i think he did a very good job of thinking through tax policy and coming out with a coherent package. >> senator bennett, you're next. >> thank you. thank you, mr. chairman. what a great privilege to have both of you here.
i was thinking back actually as senator packwood was talking to, believe it or not, john mcafee's book, "a sense of where you are," a book about senator bradley whether he was playing basketball at princeton. sort of asked the question, how could this -- maybe not the best athlete that we had, maybe not the best of this or that -- succeed so well at what he was doing. i think in terms of tax reform senator packwood interestingly said, the opportunity appears to do it. and so with that in mind i wanted to read -- i took a look at "showdown in gucci gulch" in advancement of your arrival. the authors wrote -- i had a he just ask you to respond to it for us. the groups with an interest in the existing tax system were well organized and ready to defend their tax breaks at a moment's notice. the populous who stood to benefit from lower rates were unorganized and dieffuse.
furthermore, congress was a slow and sumcumbersome institution. that's not true anymore. of course. that only usually made peaceiecemeal incremental changes. congress proposed a radical revamping of the tax structure. a tremendous inertia in congress resists any such sweeping clang. as a result the conventional wisdom in washington held tax reform was destined to lose and conventional wisdom had plenty of history to back it up. tax breaks, after all, had always been part of the currency of congress. this passage i would say is even truer today than it was 30 years ago as a description of where we are. just in 2014, federal lobbying totaled over $3.2 billion. i wonder if you could take us inside that room that you talked about and tell us a little bit as senators how you were able to overcome these interests and
the pressures that you faced, and how we as senators should think about that in the arc of our careers on this committee. >> well, if you're talking about the little cabal of seven of us the pressures were not really that great on us. we flew what had to be done. we wondered can we swing it, will it work. but i don't recall any one of us saying i'm not going along with this if "x" is in or is not in this bill. so those pressures were not on us. i know what you mean about the interest groups. that's what happened to the house bill. they had a lot of individual votes on each of those little parts. and if it hit your part and you hate that, you're against the bill. you don't care what's in the rest of it. you hate the bill. there is enough of that. that was not in the senate -- the senate bill just didn't happen that way. that senate bill was written in those seven days. and we didn't have any hearings. and it was suddenly it was like
n mine minerva born fully formed. it was on that night the committee sees the bill for the first time and voted 20-0. but if they had to vote on little individual sections -- in fact the reason i played the deal with the oilies and gave them what they wanted when nobody else got it and we had taken it away from everybody else. i gave it back to them. bill was furious. george mitchell was furious because i hadn't bounced this off my little group because it was the night we were voting anyway. the reason i did it was because the biggest issue i was going to face on the floor -- whether this came out of committee 20-0 it is going to pass, but there was one issue and it was the i.r.a.ss. there was not two sides. there wasn't a great clamor about tighten you were the i.r.a.s. the clamor was on the other side about oh oh more, more.
as you see listed in my testimony, the i.r.a.s, i recall, was about a $24 billion pick-up. well, if the senate -- on the senate floor floor, this ira amendment came up and i won it 54-48. and 19 out of the 20 senators voted with me had i not made that deal, i would have lost a couple of them and had i lost a couple of them i lose ira, and there goes the bill. >> the irony is that tax reform was failing until the counter offensive. and it wasn't like this just sprung forth from the head of zeus, right? we had had 30 hearings, the substance had been thoroughly chewed up by the committee. so it was familiar territory it was just put together in a
different way. >> thank you, mr. chairman. >> thank you. >> thank you. thank you both for your testimony, which i read at length 37 i think we all agree we need to simplify the tax code and make it more economically efficient. but i always think that before we go about the task of comprehensive task reform, we need to agree what is the end goals that we're trying to achieve so we can direct our focus. and i mean, i know that some of my friends here argue that we should focus solely on corporate tax reform and profits and stock market gains. i think i've heard you both say you need to do it all at the end of the day in order to make it
effective. senator bradley do you believe it's enough for tax reform to be focused on increasing gdp, on stock market on corp. profits or should we also have the goal of ensuring economic economic growth as parts of it particularly as it's felt by as many americans as possible. is that the type of goal we should be looking toward? >> yeah, you want the economy to grow and you want everyone to benefit from that. these are the things you should consider. the markets are more efficient than we are. the weighs and means committee figuring out we ought to do this arctivety or that activity. second equal incomes should pay equal tax it's not fair to have
your neighbor pay less because they have a particular dax benefit. those who have more should pay more. progressive principle. and fourth if you can simplify it please simplify it. to my, those are the four principles. the economic issues, economic growth obviously progress would say you want people to move up and you'd want to say to people at the top, have you to pay a little more. i think those are the principles that i would use going-forward. >> you know i think that it's, you know, my question suggests -- at least i view it, it's not an either or proposition. fairness and committy in the code actually help reduce the burden of low and middle class working families it's not only morally desirable. but economically good policy, because about two thirds of our economy is fueled by consumer
spending, and certainly, low to middle income class families have a higher percentage of their income that they need and spend on goods and services. so in that respect, i think that it makes sense to be looking at how we deal -- how the consequences of reform deal with them. not just on reform. i think it will fuel private sector profits. at the end of your testimony, you included a statistic that in 1983 at least 1900 people who earned a million dollars or more paid no federal tax. and that fact was due to a myriad of special interest loopholes that were clogging the arteries of the tax code before '86. as you noted in your testimony the product that passed the finance committee and would later become law. raised the taxes significantly on corporations and rich individuals.
they would pay more middle income and the poor would pay less. so we've had now a situation in which the average new jersey family that makes $65,000 per year pays a higher rate than the wealthiest 400 americans that make an average of about $270 million per year. so from your experience what impact impact does inequity have on the tax code. and would you agree that a focus of reform should be to eliminate the loopholes and presidential rates that have allowed the wealthiest to reduce their tax rate over the past 30 years? >> there's no question that the public is aware of the inequalities. 1986 they weren't and the issue was fairness, how do these people avoid paying any tax at
all that just irritated everybody, and that was a driving goal for us inequality is obviously a much higher goal preference issue than it was 30 years ago. what i'm hesitant about is, how do you want to fix that? the longer i've been in life and the longer i'm in the senate, the less confident i was that what we were going to do would necessarily get us to what we wanted. 'that's why i agree with bill. the market is a better allocation. if you wanted to somehow undue the inequality, i think that's legislatively doable. if you can get both sites to agree on that, that is perfect. but it wasn't what drove us in 1986. >> thank you. >> i might say that in terms of the middle class -- i mean, we need good paying jobs, more good paying jobs.
and so that's tough to get at through the tax code. but not impossible so i'll share with you one of my hobby voices. infrastructure investment, desperately needed. tough budget, you can't do it. the size that we'd like to do it. but there are people that have money. chinese, singapore, koreans, in the persian gulf large sovereign funds. i mean hundreds and hundreds and hundreds of billions of dollars. and they have to decide what do they do with that money. and i ask any number of them, why don't you invest in infrastructure in the united states? in other words, they play the role, the british played in the 19th century. they say, well, there's this one provision in the tax code.
and the provision of the tax code is section 892. and that says that did you're a foreign government, and you invest in stocks or bonds, you don't pay tax on that. very simple extend that to infrastructure, and you could very well find a significant amount of emergency for infrastructure coming from sovereign funds. >> thank you. >> great. >> senator? >> thank you mr. chairman, and thank you all for being here. i was a staffer in '85 and '86 when this was deng last time, and a great admirer of the hard work that went into it, and the ultimate result i -- there are some things that are very different, it's a different time, i think this is a different place probably than it was back then, the one thing you noted too that i think made a difference was the involvement active engagement of the president, in the process remember treasury one and two remember the books they set up
here, and how how hard they worked to get it across the finish line. a couple quick questions with regard to the issues you batted around back at that time. one had to do with whether lower rates or more favorable cost recovery provisions ought to be the focus of tax reform, and which is better for economic growth. and i think that was a part of the bait. the question is, i guess do you believe lower rates paired with longer depreciation schedules was the right policy choice? how do you suppose we ought to approach that today? >> i don't know how you ought to approach it today. lower ritts were the most desirable thing we were doing. depreciation was a major difference in interest between the house and senate on that, when we had to go to conference. but i'm not going to advise you as to what you ought to do on
this i just say lower rates keep it revenue neutral. there may be something you can work out on that deed to increase revenues. lower rates would be what's driving me. >> how about the issue of cap gains that at the time going the same rate as ordinary income. and we've since then gone back to a differential. what do you think about that? was that a good thing? >> yes i think it was. and remember bill talking just a moment ago about the hearings we had and that fellow had to have a differential. if it was 30% had to be 15. and if it was 20% had to be 10. i asked him, i said, if there was no income tax. would you have to have a subsidy to invest? because there's no differential? and he had never been asked that question, didn't know how to answer it but i think you can do very well if you have a