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Tax Expenditures: Are They Worth the Cost?

Washington, D.C.
Friday, June 25, 2010



President and Publisher, Tax Analysts


Former Staff Director of the Joint Committee on
Taxation and Professor, USC Gould School of Law

Institute Fellow at the Urban Institute and
Codirector, Tax Policy Center

Vice President, Legal and Government Affairs,
Council on Foundations

Director of Government Relations,
Council for Advancement and Support of Education (CASE)
* * * * *


(9:01 a.m.)

MR. BERGIN: Morning. Welcome to the latest in the Tax Analysts series of discussions on key issues in tax policy and tax administration. The topic for today is tax expenditures. I'm Chris Bergin, the president of Tax Analysts, the nonprofit publisher of Tax Notes, Tax Notes Today, State Tax Notes, Tax Notes International, and many other fine print and on-line products on federal, state, and international taxation. We also recently began sponsoring -- a website for the citizen taxpayer which is informative and fun and I invite you all to check it out. I'll invite you later again, too.

This is our eighth year of conducting discussions on tax policy and administration. If you are new to our discussions, let me say it's great to have you here. Let me also take just a moment to explain our process today. I will open things up with some brief remarks -- I emphasize brief -- to introduce our topic. I will then introduce our distinguished panel of speakers. Each of them will address aspects of our topic. After that, we will open up the discussion to all of you and we encourage all of you to participate.

We are streaming audio of this event on our website right now and we will post both the audiocast and a transcript there. That website is

For media purposes, we are on the record. So when I recognize you, even if I know you, please tell us who you are. Also, please speak into a microphone. If you are away from the table, we will quickly get a hand-held mic to you.

I will moderate the discussion and we will end at eleven. Now, on to the topic at hand.

The law defines tax expenditures as -- and I quote -- revenue losses attributable to provisions of the tax laws which allow a special exclusion exemption or deduction from gross income or provide a special credit a preferential rate of tax or a deferral of liability. Budget and tax experts have debated the federal tax expenditures budget for decades. It's a debate that some of us really enjoy. But I don't think I've seen this subject as hot as it is now. Academics are writing papers about it. Newspapers are running stories on it and some policymakers are starting to think about the subject much more seriously. That's because tax expenditures are expensive. They cost the federal government more than $1 trillion a year at the moment and their costs rise every year. And there are lots of them -- lots and lots of them.

The name of the budget game for many years, in my opinion, to come is going to be revenue. Our government needs more of it -- lots more of it. And if you don't believe me, just ask the House Majority Leader Steny Hoyer who gave a high-profile speech on that very subject just the other day. Mining the tax expenditures budget for revenue, I think, is going to become more and more appealing to many people -- both to reduce the budget deficit and to prevent cuts in popular spending programs.

Now, personally I think some tax expenditures are good -- and other tax expenditures are bad. And beyond their actual merits, some tax expenditures -- such as the home mortgage interest deduction -- are simply sacred cows, which essentially means that they don't get the scrutiny they deserve. The problem we face and an issue that we will surely touch upon this morning is how to agree on what are the good tax expenditures, what are the bad ones, and what do we do with the sacred cows. With that, let's begin our discussion today.

I will introduce our speakers in the order in which they will speak. Ed Kleinbard is a former staff director for the Joint Committee on Taxation and is currently a professor at USC Gould School of Law. Eric Toder -- Eric -- is an institute fellow at the Urban Institute and codirector of the Tax Policy Center. Andrew Schulz is vice president for legal and government affairs at the Council on Foundations. Brian Flahaven is director of government relations for the Council for Advancement and Support of Education -- widely known as CASE.

Thank you, panelists, for agreeing to be here. Ed, would you please start us off?

MR. KLEINBARD: Sure. Thank you. Thank you, Chris. You know, I'm a vegetarian, but in my introductory remarks, I actually would like to slaughter a sacred cow or two. And -- let me begin with an observation that we have different definitions of tax expenditures -- I'll come back to that in a second. Let me start by offering Eric Toder's definition as one that is reasonably simple and neutral. That is: there are tax rules that are not necessary to measure a taxpayer's well-being or ability to pay tax, nor are they necessary to allocate the tax liabilities based on those measures. I think that's the nice definition that Eric offered in a recent paper.

Why should we care about tax expenditure analysis? The topic has been around for decades. Many people just roll their eyes at the idea of discussing it again. And there are two reasons. First, because it is a simple and reliable tool that helps policymakers focus on the right questions within the confines of the tax system. But there's another reason as well -- which is that tax expenditure analysis shatters powerful fiscal illusions that cloud policy and public debate on the entire process of setting the larger allocative goals of government. Let me give you a couple examples to flesh that out.

Healthcare. I think whatever you feel about the substantive outcome of the healthcare legislation, we can all agree that the debate was appalling in its quality. And it was appalling in its quality precisely because of a widespread ignorance -- both within and without the Beltway -- of the direct and massive federal subsidies that were baked into the current healthcare system and the effects that those subsidies have had on the shape of that system.

I refer in particular to the exclusion that employees receive from their wage income for compensation paid in the form of health insurance program offered by their employers. That is a tax expenditure and is a tax expenditure that runs at the rate of $250 billion a year. It is absolutely clear that that exclusion largely has shaped the health insurance market in the United States.

And think about how the debate on healthcare could have been -- might have been -- different if the full extent of these federal subsidies and federal intervention in the healthcare market -- before the recent legislation -- had been widely understood and appreciated.

That's what tax expenditure analysis is about. It's about heightening awareness of those kinds of fiscal illusions that are (inaudible) the system.

Second -- another reason to care about tax expenditure analysis. Chris has mentioned the issue of budget. Tax expenditures run at the rate of roughly $1.2 trillion a year. That's a number. That's worth talking about. $1.2 trillion a year is more than we raise in the personal -- from the personal income tax. And it's more than twice what we spend in nondefense discretionary spending.

If we were to bring all tax expenditures on budget and treat them as -- simply as part of the footings for our -- you know, what are our inflows, what are our outflows. The net wouldn't change, of course. But the overall size of government would suddenly be 50 percent larger than we currently understand it to be.

Those are important points that go beyond tax policy -- that go to the question of what is the size and the role of government. And without adequate consideration of tax expenditure analysis, we miss those points.

Third little introductory observation. Alan Auerbach and Bill Gale have a very important paper which I've discovered. This is the secret in academics. You only have one paper, but you publish it three times a year and your dean, you know, thinks highly of you. A paper on the fiscal gap. And the numbers are staggeringly large.

Rosanne Altshuler and colleagues have a really useful little follow-up paper in the new issue of National Tax Journal, called "Desperately Seeking Revenue." And what they -- what they pose as a question is how would we go about using the revenue side of the ledger to close the fiscal gap for the immediate future -- the next 10 years. What could be done?

And it turns out, although their conclusions are quite depressed, that in fact if you read their analysis, we are in fact at the cusp of a solution. The problems are not insoluble. If we were to let the Bush tax cuts expire -- that is, we'd roll the clock back to 1999 -- and we were to eliminate all itemized deductions, we would raise more than enough revenue to address the budget gap and reduce the deficit on an annual basis to well under two percent a year GDP, which is thought to be sustainable.

So, is that feasible? Chris says no, that's a sacred cow. I resist that. I think there should be no sacred cows in this room or in the debate in Washington. I further think, as an aside, that we will not decide whether [there are] good or bad tax subsidies. That's what the political process is about. It's not simply a question for experts. But the purpose of tax expenditure analysis is to have an intelligent debate on those questions of how you make hard choices.

But I would ask you all just to think before you reject the idea that I'm positing -- there are sacred cows. How many of us in this trade tend 1999s for the last decade? I think a lot of people. That's a pretty good trade. And if I say the price of getting -- to having ten 1999s rather than the 2000s for the last decade as an economic matter -- is you also have to give up itemized deductions. I think most of us would still take that trade.

So I would suggest that we keep in mind this larger questions of just what is at stake, the questions Chris has posed and think radical thoughts about tax expenditures.

So the kind of themes that I hope will come out today -- well, first, the one that I've tried to emphasize is that tax expenditures are more than just a form of tax policy heuristics. They go to this fundamental issue of the budget process and to the entire allocative function of government. There are -- my list of six subthemes here that, hopefully, will come out.

First -- the first is the one I hope we don't talk about, which is the definition of tax expenditure analysis. It's an arid and ultimately pointless debate. It is one that dominated academic writing in this area and led, I thought, to a complete dead end in the useful application of tax expenditure analysis.

The second is the theme of salience. That is, the question of -- the idea that tax expenditures are subterranean forms of spending that do not rise to the same level of consciousness and awareness -- either within the public or even within policy -- among policymakers -- that explicit spending does. So the theme of salience.

The third, which is the one I've written about in the new National Tax Journal, is a question of budget process. If, in fact, tax expenditures function in many cases as direct substitutes either for entitlement spending or for appropriations -- because we have many tax expenditures today that are simply fixed dollar amounts, indistinguishable from appropriations. Well then we have questions like what do we do? How do we bring those into the budget process in a way that addresses the salience issue and makes -- gives us comfort that hard choices are being made fairly in the decisions of what should be the allocative role of government? And in that connection, we may talk about PAGO and its limitations, because PAGO is fundamentally a deficit reduction measure. It is not a measure that directly addresses some of these other aspects of tax expenditures. And we ought to talk about transition rules because too often we look at the world as it is, the world as we want it to be, conclude that they're too different, too hard to do politically, and we walk way. Transition rules solve a lot of issues if you can design them.

The fourth issue -- the design of tax expenditures. Where tax expenditures are appropriate, like anything else, we want to focus on changing marginal behavior. We don't want to spend money rewarding people for what they would have done anyway and that's a design fault in the vast majority of tax expenditures. Two-thirds of taxpayers don't itemize, for example. So, you know, who gets the benefit of itemized deductions? Those are design questions.

Fifth is evaluating the effectiveness of tax expenditures. What kind of returns are we getting? We, in fact, spend a lot of energy evaluating discretionary spending to see whether it's money well spent or not. We have very little by way of programs devoted to the question of evaluating the effectiveness of tax expenditures.

Finally, the question that ultimately is on everyone's (inaudible), which is what are the substantive choices we are going to make? You know, we raise our hands in favor of this expenditure or that expenditure. I think that is fundamentally what the political process is all about, but the question is how can we help think about process and this debate -- this larger discussion of tax expenditures to improve the quality of the ultimate substantive choices that do get made.

So thank you, Chris.

MR. BERGIN: Thanks, Ed. Eric?

MR. TODER: Okay. First, I want to thank Chris and Tax Analysts for inviting me to this forum and thank Tax Analysts for all their fine coverage of tax issues over the years. I also want to put in a plug for the Tax Policy Center. We have a lot of work on tax expenditures on our website,

Okay, so, it's really hard to in a few minutes talk about this subject. There are so many different aspects to it. In some previous work, I refer to -- and Ed has also -- what are two distinct and overlapping roles of tax expenditure estimates. At one level, they are items that represent backdoor spending that happens to be cleared through the tax accounts. We can think of things like tax credits for renewable energy. Nobody would think of that as part of any normative tax system -- intangible drilling costs, tax credits for higher education -- a fairly long list of those kinds of provisions. Then there are other things -- which are really hard to imagine as spending programs, but they're really kind of departures from a comprehensive income tax base or maybe departures from what Stanley Surrey thought was the appropriate tax base. I guess an example of that is deferral of active income of foreign subsidiaries. That may be a defective tax rule. It may not be. But it's certainly a large structural tax issue and not a narrow tax expenditure.

Ed has spent a lot of time going through this distinction and so I really don't want to dwell on it much except to say two things. The distinction matters for some purposes. It matters what we -- how we define something as spending or tax if we want to measure the size of government accurately. It matters if we're interested in designing rules for budgetary control, which is the focus of Ed's work. It matters for determining who should have jurisdiction over certain policies. Probably matters for some other things, too.

However, it doesn't matter for two purposes -- some other purposes. It doesn't matter for determining whether a particular provision that's on the tax expenditure list represents [good] social or economic policy or not. Whether you call it spending or tax, you can evaluate it on those grounds whether it's good policy. And it doesn't really matter in terms of estimating the effects on the deficit of particular changes in the program. So whether you call them tax increases or tax -- or spending cuts, there is still equivalent reduction in the deficits.

So, having said that, I want to just talk briefly and I can't possibly go through this. What I did last night, was I went to the Treasury book report in analytical prospectus for this year. I had added up the tax expenditures. Ed would be reassured that they come out to $1.2 trillion in 2011, so we do agree on that number. Everybody who does these calculations would say that there are interactions among provisions. This ignores them so that the answer is wrong. However, having done some simulations among provisions with Len Burman and Chris Geiser in a paper a couple of years ago, we found that the interactions actually increase the total costs for the ones we looked at, so -- and weren't that far off from the total. So, it's a rough order of magnitude number I feel reasonably comfortable. If you look at the 12 largest tax expenditures that are listed in the Treasury publication -- OMB publication by fiscal years -- I took theirs except I inserted the earned income tax credit, which was off their list, because they only count the revenue lost. They don't count the refundable portion. So when you put that in, that makes the list. So I looked at the top 12. I calculated among the five year losses. They accounted for about two-thirds of the revenue losses. So while there are lots of little cats and dogs that are egregious, there are a few very big provisions. And I will just comment briefly on -- I first of all want to say how do we look at these provisions? And I would say three things we want to ask.

You know, first, does -- should there be a special provision at all? Does the activity merit subsidy? Is there any reason why this class of transactions should be treated differently than it is in the Surrey normal income tax provision? Some cases they might be just because you like a consumption tax instead of an income tax. So it's not -- not altogether a cut and dry answer. But that's one question.

The second question is if you are going to do something in this area, would a direct spending program or a regulation make more sense administratively in order to accomplish this, and I reversed the orders. Before I had this number three. So the old number two, which I just made number three, is given that you're going to have a tax provision, is it designed the way a tax provision should be? That is, have we structured the tax provision in the best way to accomplish.

And so when I go through these and would be happy to discuss any of these -- my views in the question and answer system section -- the answers to these things are all over the lot. It's almost asking -- looking at the federal spending programs and saying are they good or bad? Well, some are good, some are bad, some are good but should be done differently. It's the same thing when you look at this tax expenditure list.

So to take the biggest one, for example, employer contributions for medical insurance, which was over five years $1.1 trillion of expenditures. In the absence of a national health program, to answer the first question, there is a rationale for encouraging employers to provide group health insurance. But now that we have HSA, maybe that rationale is gone. So, I mean, I think this whole thing has been turned around the way we should look at it from recent legislation.

Would a direct spending program or a mandate make more sense than tax expenditures? For various reasons, I think so, but, of course, that's been a very disputed issue and was maybe at the center of the healthcare debate.

Third, is it the best kind of a subsidy if we are going to have a subsidy? Well, it provides relatively more benefit to high-income employees in a high-tax bracket, and it encourages overly generous insurance plans because it's open-ended. So you might want to redesign the subsidy in various ways if you're going to keep it.

I'll only talk about one more provision -- mortgage interest deduction -- because Ed mentioned sacred cows and that should be thrown up. Should we subsidize homeownership? Well, homeownership is associated with a lot of positive social benefits and social externalities. However, my reading of the literature is the direction of causality isn't clear. We don't know whether homeownership causes these benefits or it just happens to be correlated with them and the causation goes in the other direction. So it's very unclear whether we ought to have a subsidy for homeownership at all.

If we do have it, should it be through the tax code? Easy answer. In that case, the answer is yes. It's very easy to do it through the tax code. People have that information on their tax returns. They got a matching 1099 and interest paid. It's quite easy to administer. Not a problem with doing it through the tax code.

However, do we have a good design of it given that it is in the tax code? No, we have a terrible design of it. It gives a bigger subsidy to high-income people. I'm not worried so much about the distributional effects. But from the incentive effects, these are people who would have homes anyway. It probably causes them to have bigger homes than they otherwise would and -- or pushes up land values in urban areas. So, either way, it's hard to see what the benefit of it is.

If you want to encourage homeownership, some kind of a first-time buyer credit or refundable interest subsidy would be a more effective way to do it again if that's your goal.

Okay, so I can go through all of these. The third biggest area is saving. So just to say that the biggest areas were really deep into social policy when you look at tax expenditures. It's homeownership, saving, and health.

A couple of concluding remarks. There are lots of small tax expenditures in the code that are not defensible. But the big ones on this list are not a slam dunk. You can make defenses for them. You can argue them back and forth. It's very serious policy argument. They certainly in many cases can be made more efficient and designed better, and huge budget items like these are certainly worth more scrutiny in the political process than they're getting.

However, I don't agree with the conclusion that they're hidden and that we don't know anything about it. Lots of these things have been very deeply studied by academics. In some cases, the answers are very hard to tease out -- like how much do IRAs or 401(k)s raise saving or not? But they have certainly been very deeply studied. I'm one -- in my line of my business, I'm always in favor of more research being done. But I can't really honestly say that these things have not been researched. What the problem seems to be is that nobody pays much attention to the results of the research. Thank you.

MR. BERGIN: Alright, Eric. Let me just say you and I are apparently kindred spirits. There are at least two people who were reading the analytical perspective part of the budget last night -- you and me. Anybody wants to read it, it's here. Thanks, Eric. Andrew?

MR. SCHULZ: Well, if I was told that all I had to do is defend the charitable contribution deduction and that would be the easy part of the presentation, I would have laughed at you. But, I'm not going wrestle with the entire array of tax expenditures. What I think the points I'm going to make about the charitable contribution deduction lends some framework for the analysis of the other tax expenditures.

One, I think it's an important time to be talking about these issues. The economic decline gives us an opportunity and the courage to think about all the assumptions that are in the tax code. But I certainly hope that we preserve rational, careful debate about these issues and don't panic. We've already seen, at least at the state level and certainly at the federal level, things that seem like desperate grabs, short-term solutions that ignore the long-term implications and I hope that this conversation about tax expenditures at least keeps an eye towards the future.

One, I welcome the scrutiny of the tax expenditures because I happen to believe that the charitable contribution deduction is a particularly -- perhaps not sacred -- but very attractive looking cow in this particular herd. And I'm going to go through some of the reasons why I think that's true. I also hope that we do get a lot more attention to this issue, because I think if policymakers and the general public were more aware of the bargain that is the charitable contribution deduction, there would be fewer, if any, attempts to solve short-term budget gaps by eroding the value of the contribution deduction.

To just give you a sense -- the statistics I've seen put the value of the charitable contribution deduction at about $45 billion per year. That ebbs and flows, obviously, with the economies that people are experiencing -- and certainly corporate economies as well. But estimated charitable giving annually is $300 billion. It's an eight-to-one -- about an eight-to-one ratio. That's a pretty good return on the investment from the federal government. Even if you factor in the lost revenue on investment income that nonprofits don't pay, that gets you to $90 billion and it's still more than a four-to-one return on the investment. So I think when we talk about the frameworks or what are the issues that when we think about taxable expenditures, what's the analysis we should do and so just a couple observations about the charitable contribution deduction.

The government can't do it or certainly can't do it as efficiently. One of the points is would we be better off with the direct expenditure? And there are a lot of reasons, I think, why the government doesn't, but one is predicated on the assumption the government would be more efficient and more effective in the work that the charitable sector does. I meet a lot of people in my line of work, and I talk to people with very diverse backgrounds and perceptions. I'm yet to meet one who thinks the government is a model of efficiency and effectiveness that rivals the nonprofit sector. While there are certainly questions that are raised from time to time about particular institutions, the sector is fairly well respected for its efficiency. The government simply can't afford to take over the nonprofit sector. Like I said, $300 billion a year for the $45 billion tax subsidy is a pretty good bargain. To increase federal spending to take up the slack if you eliminated the deduction is an interesting analysis that would be done, but I bet it would be more expensive.

Certainly, one of the issues that's raised in questioning other tax expenditures is are we subsidizing behavior that would otherwise take place. For example, people would already buy homes. Are we subsidizing behavior people would likely behave in anyway? When we talk about first-time home buyer tax credits, are we actually incentivizing additional behavior or are we just shifting the time in which that behavior occurs? Well, the charitable contribution deduction has been shown to be somewhat nonresponsive to rate fluctuations; it is pretty clear that the charitable contribution deduction is important to encouraging additional charitable contributions. And so we can be certain that without any deduction of any kind, there would be some erosion of the amount of money given to the charitable sector.

Other reasons why the charitable contribution deduction makes a lot of sense -- I believe the charitable sector is far more directly democratic than our government is. People vote with their pocketbooks, and they can directly decide whether to contribute to charities that they find effective and efficient and they chose not to support ones that aren't. While our government is clearly one of the best examples of democracy in the world, the directness of that democracy, as we've all seen, can sometimes be questionable.

The government won't do a lot of what the charitable sector does. Some issues are too politically difficult for the government to wrestle with. And just in the example that Eric just gave about the healthcare debate and whether or not it would be more efficient and more effective for the government to do it directly simply was politically too difficult of a topic to wrestle with, and certainly history is filled with many examples of issues that only the nonprofit sector had the independence and the courage to take on that neither the government nor the private sector were able to wrestle with. And so I think we need to preserve that independence and that's yet another reason why the nonprofit sector's value to society is well more than the cost. And also the sector is far more transparent.

We talked about how do we evaluate effectiveness. And one of the things is just being able to figure out where the money went and how it was spent.

One of the things I'm currently, actively working on is flattening the private foundation excise tax. And one of the questions that comes up is how much money does the government raise annually in the private foundation excise tax versus how much does it spend in overseeing the charitable sector and enforcement? That first part is fairly simple. We can pretty quickly add up how much -- it's about $750 million in the most recent years, we have statistics -- is raised from private foundations to pay for government oversight.

The second part of the question is unanswerable. There simply is not budget data where you can put a specific number on how much money the Internal Revenue Service spends on overseeing the charitable sector. So that's just an example of how difficult it is to evaluate the effectiveness of the government on something as simple as just the trade-off in what's raised in taxes versus what's spent to further what the taxes are allegedly being raised to pay for.

And then just a couple other points that Eric has pointed out in some of his articles and others have commented on. I think one important piece that we can't lose sight of is whether or not the deduction that is afforded to charitable contributions has the tendency to increase the tax burden on other taxpayers. That's one of the arguments against taxable expenditures. I would argue that the charitable contribution deduction both decreases the size of government and decreases the tax burden because much of what the charitable sector does either directly carries out activities that the government would otherwise do or participates in long-term research and development, if you will, where the return on the investment benefits all of society and makes government cheaper.

Simple examples of this is any research and medical and science technology. For example, in the healthcare field, a lot of the advances in healthcare and medicine have come through investments from private foundations and the charitable sector that reduces the long-term cost on the government of providing healthcare to their employees as an employer, to the elderly through medical benefits programs, through taxpayer subsidies to the entire healthcare system. Other examples include, you know, research into domestic fuel renewable fuel resources and other social programs where the long-term return on the investment benefits all of society -- not particular shareholders, not particular individuals, but all of society. So I think when you look at the long-term return on investment in addition to just the direct one, you know, eight-to-one immediate return on investment, you'll find that the charitable contribution deduction, I think, more than pays for itself. And these are all the reasons that I think you can apply to other taxable expenditures and see if they stand up as a way to defend whether or not it's the most efficient way for the government to accomplish what it wants to get done.

MR. BERGIN: Thank you, Andrew. Brian?

MR. FLAHAVEN: Great. Thanks, Chris. And thanks again to Tax Analysts for inviting me to be a part of this panel. I guess the question that I saw originally was whether all the deductions, credits, and other write-offs are worth the hundreds of billion dollars in lost federal tax revenues each year. And I guess the answer in terms of education is yes. Thank you.

No, I'm just kidding. I want to first talk a second about CASE -- the organization that I work for and am part of. CASE is the professional membership association representing advancement professionals at colleges, universities, independent schools, [and] educational institutions. The members of CASE are institutions themselves, but we only really interact or provide services, professional development, represent advancement professionals, which are the folks who are building the long-term support of the institutions. So it's fundraisers, communicators, alumni relations professionals at colleges and universities.

So most of the issues -- and all of the issues as I am director of government relations for CASE -- that we focus on, relate to giving to education. So, I'll probably talk a little bit, though I will try not to duplicate what Andrew said about the charitable deduction -- but I'll talk about it in terms of giving to education.

I know that there's another huge portion of discussion around tax expenditures in education, which was referenced a little bit in some of the earlier remarks, which relate to tax -- the various tax credits that are available to individuals and families and other deductions. I will say that CASE doesn't take a position on those issues. We rely a great deal on our other higher-ed associations who do take positions on those issues and weigh in on those tax credit incentives. I'm obviously in conversations with those folks, so I can share a very little bit about some of those tax credits and their justification, but I want you all to know that I'm not -- obviously not speaking for CASE when I talk about those issues because, again, we focus mostly on the charitable deduction.

Let me -- you know, I had some prepared remarks, but I want to go to what Eric said earlier about -- he kind of laid out those three questions that, you know, we should really apply to tax expenditures. The first one -- the first one was does the activity merit subsidy -- if I recall. And in terms of giving to education, which I'll start with first, I think the answer is simply yes. And giving to education in -- and when I say giving to education, the charitable deduction, the ability to deduct your gifts to educational institutions, whether it's college or universities, private K-12 schools, etc. I think that it's pretty clear that education is identified and is clearly considered a charitable purpose -- organizations that provide educational instruction and services. But I think it's important to note that there's a lot of question sometimes is, well, why should I be paying for or contributing to the education of someone else? And I think it's important to point out when we look at -- really, when you look at tax expenditures in general, but also when you look at the charitable deduction, that there's the public benefit piece of the equation. The fact that an educated society is a benefit to all of us in terms of reduced crime, more workforce productivity, increased wages, less reliance for educated -- an educated workforce on government social safety net programs and just, in general, a better standard of living the more individuals that are educated. So just starting from that perspective, you have to recognize that education does provide a public benefit. It's not just the private benefit of you getting your degree or getting that -- learning that specific skill.

So we'll start -- the other thing is when it comes to charitable -- to giving to education, in general, charitable giving -- while it doesn't make up for it, particularly in the instance of public colleges and universities -- it doesn't make up for government spending or can't fill the gap of particularly state government spending, it does help contribute to lower tuition, because if there was no private gifts or charitable gifts going to educational institutions, tuition would be much higher than it is now. It actually keeps tuition down and particularly -- it's particularly important in these times when states are continuing to cut -- cut appropriations to education. It provides a pathway out of poverty. Whether it's an associate's, bachelor's, master's or doctorate degree that you get, a college degree translates into higher earnings for all racial and ethnic groups and for both men and women.

So obviously there are benefits to education. And I also -- one of the things that I don't think people think about a whole lot is really the fact that education and colleges and universities in particular are economic engines for their communities in the regions that they're in. I mean they're usually top employers. They increase the quality of life for their communities in terms of providing arts and museums or events or particular -- particular services to the community. So private giving to those -- to education in general -- can expand those opportunities, can expand facilities, can expand the jobs that a college or university may have and again kind of bring stronger economic activity to a particular region. And I will say there was just a study I just saw briefly this morning that said that towns with colleges and universities -- and I didn't have a chance to look at it too indepthly -- but towns with colleges and universities actually weathered the recession a little bit better than other regions and communities.

So -- so the question of does -- does the activity merit subsidy? I think that the fact that education provides these public benefits that are external not only to the donor, but also to the individual who is getting the degree, I think there's a strong case to be made that the activity merits subsidy.

So now let's go to question number two. Would direct spending by the government make more sense or a direct spending program? And I think in this case, when it comes to giving to education, there obviously are some direct spending programs that are -- that relate to colleges and universities -- whether it's appropriation, student aid. So I think in the case of this, I think it's a -- there's a combined effort already that's out there. There's a combination of spending programs that are going out there or subsidies. But, when it comes to the charitable giving and giving to education, I think there's something to be said about we wouldn't necessarily want all spending on education coming directly from the government. That there's -- actually there's some strong arguments to be made that charitable giving, particularly to private institutions, and that is encouraged by the deduction, actually allows for more independence and innovation in private institutions and even giving to public institutions can also increase the level of education and the level of opportunities that are happening at public institutions as well. So it adds on to the benefits that are there with direct government spending.

We obviously have seen what's gone on with direct government spending as well, particularly at the state level when it comes to colleges and universities these past couple years as there have been tighter and tighter budgets. So private support has become even more critical for colleges and universities.

So I don't necessarily think that -- you can't necessarily say that direct spending wouldn't be better, but when it comes to the charitable deduction and the ability again of -- particularly for private institutions -- I think that there's a pretty strong case to be made that would -- that the charitable deduction works better than that.

So then you ask, is the charitable deduction the right type of subsidy? And I'll start by -- I'll talk a little bit about this in relation to probably the most -- the most talked about recent proposal regarding the charitable deduction, which has actually been pretty visible lately in the debate. And that was the President's proposal to limit the value of itemized deductions, obviously including the charitable deduction. And that would have been -- the proposal, which was proposed both in the fiscal 2010 budget and also the 2011 budget, would be to cap the value of itemized deduction at 28 percent for those taxpayers making above 200,000 at the individual level, 250,000 at the -- for married couples or households.

If you go -- so looking at that proposal -- so it would be capped at 28 percent. The idea was that because that -- at least the idea that the administration posited for doing this was that number one, charitable giving would still continue even with the limited -- the limitation of the value of the itemized -- of the charitable deduction. But, number two, that right now higher-income taxpayers get more benefits from the fact that there -- that there is -- from the charitable deduction in a couple of ways.

One, they're obviously nonitemizers. Nonitemizers don't get a deduction. But the second reason is that there's a high -- because higher -- we're tying it to the marginal tax rates, higher-income taxpayers, because they're in the higher marginal tax bracket, get more of a benefit for their charitable deduction. So there -- if you're in the 35 percent tax bracket now, you're getting roughly -- you're getting the 35 percent itemized deduction rate. Whereas, if you're in the 15 percent tax bracket, you make a gift and you itemize, you're only getting 15 percent itemized deduction rate.

Well, the -- I think that the reason obviously there is the fairness issue is brought up and the only reason there is a fairness issue is obviously higher-income taxpayers are paying higher taxes when it comes to marginal tax rates. But I think it's important to remember, particularly when it's -- when we think about charitable giving -- that higher-income taxpayers have the resources -- have accumulated the resources, have the excess resources that are available to give to higher education or to other types of activities -- charitable activities. And we want to encourage them to do that. That's a positive thing. Policy that encourages individuals with resources to give more -- why would you want to discourage -- discourage that activity? And the question is would they do it anyway, without the charitable deduction?

Well, if it's asked on a survey -- and there have been studies like the -- there was a study by Bank of America that looked at high net worth philanthropy back in 2008 and they even asked the question, "Would you still give without the tax incentives?" Well, donors said, "Yes, we would." But if you look at the -- if you look at the data -- and there are a number of studies on this, it's obvious that -- particularly for high-income taxpayers, there is -- there is definitely an effect when the price of giving goes up, their giving is effected much more. The price elasticity of their giving is much more -- is much more sensitive to price changes for higher-income taxpayers.

So in an effort to limit the value of itemized deductions, while not -- or I should say limit the value of the charitable deduction, while not totally -- and I don't think anybody would argue eliminating giving to education or to charitable organizations totally wouldn't eliminate that. It definitely would, for particular folks, increase the cost of giving for these high-income taxpayers, and probably reduce the size of gifts and maybe really affect the timing of the gifts as well, which has been a main concern amongst our colleges and universities in educational institutions in our community -- in our -- in the higher-ed field.

So I think it's important to look at that very closely to recognize that that could potentially have a tremendous impact on giving and, again, for higher -- higher-income taxpayers also tend to give the most to educational institutions as well. So there's definitely a tie with that.

I don't want to -- as I mentioned, I want to mention very briefly because I want to get to the discussion portion of this -- just that there are other obviously educational tax credits and deductions out there -- many of them, actually. There's actually been a trend away from more direct spending items towards more tax expenditures in the code over the past -- the past few -- past few years. But, there are tax incentives for saving to go college. There are tax incentives for paying for college as you're in college. There's also tax incentives to help you pay back. The student loan interest deduction is a good example.

Again, the rationale for most of these tax credits and deductions is again the public benefit of education. But I also think it's important that another rationale -- that around education is that it's actually -- should be considered a right for individuals. That they should -- that education -- that we should ensure that everyone has access to education and these tax incentives, tax credits, deductions help encourage that.

There are -- the direct spending programs tend to -- like Pell grants, for example -- tend to be much more -- much more -- tend to effect lower-income individuals much more and provide more subsidy for low-income individuals and provide more access. Whereas the tax expenditures -- because a lot of low income individuals aren't paying taxes -- are less -- are less helpful in that effect.

There have been some efforts, particularly -- I'll just mention one tax credit -- the American opportunity tax credit that was enacted as part of the stimulus bill last year, where they added a refundable component to that to encourage low -- access to low-income individuals.

But I should say policymakers have been very concerned given the cost of the high increase in tuition over the past few years and obviously now with the economic squeeze, that they're trying to find policies and ways to increase access for middle-class taxpayers as well. So it's important to think about all of these various issues. So I'll stop there because I know we want to get into the discussion. But thank you all.

MR. BERGIN: Thank you, Brian. As is our way, I'm going to open this up for discussion. Just to remind everybody, please tell us who you are each time and speak into a microphone. For questions back there, we have hand-held mics here. We'll get them to you quickly. I see a hand already. Here's a case of somebody I know that has to tell us who she is.

MS. ROGERS: I'm Diane Lim Rogers. I'm with the Concord Coalition. So I'm here to be the party pooper and prosecutor, I think. I wasn't thinking I was going to speak today, but then I got put at the head table so I thought what the heck.

MR. BERGIN: What the heck?


MR. BERGIN: Good for you.

MS. ROGERS: So let me first say that I love charitable giving. I love education. I believe that there's a strong public goods component to charitable giving in general and especially giving to higher education or any kind of education being the mother of four kids.

That does not mean, however -- and I do believe that there are -- is a lot of charitable giving that's out there that Andrew and Brian pointed out. But let's not confuse the merit of charitable giving with the worthiness of the tax deduction. And, so, Andrew, you pointed out that you compared the size of total charitable contributions relative to the cost of the tax expenditure for the charitable -- for charitable donation deduction -- charitable giving deduction. But, of course, I don't think you're claiming that all of that charitable giving was the result of the charitable deduction. And the reason why that's important is because we have actually binding economic budget constraints, even if they don't seem binding legislatively. And so it is not true that we can just give money away to whatever seems good. I would love to be able to do that. I'd love to be able to do that with my children, but I can't do that.

And so we have to be able to weigh cost against benefits because we have to figure out is this deduction -- the full cost of the deduction -- worth the price in terms of what it's generating. And so I think both of you -- Andrew and Brian -- you both admitted that charitable giving wouldn't go away if it weren't for the deduction. I think that's very important.

We have to actually figure out and there is a lot of empirical work on this question. We have to figure out what kind of giving is actually encouraged or created by the deduction and how much, because that's part of evaluating the benefit of the deduction. And with our budget constraints as tight as they are all over the federal budget -- spending side and revenue side -- that has to be part of the discussion.

The claim that it does not increase the size of government, it does not increase the size of the tax burden -- that can't be true. I mean, those statements can't be true because if the deduction -- if the size of the deduction is greater than the charitable giving that the deduction is encouraging, then you're not -- you can't claim that you're substituting for government spending that would have had to have taken place without the deduction. So I find that argument very difficult to swallow. I think that this is precisely why we have to evaluate the actual economic effect of these deductions or any tax expenditures on economic activities. Otherwise, everything looks good.

And, by the way, I think it's not a bad nonrandom way to give away government money. It's sort of how I feel about tax credits for seniors, you know, and people saying well, what's the justification for $250 tax credits for seniors on the grounds of stimulus -- and, you know, I -- or even fairness sometimes -- and I say, well, no, I mean, there's probably not that much of an economic justification, but it -- it's not a bad stimulus in the sense that elderly individuals have higher propensities to consume than middle-aged people. Just like the homeowner tax credit -- even if it doesn't encourage homeownership -- that much homeownership that wouldn't have otherwise happened, it's putting money in the hands of people who are buying homes and they have to buy furniture and lots of other stuff to fill their homes with, so it's probably not a bad stimulus either.

So there are sometimes policies that have an ostensible purpose that really isn't exactly what is achieved by the policy and yet they might still not be bad policies for other reasons. And so just like I like charitable giving and I like giving to higher -- to any type of educational institution, I think it's not a bad idea to reward people who do that. And I think there is a stimulative effect on charitable giving. I just don't think it's as much as necessarily we require to decide that the deduction is worth its full cost.

MR. BERGIN: Here and there.

MR. LOBEL: Martin Lobel of Lobel, Novins & Lamont. I just heard two separate, distinct discussions. Ed and Eric were talking about process and economic policy. And I just heard the defense of various subsidies. The one problem I have is that once something is in the tax code, buried under some acronym, it's there forever -- long past the time it can be justified. What we really need to do and with all due deference to Eric, most of the academic papers I've read are unintelligible. They're not written in English. And that's probably one of the reasons that Eric is so quoted -- because he can write English. I don't know who his editor is, but they do a good job.

The -- what we have to do is what Oklahoma has done. Oklahoma is not known as a paradigm of good government. But what they have done is they've set up a process. If you want to put in a tax subsidy in the code, you have to do a cost-benefit analysis that's open and above board, and they have a period of time to study it.

And then they have sunset provisions for every tax subsidy. It's, I think, three years. Don't hold me to that. I think it's three years where they have to go back and justify it again and if they can't justify it, it goes. We have subsidies -- just recently we saw the subsidy of the oil industry go down the tubes because the oil industry -- despite the BP mess -- was able to muster enough political power and campaign contributions to preserve those subsidies.

Do we have a better use for that money? We could take the $1.2 trillion -- and that's, I think, the generally accepted amount of tax subsidies. If we wanted to split it, we could simplify the tax code, which for my purposes would be wonderful, and lower the rate for everybody. I think that would be far more stimulative than giving tax subsidies to the steel industry, to the auto industry, to the oil industry, to Wall Street.

I mean, you talk to the Wall Street bankers and they demand these subsidies. They demand them. They're entitled to them. They're not entitled to them. They're our tax dollars that are being spent. And until we -- and most of us here are tax professionals -- really stand up and say look our tax system is broken. We really have to revamp it. We have to make it more efficient and we have to lower rates. We did that in '86 -- not very well, but we did it in '86 and there was a tremendous stimulative effect from it.

I think we have to do that again and, you know, the individual arguments should be made. And in some cases, the tax subsidies are justified. But they ought to be justified on a regular basis just like appropriated funds are, because these tax expenditures are appropriated funds -- from any economics perspective. Ed.

MS. ARTERTON: Hi. Cameron Arterton with Congressman Doggett. I just wanted to pick up on some points that you just made about the need for a systemic evaluation process and that's something that Congressman Doggett has been talking about for a long time, because I think Eric is exactly right when you say that there is research out there. I'm not commenting on the intelligibility of it, but it's out there, but it's ignored as you said.

And so I think we need to have a better process for incorporating it -- an evaluation mechanism into the legislative process. I want to just flash -- I think that there's two parts of that. One is having a systematic review process of tax expenditures and then the other part is the incorporation into the legislative process so that they -- it cannot be ignored.

And I wanted just to pick up on a small step, I think, in the right direction in the latest tax extenders bill that we were able to include a study of these expenditures that are being extended. And it's my hope that that study will be completed before we're called upon to extend them again next year. I think that there's two benefits. It's -- I say it's a modest step, because again there's no requirement that it actually be -- that the results of the study be included as we go to extend them again. But at least it's there in the legislation. It's part of the process.

And I think it -- it is my hope that it will also have another effect, which is we included a request to have JCT identify where the data is not there for evaluating these expenditures. So, it's my hope that that will be a significant advance -- where we can identify not only what we know about these, but what we don't know. So going forward, we can do some more to get this more incorporated into the process.

MR. BERGIN: Going back here.

MR. UDELL: Mike Udell with Ernst & Young. I'd like to pick up on the comment about you need a better process. I think what you need is a better product. I think tax expenditures are moving into what's their role in the budget process and the product is too defective. And I'll give you three quick examples. Let's take the industry of agriculture. Alight, there's not a lot of tax expenditures in the agriculture industry. There's a boatload of federal spending on the agriculture industry. Alright, so if you wanted to look at the tax expenditures in agriculture, you'd be completely misunderstanding the role of the government in the agriculture industry. Let's take an example of the nonprofit sector. In the nonprofit sector, the discussion is just about the charitable contribution and that's because tax expenditures only talk about the individual income tax and the corporate income tax. But the charitable sector is exempt from many federal excise taxes and the estate and gift taxes are not included in tax expenditures. So we talk about $45 billion of charitable contribution from the individual income tax side. There's $20 billion of charitable bequests from the estate tax side.

So the story -- it's not -- the product isn't right. If you want to move tax expenditures into the budget world -- which is a sensible place for them to be -- the product needs a little bit more evolution here. It should include all of the federal taxes. And so I just gave you those two examples. And my final example is let's take the healthcare industry. Ed opened up with how large -- you know, one of the largest tax expenditures is in the healthcare side. But it pales in comparison to the spending side from the federal government on healthcare. And yet we focus so heavily on the healthcare tax expenditure; the spending side is four times as large -- easily. And the federal government puts in about $900 billion a year into a $2.2 trillion, you know, 15 percent of GDP number.

So I think that the product needs a little bit more evolution here to get it where it needs to go.

MS. O'CONNOR: Eileen O'Connor, Pillsbury Winthrop Shaw Pittman. I am -- there is much that has been said and I thank all the panelists for their contributions this morning. I'd like to speak right now just because I want to congratulate the young man from Ernst & Young for introducing what I think is one of the most salient points, which is rarely discussed. And it relates also to Ed's use of the term "allocative goals of tax expenditures."

What is the proper role of government and aren't tax expenditures really a backroom checkbook for the government to get itself involved in all sorts of things -- all sorts of daily decisions that people make? By changing the financial equation, sometimes on a retroactive basis as is the case with extenders or in -- was it 1986, that in October, Congress retroactively revoked to January 1 the investment tax credit on the basis of which many corporations had already made serious investment decisions.

Nonetheless, I think that the economic consequences notwithstanding, the fact that the government is enabled by tax expenditures to take a far deeper and more intrusive role into daily decisions.

A few months ago, I created a presentation which amused a lot of people. I spoke during the presentation, but during the presentation I had flashing behind me a PowerPoint on which there was for 10 seconds a tax legislative proposal. Such and such bill will provide a deduction for doing this. Another bill is, you know, proposed to provide a credit for doing that. Another bill is proposed to amend the credit that's given for doing that. And I just had them -- this was to law students -- and I just had these things flashing for 10 seconds just so that they could see how tax expenditures and the tax code in general permit politicians to be able to go back to their constituents every day and say, "Well, you know, I tried to do this thing for you," because it doesn't really matter sometimes whether it succeeded or not. They are able to say, "Well, you know, I tried to get you this little benefit."

But it doesn't belong in our tax system. It doesn't belong as something that allocates from one person to another. So I am just absolutely delighted that Tax Notes has put together this panel to increase the current focus on tax expenditures because my preference would be -- and I say this also as former assistant attorney general for the Tax Division of the United States Department of Justice. They are an invitation to fraud. And we saw that recently.

If you've read the news recently about what happened with the incentives to go out and buy a new house. Well, gee whiz, a lot of prisoners are the recipients of some of the benefits -- the tax benefits, because these are just an invitation to fraud and there's not a great deal of federal energy that is devoted to that, but there is far too much. And it could simply be eliminated. So I thank you, Chris, for putting this together.

MR. BERGIN: Thank you. Ed, did you have something you wanted to say?

MR. KLEINBARD: Well, first Mike's not young. Second --


MS. O'CONNOR: He looks young from here.

MR. KLEINBARD: Second --

MR. BERGIN: Youthful.

MR. KLEINBARD: -- Martin Lobel made a -- referred to Oklahoma. I think in fairness, if we're going to -- if we're going to give shout outs, we ought to mention Washington state as well. Washington state has a comprehensive program now of looking at tax expenditures.

I do -- I think Diane Lim Rodgers made some very important points about budget constraints. We have sacred cows. We've heard, you know, the defense of sacred -- a couple of those sacred cows. One of the things we all ought to be thinking about in this room is it's going to be them or us. You know, which is going to -- are the sacred cows going to prosper or are we going to prosper?

We all have to think a little bit about that question of if rates can't go up because they are sacred cows. If tax expenditures can't go down because they are sacred cows, the only -- what's going to go down is the American state. If in -- if we were to reduce tax expenditures to the same percentage of GDP that they were in 1974, when people first became agitated about tax expenditures, and we were just to turn back -- not the absolute number, but the same percentage of GDP, we would be reducing tax expenditures by $450 billion a year. We'd be done. Game over. You know, we win. You know, thanks for coming. Drive home safely.

Those are the kinds of stakes that we're talking about. I think that's the point Diane was trying to drive at.

MR. CAPLIN: Let me speak from the standpoint of the tax administration side.

MR. BERGIN: Mortimer Caplin.

MR. CAPLIN: I'm Mortimer Caplin, a former IRS Commissioner and I practice law with Caplin & Drysdale. I think underneath everything we're talking about, I think it's obvious that a strong tax system is really essential to a strong democracy. Anything we want from our government depends upon our willingness to pay. And we've sort of forgotten this. I mean taxation has become that dirty word certainly in the last eight years or so. One doesn't dare mention, you know, the word taxes. If it's a disguise tax, it comes out on the list of what it's costing.

But what is happening -- all these very high motives and the good results of all these tax credits, tax deductions. The question is should it be part of the -- of the tax law. What are we doing to the IRS for having them administer healthcare or even the charitable field? Why shouldn't HHS be taking care of earned income tax credit? I mean it's really killing the revenue service in terms of compliance. And when you measure the cost of a tax expenditure, are you adding in the cost of policing it as well?

It seems to me this is -- this overuse of the tax system to cure all of our economic and social problems. And we're picking out winners and losers and we give them a credit for this, a credit for that. And I think we have to keep this in mind.

I mean it was said before that if we could just increase that base and lower the rates, which really began in the '60s, both with the Kennedy Administration and then the Reagan 1986 Bill. We should move in that direction. And I think we really have to make this a very important aspect of our discussion.

Should it be handled by the IRS? A credit for everything? Having our orange juice -- a credit? Not drinking that Coca-Cola and getting a tax credit? I'll leave that with you.

MR. BERGIN: Thank you. Andrew, do you want to get in here?

MR. SCHULZ: Yeah. Just one of the things that strikes me about the comments that are made before is it starts sort of with this premise that it sounds to me like the government is entitled to tax everything all the time and we're just deciding how much of it you get to keep.

I mean one of the things you think about when you talk about the charitable deduction is what should be rightly included in the tax base? And I think there's a large segment of society that says money that you don't keep for yourself for your own benefit, or that doesn't acquire things that benefits you directly, you know, is something that ethically maybe isn't fair game for the government to tax.

And just sort of a very recent example of this is the case of the home -- the record setting home run ball where someone catches it and they possess it for several seconds and then throw it back onto the field. And then the question is well, they possessed it. That ball had significant value. Let's impute the value of that ball and then they threw it back. It's a gift. Clearly more than of gift tax limits and therefore the person should be taxed on their gift back to the ballplayer because they possessed the ball for all of 10 to 15 seconds and it was worth millions.

I mean that's the kind of thing and people read about it in the paper are like, "Are you kidding me?" I'm like, yeah, well, that's actually absolutely what the tax code would say how to treat that.

So part of the question is is the money that we earn, but then give away entirely not for our own benefit but for the benefit of others, charity inherent in the code, inherent in society long before we had an income tax? Is that fair game? In our time it is like some handout that, you know, is it justified? It shouldn't be taxed in the first place. And I think one of the conversations we have to have is what should be in the tax base. And I think charitable contributions is something -- it straddles both these worlds. I think other tax expenditures don't fall within to that conversation about the tax base.

MR. BERGIN: Anybody? Sheldon?

MR. COHEN: Sheldon Cohen. You all are starting from a premise where people like Eric are explaining the economics to us. When I was a kid, my first job was drafting legislation for the Treasury. And I started in '52. I was all of 26 years old in '56. When '53 -- when we started working on the 1954 code, the largest subsidy that was in the '54 code was accelerated depreciation. It was the first time we gave bonus depreciation to try to jack up the economy. That was the Eisenhower administration's answer to economic problems.

The Assistant Secretary walked into my office and said, "Sheldon, draft" -- and he told me what to draft. That was the study. There was zero on paper. We had -- I had done all kinds of other studies to try to figure out what I would do when he came into my office, but that was the world in 1953, 4, 5 -- right in that area.

Now, we've come a long way. Those provisions cost hundreds of billions of dollars. You know, Mort was the last commissioner to collect less than 100 billion. I was the first commissioner to collect more than 100 billion. I mean that's what's happened in that period of time since the early '60s.

And this is a huge machine and it's so complicated. None of us understand it. All of us understand, you know, one little corner of it. And it's -- well, people like Eric and Ed are explaining it to the world and hopefully the Congress is listening. We'll see.

MR. BERGIN: Yeah, that's the question. Is the Congress listening? Let me ask Ed a question. I love your optimism. And instead of using sacred cows, the sacred cows were some of the ones that I think Eric and I were looking at last night. Maybe the metaphor I should have used was ox, because nobody wants his ox gored. And is it really possible to get any political movement here, to do anything about this massive problem? Do you agree it's a problem?

MR. KLEINBARD: You know, that's the whole theory of seeing tax expenditures not just as an instrument of tax policy. I mean Andrew's last comment goes to that, you know. Is -- you know, how do we define what is net income? I disagree with everything he said, but that's the context in which he said it.

The larger idea is by taking tax expenditures and raising that as an issue in public awareness in the context of legislative process more generally. That people can, in fact, start to debate these questions. It's them or us. Which sacred cows, you know, are we going to slaughter? Which ox will be gored because we'd like to survive as a country, too? It really is just that simple.

There are -- there are some real glimmers of hope. I mean we talked about Oklahoma and Washington state. We ought to also talk about Wyden-Gregg, which is, you know, a serious bipartisan proposal that reduces most tax expenditures and which, you know, would accomplish a tremendous amount for the revenue base for this country.

Again, if we just say, you know, we'll put a cap on tax expenditure. It won't get rid of all of them, but we'll have the same percentage of GDP that we'll spend through tax -- through the tax code, that we spent in 1974. Well, that's $450 billion each year. That's, you know, to the head. So, it requires a political process. It requires political courage. I think, you know, people like Senators Wyden and Gregg really need to be commended for all of their work in getting their bipartisan proposal going.

In the end, we will get just the result that we deserve through the congressional -- through the legislative process and I fully appreciate the disappointing substantive results of legislative process -- this year, last year, and every other year that I can think of. But all we can do as a country is force our elected representatives to appreciate how important these issues are to us.

MR. BERGIN: David. Then I'll come back.

MR. ROSENBLOOM: I'm David Rosenbloom from Caplin & Drysdale. I must say I find the discussion a little otherworldly and I'm -- the -- Ed's statement that we get the result we deserve. That's sort of precisely what I'm worried about.

MR. BERGIN: Me, too.

MR. ROSENBLOOM: I think -- let me -- I guess I'm the pessimist in all of this. I think the only thing that's going to produce any substantial progress on the kinds of issues you're talking about is a true crisis in this country. And anybody who has looked at the -- at the numbers -- the projections over the next 5, 10, 15 years, you don't have to be an economist to see that crisis coming.

The -- the path we're on -- I hate to use this word, because it's so commonly used that it lost all meaning, but it really is not sustainable. And so it seems to me that if you're talking about tax expenditures on an incremental basis, whether one expenditure is justified or more justified than another, it strikes me that's a fool's errand. I mean, that's going to take us forever. Every one of these expenditures has got very articulate lobbies that are entrenched and friends in the political process. You're really going to have to blow up the system. So the question it seems to me should not be whether a particular expenditure is or is not justified through the tax system as opposed to by subsidy. The real question is what's the purpose of the tax system? And I don't hear -- that seems to me, if you come at it from that end of the telescope, it seems to me that we -- you need a tax system because the people who talk about tax and spend have it exactly wrong. It's not tax and spend. It's spend and tax. And we have to have a tax in this country, whether it's going to be the kind of tax system that we have now or the kind that we develop, whether we're just going to run -- raise money through national lotteries or maybe floating bonds to the Chinese or whatever, but there's going to be a tax in this country because we want to spend the money as a nation.

And so it seems to me that the right way to think about this -- at least the way I would prefer to think about it is really to just blow up the code and sit down on a blank piece of paper and ask yourself, you know, if we started all over again, what kind of tax system would we have. And I think I'd probably go beyond Ed in terms of eliminating what he calls sacred cows. I would have the simpler. Simpler, it seems to me, is always better. A lot of it for the reasons that Mort says.

Here we have a national -- we have a national agency that's a treasure, which is the Internal Revenue Service, and we systematically go about undermining it. It's -- it's tantamount to national suicide.

So I don't see talking about justifying one expenditure or getting rid of a few expenditures and I don't see any -- personally don't see any possibility of making progress short of a real crisis. Thanks.

MR. BERGIN: Thank you.

MR. BROSTEK: Mike Brostek with the Government Accountability Office. You know our mission is to provide factual analyses to help policymakers make informed choices and I'm glad that that happens at times. It doesn't always seem to follow the analyses that are presented. I note also the comment about there seems to be a growing discussion of tax expenditures in the last few months -- maybe a little bit longer than that. And I'm interpreting that as a recognition on many people's part that I think the term is a fiscal consolidation. We're going to have a fiscal consolidation either forced on us by a crisis or we're going to make some decisions on our own to do a fiscal consolidation and get spending and revenues more in line.

And much as processes can be helpful, I've probably worked with economists a little too long, but I -- not being an economist myself -- I think that policymakers respond mostly to the incentives that they're given. And the incentives that policymakers have derive in part from their constituents. So that all leads me to I think the one task we have before us is trying to make the public understand that tax expenditures are not costless -- that they are indeed very costly and that they are a tax increase on them or their descendants if we're going to deal with our fiscal situation.

And one small anecdote from my perspective on this is one of my colleagues at GAO years ago had children who were going to go into college. Well, she was employed in a fairly well-paying job, as was her husband. Between the two of them, I would guesstimate they were in the maybe 97th, 98th percentile of income in the country, but yet the individual thought they needed some assistance from the rest of the citizens with their college expenses. So anything we could do to help citizens understand that these forms of assistance are not costless I think would help motivate them to motivate policymakers to make some more difficult choices.

MR. BERGIN: Over here.

MR. HUDDLESTON: Joe Huddleston, Multistate Tax Commission. First I want to thank Tax Analysts. As usual, you have provided an outstanding forum for a timely discussion. There are couple of points that I'd like to make about what has been said and first I'd like to say that the people that have noted the experiments in the states that have been useful and helpful, I would suggest to you that the states have always provided an outstanding laboratory for -- for both the good and the bad in terms of tax policy. So I would encourage people to look to those states that have done good things and utilize that perhaps in some areas as a grounding point.

The other thing I wanted to comment on was Ed had mentioned and others have mentioned somewhat doom-and-gloom scenarios. I would like to suggest to you that I just returned this week from the EU where I had the opportunity to speak at the Isle of Man on tax haven issues, where almost no one liked what I had to say, which made me feel right at home.

And the U.K., where I watched very closely some of the -- what I believed most of us around this table two or three or four years ago would have said were almost unbelievably draconian economic measures are being undertaken there and across the EU to address some of their problems. And what I will suggest to you is that like our European brothers, we will, in fact, act. The question is when and what will we do?

And I believe that as I began my comment, these types of forums -- these types of discussions advance those questions well down the road, because there will come a time when what we do will become absolutely critical and the expertise around this table and others that recognize somewhat of a gap between overall public policy-driven discussions and tax policy discussions will be able to make reasonable decisions about how we go forward because we will go forward.

MR. BERGIN: Thank you. Back here.

MR. ROSS: (Inaudible.)

MR. BERGIN: Tell us who you are, please.

MR. ROSS: What?

MR. BERGIN: Tell us who you are, please.

MR. ROSS: Yes. Stanford Ross. I'm a former commissioner of Social Security and a Treasury tax-policy-type in the dark ages. Mort Caplin's comments triggered my comments here to some extent. I think even worse than the tax expenditures are the failure to do something about the tax gap. And the one that really, I think, is critical and unjustified that so little is being done is the employment tax cap.

Some of the most dynamic parts of our society are the people working at home, particularly because of the recession, who are digital experts in making all kinds of money and less than half the self-employment income is reported. In 2001, when the last IRS study was done, there was about $60 billion of self-employment taxes. Forget about the individual income taxes which are at least that much. Interpolating to today and with the recession, that's at least $100 billion which needs to be collected to go into the Social Security funds. If you don't, I guarantee our deficit reduction commission is going to talk about cutting benefits that are going to be cut only because we're not collecting the taxes that are already legislated.

Now, the IRS collects it in this country -- the taxes for the Social Security and Medicare trust funds and it's going to get even more responsibility. And I'll tell you, there's something good about that. We have probably the best system -- a unified collection system -- of any country in the world. Yet I was recently in Japan and their collectors lost 50 million records and before they can finish their reorganization to get the collection function pushed over to the National Tax Authority, they've had all this political instability with the Reform Party. The Reform Party was going to have the NTA clean up this whole collection mess. It never got there.

And I think we're in danger, as Mort Caplin said, of putting so much onto the IRS it's not going to do the core functions we've depended on it for a long time, such as collecting our self-employment taxes so we can continue to run a Social Security and Medicare system.

I'd put that up even higher than the tax expenditure thing because there are less incentives to fix it. The Administration made some proposals in Obama's 2010 budget to do some enhanced reporting and voluntary withholding to pick up $2 billion out of $100 billion employment tax gap when it's fully effective. I got to tell you, we got to wake up. We need universal withholding on self-employment income with a few appropriate exceptions. But if we don't start doing this, we're going to let some of the major institutions of this country just collapse.

MR. BERGIN: Yeah. And healthcare hasn't even come to the IRS yet.

MR. ROSS: They've got to hire 10,000 -- they've got a box number in there of hiring 10,000 people to administer the premium-related subsidies.


MR. TODER: Yes. Okay.

MR. BERGIN: Andrew, did you want to get in too?

MR. SCHULZ: Yes, please.

MR. BERGIN: Go ahead.

MR. TODER: Okay, yeah. I just want to bring this back to tax expenditures and take issue with some of my brethren in the tax community. I think there's a tendency of some of us to think, you know, the tax system is for raising revenue. That's what we think and it shouldn't be used for these extraneous purposes like expenditures.

But, in fact, the tax expenditures are deeply embedded in our social and economic system. They serve a lot of purposes that people will want to continue to have served and, in many cases, people are already interacting with the IRS. Putting another line on the IRS does complicate tax administration, but it's a whole lot simpler than setting up another program administration or another place for the citizen to deal with.

Now, again, this is a case-by-case thing. But I think it's really -- I think the value of tax expenditure analysis is precisely that we kind of understand that there are these things in the code that are expenditures. It's not meant, I don't think, to denigrate it and say that they're all bad or they all shouldn't be done for the tax system. It's just to make us aware of how much we're spending, and David is right. The system is unsustainable. We're 20 years from -- well, I guess starting 10 years ago. I was doing research on Social Security and modeling the future of retirement incomes, and we called it the model in the near term and that year was 2020. This seemed like a joke 10 years ago. It's not such a joke now. The near term is really approaching and the time when we're running in this fiscal crisis is really approaching and things that were unthinkable -- and that's why I mention mortgage interest. Charitable might be in that boat also. I don't want to get into that right now. Things that were unthinkable, we're going to have to start thinking about because there is no way we can address this problem without doing something (inaudible).

MR. BERGIN: Thanks, Eric. Andrew.

MR. SCHULZ: Yeah, I just want to -- you know, I came to the conversation with the presumption that there are some things that we think the government should fund directly through direct spending. There are some things that it may be the most efficient way for the system to work is to offer tax expenditures. And there are some things the government should just get out of entirely and let the people keep their money and spend it, and corporations. And within that framework, I offered using the charitable contribution deduction -- what I believe is an analysis of the types of questions that we should ask about each tax expenditure.

And you may disagree with the analysis of each point such as the return on investment and those sort of things, but again the point is to come up with a common set of questions that we should run each tax expenditure proposal or provision through to come up with some sort of common understanding on under what circumstances do we find that the most efficient and effective way for the tax system to work. And so, if that's defending sacred cows, of course, I think all the criteria I selected happened to fit the charitable contribution deduction quite well. There may be others. Some of the ones I may have picked may not have been appropriate. But I think it's right to have that sort of, at least, analysis.

If we're going to start from the basis that there is no -- no useful arena in which tax expenditures make sense, that's a different conversation, but I think it's a presumption that there's at least some scenarios in which it does make sense.

And just one other point. I think one of the problems with the legislative policy, and PAGO in particular, is that we tend to be very good at analyzing -- or it's all somewhat of a black box -- but, you know, what is this going to mean in terms of foregone revenue or raised revenue. But the other side of the equation is what are we getting out of that in return and again, what is the return on investment. Maybe what is the rigor behind that, but --

For example, if you forgo a dollar in tax revenue, what are you getting under the other side? And we don't have a good system for evaluating that. And people run studies and fit -- studies tend to say what the people who run the studies want them to say about what the return on that investment is. But that's a significant weakness, I think, in how we evaluate these expenditures is what are we getting in return.

MR. BERGIN: Thanks. Ed.

MR. KLEINBARD: I think Eric was making some very important points and I certainly -- I agree with much of what he just said and I don't want to be misconstrued. I am not a tax purist who thinks that the code has to necessarily be kept pristine. I don't think that's what tax expenditure analysis is about. That's not true. What it's about is forcing to the surface the hard decisions that have to be made. It's just that simple. And in this particular case -- when we're talking about these (inaudible) -- we haven't talked about business tax expenditures at all. I think because we all collectively know the answer there. They're all stupid. And no one's going to defend them. I mean, you know, if we believe in capitalism, we really, you know, don't need to have ersatz -- government five-year plans in the form of -- you know -- of tax subsidies for this or that business.

But if we're going to come back to these -- these kind of sort of sacred cow issues that we've focused on, which are the hardest issues -- the most difficult issues to take on -- it's really very simple. The United States is a low-tax country. We are within the OECD the fourth lowest taxed country in the OECD. Japan, Mexico, and Turkey are lower than us. So, you know, if you don't like what's going to happen here, move to Turkey. We're a low-tax country with high-tax country appetites for spending. The -- everything -- all these programs, you know, have their merits. So we have a choice. Either we raise taxes or we reduce our appetites for spending to be consistent with the fact that this country is, and always has been, a low-tax country.

Now, if you're going to raise taxes, it turns out the Altshuler paper that I mentioned before is extremely helpful because it demonstrates that you can't do it just by raising taxes on the rich. You know, now that I'm not a member of that group anymore, I would be in favor of that as the solution, but there just aren't enough of them. So, you know, it just doesn't work. The numbers don't work.

The only way you raise taxes is on -- in effect the middle class, because that's where the money is in the aggregate. And so if you're going to raise taxes, you raise it on the middle class. We could either raise rates or we could reduce tax expenditures. Those are the only issues. That's it. I mean it's very much -- it's that simple. Do we want to raise rates on the middle class? We could do it by adding a VAT. That may be better for economic -- yeah, as a matter of economic efficiency arguments. But one way or another, we can raise taxes on the vast majority of us, or we can radically change our thinking about the size of government. And that, in turn, requires putting tax expenditures front and center.

I'm not purporting to answer that question. That's the right debate though, and that's what the political process is about.

MR. BERGIN: Thank you, Ed. I just want to ask all the panelists a question here. Building off of something that David said, if the crisis -- when the crisis hits. It's not an if, it's a when. When the crisis hits, and we haven't had a rational evaluation of this tax expenditure budget, doesn't it become -- do you think it becomes a target-rich environment that's just going to get shotgunned in order to raise revenue?

MR. KLEINBARD: Yes. Current process.

MR. BERGIN: Okay. Brian?

MR. FLAHAVEN: Yeah. I think it would, but I also think that -- that maybe -- obviously we don't want to wait for a crisis to happen before there's that -- that type of analysis and I think there's a lot to be said for the analysis of bringing more -- more scrutiny of tax expenditures up. And I don't think anybody here has said even, you know, we've talked about the charitable contribution deduction, that that shouldn't be discussed.

I think what both Andrew and I have said is that there's a defense for it, that there are strong reasons for it, but -- and, in fact, and as I mentioned even with what's in the president's budget, I mean, there have been questions about the level of the charitable deduction already that have been brought out. Now it hasn't been talked about being eliminated completely, but there have -- there have been talk -- there has been talk about it. So I don't think there's -- I don't think anybody would object to more scrutiny or at least more focus on tax expenditures now and their impact on the budget. I don't think there -- I don't think that would be a disagreement.

So I think -- now when the crisis hits, I think you're absolutely right. And if we don't have a discussion like -- like that, then it will be a target-rich environment, where there will, you know -- maybe the strongest -- the strongest lobbies survive in terms of their expenditures. And when it comes to charitable organizations, obviously we're not always the strongest lobby when it comes to those types of issues.

So there's a lot of -- there's a lot of benefit for us to be -- to be out there in defending what we're doing now and being visible on it. And I don't think anybody would say that we -- that that's not a process that we'd be open to.

MR. BERGIN: David? Since I started with you -- and I'll get back to the panelists here in a minute.

MR. ROSENBLOOM: Yeah, I mean, I'm not so sure that it's going to be sort of everybody for himself if the -- if we do get into a serious crisis. The numbers that I've seen -- I'm not an economist, so I don't have the benefit of being able to foresee the future the way they do, but --

SPEAKER: Well, they're very good at predicting what has happened.

MR. ROSENBLOOM: -- but, I -- what I've seen strikes me as pretty, pretty dramatic and I don't think, you know, this tax expenditure and that tax expenditure -- eliminating them or restricting them is going to get us from here to there.

My own view -- I know -- I realize what a large level of popularity this idea has, but my own view is that a VAT is inevitable for the United States. I don't care that Congress votes it down 100 to zero. It's inevitable, because that's the only way we're going to get there as far as I can see.

MR. BERGIN: Andrew.

MR. SCHULZ: Yeah, I was going to say, you know, I think the crisis is here, but I don't think it's a fiscal crisis. And I think where you raise the money from, whether it's -- and where you -- whether you spend or, you know, do taxable expenditures, I think the crisis is the disconnect between -- it's a civic crisis, which is that the people who make decisions about where the money is spent, where the money isn't taxed, etc., are not connected to the people who reside in the country and, you know, it's the small, special interest problem, the lobby problem.

But the crisis is -- and where you're seeing the advent of tea party activists and, you know, suggestions that the elections in November are going to be significant, is that the people on the ground who pay taxes -- whether it's consumption-based or income-based -- do not feel like they have a voice of any kind in how that money is allocated and spent. And I think that's the crisis and the question is, "What is the outcome of that crisis?"

I don't think the tax code is going to be it. I think it's going to be in the general election cycles and the way we handle our democracy.

MR. BERGIN: Mortimer.

MR. CAPLIN: Well, I agree with David as my law partner. This crisis is very serious and we'll have to face it, and I think we need some leadership on the Hill to think in broader terms. We need more profiles in courage, a willingness to kind of really understand what is happening and analyze it and to take some risks in the process.

Some of the conduct we see today up on the Hill, extending an ordinary income tax to this or that, or how do we cut it -- you know, it's shocking. We can expect more from our Congress and I hope we will.

But I also agree with the aside -- with this concept that some form of VAT is going to be necessary. And I think Leonard Burman has -- had made a suggestion that it be done on employment taxes and still preserving an income tax with a VAT for a certain element. And I think it is inevitable, despite the words we hear from different congressional groups.

MR. WHITE: Jim White, [General Accountability Office]. Just a small point about VATs. A VAT might be the solution to the revenue problem, but it's not necessarily the solution to the tax expenditure issue that we've been talking about. The European VAT, for example, is loaded with tax expenditures. The large chunks of the consumption tax base in Europe are either exempt to the -- exempt from the European VAT, subject to zero rates or subject to special rates.

MR. BERGIN: Good point. Diane.

MS. ROGERS: Let's see -- a few things here about the political issues. The blowing up of the whole tax expenditure system has a lot of appeal just because if you don't eliminate all tax expenditures and kind of start from scratch, you are going to get the ones most likely to persist -- are going to be the ones that have the most powerful lobbies behind them, and they tend to be the ones that are the worst in terms of actual public justification. It is a fiscal crisis.

It may be true that a civic -- it's a civic crisis that will lead to the fiscal crisis and what Mike Brostek said about the importance of public education is -- is -- is really critical and because it is -- it's true that the American people can't call on the politicians to do the right thing in terms of tax expenditures, because the American people don't understand how tax expenditures work. They don't really understand that they cost money, especially if they're deficit financed, because they've been taught over and over again that that's like getting a freebie. And so people don't understand the tradeoffs. They don't understand the tradeoffs that they're making.

The biggest movements that are happening in the country that people seem to be optimistic about -- in terms of leading to some fiscal policy solutions -- have been the tea party movement people. And the tea party movement people, I'm convinced, are not necessarily for small government. They're for low taxes and big government. And so it -- and that's the problem. Because if you ask them what they're willing to give up to get lower taxes, they're not willing to give up anything. They want to get -- they just want lower taxes. And that is a big problem because then it perpetuates this fondness for deficit financing and tax expenditures. And we'll never get anywhere if we have to get through it -- if we have to get it through the political process, unless we start with the American people in explaining to them that these things have a cost.

MR. BERGIN: Good point. Marty?

MR. LOBEL: The debate really on the Hill has been do we want tax increases, not do we cut tax expenditures. And, unfortunately, you've seen on TV, I'm sure around here, because you can't watch a news program without one of the API -- American Petroleum Institute -- ads saying you can't raise taxes on the oil industry. It's going to cost you money. Until we change the equation from tax expenditures, do you think we ought to subsidize the oil industry as opposed -- do you think we ought to raise taxes?

Everybody thinks they pay too much [in] taxes and, quite frankly, I don't know many people -- and I'll bet nobody around the table does their own taxes, because they can't. If you did it in terms of tax simplification -- blow it up as David says -- you have a much better chance of getting it through Congress.

The problem is -- and I did an analysis -- I'm not an economist, so I'm very good at predicting what has happened -- is that any businessman who doesn't try to buy a tax subsidy or a tax expenditure is a fool, because the rate of return from a tax expenditure exceeds anything that anybody can get in the market, except maybe a senior partner at Goldman Sachs.

So until we either change the system or the spotlight of public attention is focused on it -- and I agree with you. The tea baggers are just awful. I mean, they don't know what they're talking about -- that they are against something -- because we're really faced with right now a real problem because if we do cut expenditures now, we're going to have a W recession. I don't know any economist who doesn't predict that.

So we have to do some more stimulative effect now and cut in the future, and the only way you can do that is by blowing up the tax code or eliminating a whole bunch of tax subsidies and maybe lowering the tax rates.

MR. BERGIN: I'm not an economist either, but I like them. I want to defend economists. Sheldon?

MR. COHEN: Sheldon Cohen. Tax simplification has a constituency of one -- the commissioner of Internal Revenue. Nobody else gives a damn because they're interested in "What does it cost me?" So you have to disabuse yourself of that idea. There is just nobody out there who is concerned with administration except those people who administer it.

MR. SCHULZ: Well, I just have to respond to that. It's not the point I was going to make, but the Council on Foundations, on behalf of the foundation sector, is promoting a tax simplification provision that has, within the field of private foundations, winners and losers and has somehow miraculously persuaded them all that it's good tax policy and it's simplification, and we still can't get it enacted on the Hill. But there is a constituency of about 2,000 private foundations who either support it or are willing to be quiet about it. So that's just one example. Hey, that's a victory. Come on.

The other thing I was going to say is, you know, I generally am in favor of sort of zero basis approaches things. Like, let's take all the assumptions off the table. But you still have this question -- and I'm not an economist -- I'm not even sure I understand economists -- but, you know, the question is how are we going to decide when taxable expenditures are (inaudible) sense? When do we add them back in? And it can't be that they're never right.

So the question is what -- whether we're taking them off the table or taking everything off and adding them back on, what are the criteria that we're going to use? What are the criteria that we're going to establish for politicians as a benchmark against which they measure whether it's good tax policy? And we still have to get to that linear list of what are the things? And, you know, it may not be that simple. But that's the conversation.

MR. BERGIN: Eric, you are an economist. Do you have something to add?

MR. TODER: Well, I'm an economist. I'm not a politician, so --

MR. BERGIN: I didn't say I liked them.

MR. TODER: -- so I don't know that I know what works politically. I just know a lot of people in this town are going through budget exercises, you know, as we speak. And there are actually some online that the Pete Peterson Foundation put up, which would be very interesting for any of you to go through and try to figure out how to get the deficit debt down to 60 percent of GDP in 2018. It's not easy. And to say that there is one solution is just silly. We have to have a VAT. We have to cut tax expenditures. We have to cut entitlements. We have to do everything. So, you know, that's the -- that's the sad news.


MS. O'CONNOR: Well, I was going to have -- Lee O'Connor. I was going to have two comments, but I just added three. You left out cut spending.

MR. TODER: I said entitlements.

MS. O'CONNOR: Oh, did you? Oh, well --

MR. TODER: Yeah. Okay, spending as well. But mostly entitlements.

MS. O'CONNOR: Okay. My other two comments were simply to stand up. I think I probably know people who consider themselves tea partiers, so I feel the need to defend them. The people that I know who might consider themselves tea parties want lower taxes and smaller government. And they realize that the two go together, so I'd like to put in a pitch for them.

I'd also like to just underscore, emphasize, and repeat something that's been said a couple of times and that is that the public doesn't understand about tax expenditures. They don't understand the cost to them, and most of them don't understand the extent of them. I mean the book that you have in front of you, Chris, with the list of all those expenditures and their costs -- people only know about the ones that affect them. They know about the charitable contribution, the mortgage interest deduction. They have absolutely no clue of all of the others and, therefore, there is no constituency to ever change any of those others.

So I think that public education -- educating the public, that is, about what all of this does to the Internal Revenue Code and to enforcement -- and I would say that the Justice Department is also very interested because it does the litigation. The IRS does all the administration, but if that doesn't work out, you've got to go to litigation and there are 350 attorneys at the Department of Justice who deal with that litigation and they would rather be spending their time on other things.

So public education, I am way in favor of and I think this is a big -- a good start today. Thank you, Chris.

MR. BERGIN: Thanks. And that's what we're trying to do here. Let me say a couple things and close this out for today. First of all, I'm happy to lend anybody who wants to borrow this book -- this book -- but, Mortimer, if I could steal your copy here -- this is a much better book.

MS. O'CONNOR: By my partner.

MR. BERGIN: This is a book -- this is a book of tax quotes. Yes, by your partner. And it's free outside. If you didn't get one, please grab one. In addition, this was a shyer audience than I was prepared for on this topic. So if you go to, there is a post up there by me. It is not an opinionated one -- which makes it the first one of its kind. And please post your comments or your questions, and I'll ask the panelists to take a look at them and hopefully they'll comment as well. So don't feel shy to get on and post a comment. Again, let me thank the panelists. This was a great discussion. I urge you to keep it going, and I thank you all for coming.

(Whereupon, at 11:28 a.m., the PROCEEDINGS were adjourned.)

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