[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]



 
                     REMOVING THE BARRIERS TO FREE

                     ENTERPRISE AND ECONOMIC GROWTH

=======================================================================


                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

              HEARING HELD IN WASHINGTON, DC, JUNE 1, 2012

                               __________

                           Serial No. 112-27

                               __________

           Printed for the use of the Committee on the Budget


                       Available on the Internet:
                       www.gpo.gov/fdsys/browse/
            committee.action?chamber=house&committee=budget




                  U.S. GOVERNMENT PRINTING OFFICE
74-370                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001




                        COMMITTEE ON THE BUDGET

                     PAUL RYAN, Wisconsin, Chairman
SCOTT GARRETT, New Jersey            CHRIS VAN HOLLEN, Maryland,
MICHAEL K. SIMPSON, Idaho              Ranking Minority Member
JOHN CAMPBELL, California            ALLYSON Y. SCHWARTZ, Pennsylvania
KEN CALVERT, California              MARCY KAPTUR, Ohio
W. TODD AKIN, Missouri               LLOYD DOGGETT, Texas
TOM COLE, Oklahoma                   EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   BETTY McCOLLUM, Minnesota
TOM McCLINTOCK, California           JOHN A. YARMUTH, Kentucky
JASON CHAFFETZ, Utah                 BILL PASCRELL, Jr., New Jersey
MARLIN A. STUTZMAN, Indiana          MICHAEL M. HONDA, California
JAMES LANKFORD, Oklahoma             TIM RYAN, Ohio
DIANE BLACK, Tennessee               DEBBIE WASSERMAN SCHULTZ, Florida
REID J. RIBBLE, Wisconsin            GWEN MOORE, Wisconsin
BILL FLORES, Texas                   KATHY CASTOR, Florida
MICK MULVANEY, South Carolina        HEATH SHULER, North Carolina
TIM HUELSKAMP, Kansas                KAREN BASS, California
TODD C. YOUNG, Indiana               SUZANNE BONAMICI, Oregon
JUSTIN AMASH, Michigan
TODD ROKITA, Indiana
FRANK C. GUINTA, New Hampshire
ROB WOODALL, Georgia

                           Professional Staff

                     Austin Smythe, Staff Director
                Thomas S. Kahn, Minority Staff Director
                            C O N T E N T S

                                                                   Page
Hearing held in Washington, DC, June 1, 2012.....................     1

    Hon. Paul Ryan, Chairman, Committee on the Budget............     1
        Prepared statement of....................................     2
    Hon. Chris Van Hollen, ranking member, Committee on the 
      Budget.....................................................     3
        Prepared statement of....................................     5
    Hon. Jeb Bush, President, Bush and Associates, former 
      Governor, State of Florida.................................     7
        Prepared statement of....................................     9
    Chris Edwards, director of tax policy studies, Cato Institute    12
        Prepared statement of....................................    14
    Hon. Henry A. Waxman, ranking member, Committee on Energy and 
      Commerce...................................................    22
        Prepared statement of....................................    24
    Hon. Kathy Castor, a Representative in Congress from the 
      State of Florida, submissions for the record:
        Questions posed to Mr. Bush..............................    25
        Article, ``Florida Charter Schools: Big Money, Little 
          Oversight''............................................    26
        Article, ``A Charter to Profit''.........................    34
        Article, ``Jeb Bush: Lehman's Secret Weapon''............    35
        Article, ``Florida Stands to Lose $1 Billion Because of 
          Lehman Brothers' Bankruptcy''..........................    35
    Hon. Marcy Kaptur, a Representative in Congress from the 
      State of Ohio, submissions for the record:
        Questions posed to Mr. Bush..............................    37
        Article, ``Jeb Bush: Lehman's Secret Weapon''............    72
        Article, ``Barclays Buys Lehman U.S. Units for $1.75 
          Billion''..............................................    72
        Article, ``Lehman Brothers Bosses Could Face Court Over 
          Accounting `Gimmicks' ''...............................    74
        Biography of Jeb Bush....................................    75
    Hon. Debbie Wasserman Schultz, a Representative in Congress 
      from the State of Florida, article: ``Palm Beach County OKs 
      Replacing Biotech Property With Sugar Cane''...............    69


      REMOVING THE BARRIERS TO FREE ENTERPRISE AND ECONOMIC GROWTH

                              ----------                              


                          FRIDAY, JUNE 1, 2012

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The committee met, pursuant to call, at 9:00 a.m. in room 
210, Cannon House Office Building, Hon. Paul Ryan [chairman of 
the committee] presiding.
    Present: Representatives Ryan of Wisconsin, Garrett, Cole, 
Price, Stutzman, Lankford, Black, Ribble, Mulvaney, Huelskamp, 
Amash, Rokita, Van Hollen, Kaptur, Doggett, Blumenauer, 
Yarmuth, Honda, Ryan of Ohio, Wasserman Schultz, Castor, Bass, 
and Bonamici.
    Chairman Ryan. The committee will come to order.
    I welcome all to the House Budget Committee for this 
hearing on one of the key threats posed to our free enterprise 
system, the growing cronyism in Washington and government-
imposed barriers to upward mobility.
    While we are dealing with tough economic times, Americans 
still live in the most prosperous and dynamic country in the 
world. Our free enterprise system has lifted millions from the 
grips of poverty, a record of success that is increasingly 
challenged by the corrosive influence of Washington's misguided 
policies.
    Over the years, both political parties have pursued 
deficit-driven spending aimed at favored companies, tax carve-
outs for the well connected, and regulatory barriers that stack 
the deck against the average citizen. This creates a rigged 
game where success is too often determined not by the quality 
of service or products that a business provides but by their 
relationships with those in power in Washington.
    Both parties share in the blame. And I believe that both 
parties must work together to advance solutions to get us back 
on track. To that end, we passed a budget here in the House 
that lifts the debt and strengthens the safety net for those 
who need it and eliminates corporate welfare for those who 
don't need it. Our pro-growth tax reforms ensure a level 
playing field for all to prosper.
    Regrettably, the President's policies take us in the wrong 
direction. He has called for higher hurdles and greater 
complexity in the Tax Code. He insists on wasteful spending on 
his political allies and regulatory monstrosities that protect 
the entrenched at the expense of the entrepreneur. We have seen 
the results of this type of government-centered society in 
Europe. Massive spending, high taxes, and corporate favoritism 
have burdened the continent with crushing debt loads and 
economies unable to grow. America is not destined to share this 
kind of future if we give our people the freedom to succeed and 
prosper.
    Today's hearing is an effort to explore how we can advance 
reforms consistent with our timeless principles and match the 
magnitude of today's challenge. We can and we must restore 
America's exceptional promise, ensuring all citizens are 
guaranteed with the freedom to pursue their dreams and making 
certain that we leave the next generation with a stronger, more 
prosperous America.
    I want to thank our three witnesses for joining us today. 
And I will get to the third part in a second here. First of 
all, we have former Governor Jeb Bush of Florida.
    Thank you very much for traveling with us today. It is 
great to see you here with us, Governor, here today. You have 
been an outspoken advocate on restoring government's proper 
role so that all Americans, especially the least among us, have 
the opportunity to rise.
    We also have Chris Edwards, director of tax policy studies 
at the Cato Institute. Chris has been a long time advocate for 
a fairer and simpler Tax Code and for his insightful criticism 
of the mess of subsidies and special interests favoritism that 
now pervades Washington spending and the Tax Code.
    And then we will be joined with Henry Waxman. I talked to 
Henry on the floor last night. He has a previous engagement. He 
knows we are starting at 9:00, but he will show up hopefully by 
the time our opening statements and the two witnesses are done.
    As we know, Henry is the ranking member of the Energy and 
Commerce Committee. He has been a strong leader for his party. 
And he is the minority's witness today. So when the two 
gentlemen are done, we will go with Henry, and hopefully he 
will be here by then.
    And with that, I would like to yield to the ranking member, 
Mr. Van Hollen.
    [The prepared statement of Chairman Paul Ryan follows:]

Prepared Statement of Hon. Paul Ryan, Chairman, Committee on the Budget

    Welcome all to the House Budget Committee for this hearing on one 
of the key threats posed to our free enterprise system: the growing 
cronyism in Washington and government-imposed barriers to upward 
mobility.
    While we're dealing with tough economic times, Americans still live 
in the most prosperous and dynamic country in the world.
    Our free enterprise system has lifted millions from the grips of 
poverty--a record of success that is increasingly challenged by the 
corrosive influence of Washington's misguided policies.
    Over the years, both parties have pursued deficit-driven spending 
aimed directly at favored companies, tax carve outs for the well-
connected, and regulatory barriers that stack the deck against the 
average citizen.
    This creates a rigged game where success is too often determined 
not by the quality of service or products a business provides but by 
their relationships to those in power in Washington.
    Both parties share in the blame, I believe both parties must work 
together to advance solutions to get us back on track.
    To that end, we passed a budget in the House that lifts the debt, 
strengthens the safety net for those who need it, and eliminates 
corporate welfare for those who don't.
    Our pro-growth tax reforms ensure a level playing field for all to 
prosper.
    Regrettably, the President's policies take us in the wrong 
direction. He has called for higher hurdles and greater complexity in 
the tax code.
    He insists on wasteful spending on his political allies and 
regulatory monstrosities that protect the entrenched at the expense of 
the entrepreneur.
    We've seen the results of this type of government-centered society 
in Europe. Massive spending, high taxes and corporate favoritism have 
burdened the continent with crushing debt loads and economies unable to 
grow.
    America is not destined to this same kind of future if we give our 
people the freedom to succeed and prosper.
    Today's hearing is an effort to explore how we can advance reforms 
consistent with our timeless principles and match the magnitude of 
today's challenges.
    We can--and we must--restore America's exceptional promise: 
ensuring all citizens are guaranteed the freedom to pursue their 
dreams, and making certain we leave the next generation with a 
stronger, more prosperous America.
    I want to thank our three witnesses for joining us today.
    First of all, I want to thank former Governor Jeb Bush of Florida 
for traveling to be here with us today. You've been an outspoken 
advocate on restoring government's proper role so that all Americans--
especially the least among us--have the opportunity to rise.
    Chris Edwards is the Director of Tax Policy Studies at the Cato 
Institute. Chris has been a longtime advocate for a fairer and simpler 
tax code, and an insightful critic on the mess of subsidies and special 
interest favoritism in how Washington spends hard-earned taxpayer 
dollars.
    And we welcome our colleague, Congressman Henry Waxman, the Ranking 
Member of the Energy & Commerce Committee. You've been a strong 
legislative leader for your party, and we appreciate your taking part 
in today's hearing.
    Thank you all for joining us today, and we look forward to a 
thoughtful discussion.
    With that, I yield to the Ranking Member, Mr. Van Hollen.

    Mr. Van Hollen. Well, thank you, Mr. Chairman.
    I want to join the chairman in welcoming our witnesses here 
today.
    And let me start from a place we all agree. We all love 
America. We all believe America is a unique and special place. 
We all believe in American exceptionalism.
    The question is, how do we keep America strong, dynamic, 
and exceptional? On that, we clearly have different views and 
would make different choices. We believe that our strength 
springs not only from the undisputed benefits of a free people 
pursuing their ambitions and dreams but also from sometimes 
harnessing those talents for important national purposes.
    We believe that America's greatness has resulted not only 
from a collection of individuals acting alone for private 
profit but also from our capacity to work together as Americans 
for the common good.
    We believe in constantly expanding the circle of 
opportunity so all Americans have the chance to prosper.
    And Mr. Chairman, I must confess, and, Governor Bush, I 
must confess, I am a little surprised that you decided to be 
here today to criticize the efforts made over the last 3 years 
to lift the economy out of the mess that President Obama 
inherited.
    For 8 years, the President Bush pursued a failed ideology 
of trickle-down economics based on the theory that tax cuts for 
the very wealthy and an anything goes license on Wall Street 
would boost our economy and lift all boats. Well, it lifted the 
yachts, but the rest of the boats ran aground. The financial 
crisis hit, and the economy and jobs went into free fall. By 
the end of those 8 years, America experienced a net loss of 
private sector jobs.
    In fact, when President Bush left office, we were losing 
jobs at the astounding rate of over 830,000 jobs a month. 
Americans' retirement savings collapsed by one third, trillions 
of dollars, between 2007 and the day President Bush left 
office. Our Nation's fiscal health saw the greatest reversal in 
American history, from large projected surpluses to large 
projected deficits.
    Now, I have searched the record, and as far as I can tell 
during that 8-year period, you did not challenge the Bush 
administration's handling of the economy, criticize the 
excessive spending, or the rising deficits. And now, just 
looking at your testimony, I am looking forward to hearing it 
in full, you are here to tell us that government actions have 
prevented us from the kind of, quote, snap-back economic 
recovery that we have seen in other post-World War II 
recoveries.
    Carmen Reinhart and Kenneth Rogoff, two very distinguished 
economists who are often cited by Chairman Ryan, have 
demonstrated that economies hit by systemic fiscal crises 
don't, quote, snap back within a year or two but take 
significantly longer to recover. After all, none of the other 
post-World War II recessions required the kind of extraordinary 
actions taken by their Federal Reserve, as well as the huge 
Wall Street bailout called for by President Bush with the 
signing of TARP to stabilize the financial system and prevent 
another Great Depression.
    The TARP bill was, of course, a huge government 
intervention in the marketplace, called for by President Bush, 
supported by now-Speaker Boehner, now-Chairman Ryan, Governor 
Romney, then-Senator Obama, and many of us on a bipartisan 
basis as a distasteful but necessary action to prevent a total 
financial meltdown with devastating consequences for the 
economy.
    But even with the rescue of the financial industry, Main 
Street America was feeling the economic pain as millions of 
Americans were losing their jobs. And we all know what the 
figures were, 839,000 jobs lost per month. As I say, the 
economy was headed down at a very rapidly collapsing rate of 
8.9 percent negative GDP.
    So when the President was sworn in, he was determined to 
take action to help those Americans being hit by the economic 
tsunami, and he believed that if we adopted President Bush's 
proposal for government action to rescue reckless banks who 
helped precipitate the crisis, surely we should be willing to 
take action to help millions of Americans thrown out of work 
through no fault of their own.
    So President Obama and the earlier Congress passed the 
Economic Recovery Act, which the nonpartisan experts at the 
Congressional Budget Office concluded have created or saved up 
to 3 million jobs in 2010 alone.
    The President also believed that if we had rescued the 
banks, surely we should prevent the U.S. auto industry from 
being wiped out, an action that saved millions of jobs. This 
was not about crony capitalism, as the chairman has suggested. 
It wasn't about doing special favors for well-connected 
friends. It was about ensuring that a critically important 
industry in this country had a reasonable opportunity to 
survive given the financial crisis going on around it.
    Now, Governor Romney has famously suggested that we should 
have let Detroit go bankrupt, that the crisis should have been 
handled through the normal bankruptcy process.
    Bob Lutz, a former General Motors vice chairman, who also 
happens to be a Republican, took umbrage with this and said, 
and I quote, ``It is once again the fiction that, ah, we didn't 
need the government, and this could have been a privately run 
bankruptcy with the normal Chapter 11. What these people always 
deliberately forget is there was no money. Nobody had money.''
    And so when the chairman and others refer to this as crony 
capitalism, I think many of us take great offense. We also 
passed the Wall Street reform bill to make sure that never 
again would reckless gambling on Wall Street wreak havoc on 
Main Street and leave taxpayers holding the bill.
    I will wrap up in a minute, Mr. Chairman.
    I would just like to point out, Governor, that during that 
period of time, we weren't getting very much help from our 
Republican colleagues. Not a single Republican House Member 
voted for the recovery bill. Not a single one voted for the 
Wall Street reform bill. Senator McConnell, the Senate leader 
in the Senate, in a moment of candor, said, and I quote, ``The 
single most important thing we want to achieve is for President 
Obama to be a one-term President,'' unquote.
    So we have made progress on improving the economy and jobs. 
Are we where we want to be? Absolutely not. And today's job 
numbers show we need to make further progress. But let's learn 
the right lessons from what happened in the past, because if we 
diagnose the problem wrongly, then we will have the wrong 
prescription. And I do worry greatly about those that say the 
way forward is to adopt a souped-up version of many of the 
policies that got us into the mess to begin with.
    So, as we go forward, I hope we will try to find a way 
together. And I will just close with where I began on the point 
of agreement, Mr. Chairman. If there is a government program 
that is not achieving its intended purpose, let's amend it or 
get rid of it. We agree. If there is a regulation that has 
outlived its usefulness, get rid of it. I hope we would adopt 
the same approach with respect to special interest tax breaks.
    Chairman Ryan. Is the gentleman going to wrap up?
    Mr. Van Hollen. I am, Mr. Chairman. But let's again 
remember that we have made some progress, and we need to make 
more. Let's not misdiagnose the problem and learn the wrong 
results.
    [The prepared statement of Chris Van Hollen follows:]

      Prepared Statement of Hon. Chris Van Hollen, Ranking Member,
                        Committee on the Budget

    I want to join the Chairman in welcoming our witnesses here today, 
and let me start from a place where we all agree. We all love America; 
we all believe America is a unique and special place. We all believe in 
American exceptionalism. The question is: how do we keep America 
strong, dynamic, and exceptional? On that, we clearly have different 
views and would make different choices.
    We believe that our strength springs not only from the undisputed 
benefits of a free people pursuing their ambitions and dreams, but also 
from sometimes harnessing those talents for important national 
purposes. We believe that America's greatness is not only from a 
collection of individuals acting alone for private profit, but also 
from our capacity to work together as Americans for the common good. We 
believe in constantly expanding the circle of opportunity so all 
Americans have the chance to prosper.
    And, Mr. Chairman, I must confess, and Governor Bush, I must 
confess, I'm a little surprised that you decided to be here today to 
criticize the efforts made over the last three years to lift the 
economy out of the mess that President Obama inherited. For eight 
years, President Bush pursued a failed ideology of trickle-down 
economics based on a theory that tax cuts for the very wealthy and an 
`anything goes' license on Wall Street would boost our economy and lift 
all boats.
    Well, it lifted the yachts but the rest of the boats ran aground. 
The financial crisis hit and the economy and jobs went into free fall. 
By the end of those eight years, America experienced a net loss of 
private sector jobs. In fact, when President Bush left office we were 
losing jobs at the astounding rate of over 830,000 jobs a month. 
Americans' retirement savings collapsed by one-third--trillions of 
dollars--between 2007 and the day President Bush left office. Our 
nation's fiscal health saw the greatest reversal in American history, 
from large projected surpluses to large projected deficits. I've 
searched the record and, as far as I can tell, during that eight-year 
period you did not challenge the Bush Administration's handling of the 
economy, or criticize the excessive spending or the rising deficits.
    Now I was looking at your testimony--I'm looking forward to hearing 
it in full. You're here to tell us that government actions have 
prevented us from the kind of `snap-back economic recovery that we have 
seen in other post World War II recoveries.' Carmen Reinhart and 
Kenneth Rogoff, two very distinguished economists who are often cited 
by Chairman Ryan, have demonstrated that economies hit by systemic 
fiscal crisis don't `snap-back' within a year or two, but take 
significantly longer to recover. After all, none of the other post-
World War II recessions required the kind of extraordinary actions 
taken by the Federal Reserve, as well as the huge Wall Street bailout 
called for by President Bush with the signing of TARP to stabilize the 
financial system and prevent another Great Depression.
    The TARP bill was, of course, a huge government intervention in the 
marketplace called for by President Bush, supported by now-Speaker 
Boehner, now-Chairman Ryan, Governor Romney, then-Senator Obama, and 
many of us on a bipartisan basis as a distasteful but necessary action 
to prevent a total financial meltdown with devastating consequences for 
the economy. But even with the rescue of the financial industry, Main 
Street America was feeling the economic pain as millions of Americans 
were losing their jobs. And we all know what the figures were--839,000 
jobs lost per month. As I say, the economy was headed down at a very 
rapidly collapsing rate of 8.9 percent negative GDP. So, when the 
President was sworn in, he was determined to take action to help those 
Americans being hit by the economic tsunami, and he believed that if we 
adopted President Bush's proposal for government action to rescue 
reckless banks who helped precipitate the crisis, surely we should be 
willing to take action to help millions of Americans thrown out of work 
through no fault of their own.
    So President Obama and the Congress passed the economic Recovery 
Act, which the nonpartisan experts at the Congressional Budget Office 
concluded created or saved up to 3 million jobs in 2010 alone. The 
President also believed that if we had rescued the banks, surely we 
should prevent the U.S. auto industry from being wiped out, an action 
that saved more than one million jobs. This was not about crony 
capitalism, as the Chairman has suggested. It wasn't about doing 
special favors for well connected friends. It was about ensuring that a 
critically important industry in this country had a reasonable 
opportunity to survive given the financial crisis going on around it.
    Now, Governor Romney has famously suggested that we should have let 
Detroit go bankrupt, that the crisis should have been handled through 
the normal bankruptcy process. Bob Lutz, former General Motors vice 
chairman, who also happens to be a Republican, took umbrage with this 
and said, and I quote, ``It's once again the fiction that `Ah, we 
didn't need the government and this could have been a privately run 
bankruptcy with the normal Chapter 11.' '' What these people always 
deliberately forget is there was no money. Nobody had any money.' So 
when the Chairman and others refer to this as crony capitalism, I think 
many of us take great offense.
    We also passed the Wall Street reform bill to make sure that never 
again would reckless gambling on Wall Street wreak havoc on Main Street 
and leave taxpayers holding the bill. I will wrap up in a minute, Mr. 
Chairman.
    I would just like to point out, Governor, that during that period 
of time we weren't getting very much help from our Republican 
colleagues, not a single Republican House member voted for the Recovery 
bill, not a single one voted for the Wall Street reform bill. Senator 
McConnell, the [Republican] leader in the Senate, in a moment of candor 
said, and I quote, ``the single most important thing we want to achieve 
is for President Obama to be a one-term President.''
    So, we have made progress on improving the economy and jobs. Are we 
where we want to be? Absolutely not. And today's jobs numbers show we 
need to make further progress. But let's learn the right lessons from 
what happened in the past, because if we diagnose the problem wrongly, 
then we'll have the wrong prescription. I do worry greatly about those 
who say the way forward is to adopt a suped-up version of many of the 
policies that got us in the mess to begin with.
    As we go forward, I hope we will try to find a way together, and 
I'll just close with where I began on the point of agreement, Mr. 
Chairman. If there is a government program that's not achieving its 
intended purpose, let's amend it or get rid of it. We agree. If there's 
a regulation that's outlived its usefulness, get rid of it. I hope we 
would adopt the same approach with respect to special interests tax 
breaks. But, let's again remember: we've made some progress, and we 
need to make more, let's not misdiagnose the problem, and learn the 
wrong results.
    Thank you, Mr. Chairman.

    Chairman Ryan. I now know why the opening statement was so 
long. Mr. Waxman just arrived. Okay. I get it now.
    Henry, Congressman Waxman, welcome. Please take your seat 
at the dais. We preannounced you already. Mr. Van Hollen was 
just explaining how excited he is that Governor Bush is here 
with us today.
    We see things a little differently, I guess.
    Mr. Waxman. You want to tell him how excited you are that I 
am here?
    Chairman Ryan. Yeah, very excited. Very excited to have 
you. Some of us wanted to have brief opening statements so we 
could get to the opening statements and get to the questions of 
the members.
    Why don't we go with Governor Bush, and then Mr. Edwards, 
and then Congressman Waxman.

 STATEMENTS OF HON. JEB BUSH, PRESIDENT, BUSH AND ASSOCIATES, 
  FORMER GOVERNOR OF FLORIDA; CHRIS EDWARDS, DIRECTOR OF TAX 
POLICY STUDIES, CATO INSTITUTE; AND HON. HENRY WAXMAN, RANKING 
            MEMBER, COMMITTEE ON ENERGY AND COMMERCE

    Chairman Ryan. Governor Bush, please, the floor is yours.

                   STATEMENT OF HON. JEB BUSH

    Mr. Bush. Chairman Ryan, Vice Chairman Garrett, Ranking 
Member Van Hollen, members of the committee, it is a joy to be 
to be here.
    I didn't come to criticize anybody, just for the record. I 
came to share my views. I am not used to the 9 o'clock food 
fight that starts bright and early around in Washington. I am 
from Florida, where we don't start that way in life. But it is 
great to be here.
    I am here to talk a little bit about what I think is an 
important subject, as we try to recover. The May job numbers 
were anemic at best. No one could be satisfied with that. We do 
have an L-shaped recovery, and it is the first since World War 
II, where we have not had a robust recovery. There is a cloud 
over our country I think that relates to this growing pessimism 
that we can't restore the vitality of our economy in a way that 
creates opportunities. More and more people are becoming more 
and more dependent upon government at every level because of 
it.
    And I think it is important for this committee and for 
policymakers in Washington to reflect on that and to figure out 
how together, Republicans and Democrats, we can restore the 
right to rise in our country and restore a sense of optimism to 
begin to rebuild our country.
    I don't question the intentions of people at all. I think 
there is a shared belief that we need to do better. The 
question is, how? And what do we need to do in this Chamber and 
State capitals to improve the outlook for job creation, 
business expansion, and overall prosperity should be the 
dominant question across our country. And I would urge you to 
look carefully at your primary responsibility, which is to 
manage the budgetary affairs of the United States Government. 
That is a good place to start.
    At $3.8 trillion, the U.S. budget is a powerful force in 
the United States economy. Its sheer size means that entire 
industries, whether heavily regulated or not, operate in 
constant awareness of what you all do here. When you combine 
this budgetary power with the separate powers of taxation and 
regulation, the Federal Government wields significant influence 
over the economy, both directly and indirectly.
    It is not an overstatement to say that right now, the 
United States economy operates significantly at the direction 
and behest of the United States Government, not the other way 
around. In many cases, the government's growing size and 
influence was made possible by good intentions and hopeful 
policy ideas. Behind every spending program, tax incentive, and 
regulation, there is an idea. It might in fact be a good idea. 
But those good ideas and the not so good ones add up. And the 
cost of everything you do here, every line item, every rule, 
every carve out, phase out, earmark, drains activity investment 
and creative effort out of the private sector of the economy.
    That is why my best advice is for you to perform a 
fundamental cost-benefit reconsideration of many programs of 
the Federal Government and consider the unintended consequences 
of your actions, the cumulative effect of your actions. Here is 
one example. There are 49 different Federal job training 
programs in our country today. I wonder about that number. What 
do we as taxpayers get from 49 job training programs that 29 or 
39 or six could accomplish? How do we know the people are 
choosing the right job training programs? How do we know that 
the right people are running those programs? Should all these 
programs be packaged and sent down to the States to allow the 
laboratories of democracies to work more effectively so that 
you could benchmark success and then develop a 21st century 
strategy as it relates to job training? Do these 49 job 
training programs operate with any sense that they could or 
should be closed if they fail? This is the daily worry of 
American businesses in our country. But these programs don't 
worry about being put out of business.
    I also wonder whether Federal job training programs keep 
someone in the private sector from building a business around 
providing skills training, and whether that person might do a 
better job. In short, when you try to solve one problem, you 
may not only fail, but you may create several others.
    Now, if you multiply that one example across the economy in 
multiple industries and multiple ways, it is not hard to see 
what will happen. And it has happened. So not only does the 
government grow bigger through every program, it also displaces 
the private economy, the innovators, the inventors, the people 
who risk their own savings on a business idea, the established 
businesses who could grow but don't. We see this in spending 
programs, and we see it in taxing programs as well.
    Tax policies that advantage certain economic activities and 
are just another form, in my opinion, of government spending 
and subsidy. And while they grant to some companies and 
industries benefits, they also tend to disadvantage other 
companies and industries. This is a matter of fairness. Why 
should a company pay taxes to support government subsidies that 
go to one of their competitors? I understand there may be 
political support for specific industries and companies, but we 
know from recent experience that the government is not good at 
picking winners and losers in the economy. And fundamentally, 
it is not the job of government to pick winners and losers in 
the economy.
    Again, I recognize why government tries to control the 
marketplace by sheer power and size. I recognize it is 
because--I have become clearer about this in my post-
governorship life--because I see it in the private sector as 
well. There are countless examples of great companies who fail 
to move with the market simply because a smaller and another 
nimbler competitor arrives first with the winning solution. But 
in the private sector, when a big company is beaten to the 
punch it either gets lean fast and adapts, or it goes out of 
business. And we should remember that, by the way, that failure 
is part of the natural part of a competitive market. And when 
government tries to intervene to eliminate the possibilities of 
failure, they actually end up creating more of it, rather than 
to allow the more innovative approach to work.
    The problem with government involvement in the economy is 
that it does not go through the same process of innovation, and 
sometimes failure, that exists. None of us will allow 
government to fail. What would occur in most private 
organizations and institutions, failure followed by defunding, 
simply doesn't happen here.
    And I was delighted to hear Congressman Van Hollen's 
approach that maybe it should begin. And that is a place where 
I think there is huge common ground. If programs don't work, 
defund them and allow for others to come in their place or not 
exist at all.
    I want to return to the rationale behind such a process. 
This is simply not about making government more efficient; this 
is about making government a smaller part of our economy. We 
have to resist the impulse to try to solve all of the country's 
problems from here in Washington, D.C. This impulse has only 
made government bigger, and the problems still remain. We have 
to ask ourselves whether the status quo, an expensive and 
unaffordable status quo, is the best way to address the 
problems that Congress has set itself up to solve. And I 
believe that there are many better approaches to that. And I 
thank the committee for its attention to these issues and look 
forward to answering your questions.
    Chairman Ryan. Thank you.
    [The prepared statement of Jeb Bush follows:]

  Prepared Statement of Hon. Jeb Bush, President, Bush and Associates,
                   Former Governor, State of Florida

    Chairman Ryan, Vice Chairman Garrett and Ranking Member Van Hollen, 
and Members of the Committee: Thank you for the opportunity to 
participate in this hearing.
    I want to thank the committee for its focus today on the state of 
our economy.
    It is safe to say that the weak economy is the dominant concern for 
Americans today. Americans can see with their own eyes and in their own 
communities that the economy is not growing like it should be. We are 
nearly three years past the end of the recession, and yet few Americans 
believe we have recovered from it, nor has our economy begun to grow at 
a healthy and sustainable level.
    The kind of snap-back we have seen in every previous post-war 
recovery simply has not happened. Many people who lost jobs in the last 
four years have not returned to the workforce--millions have given up 
trying altogether and have withdrawn from the labor market.
    Business owners who retrenched and cut costs have been very slow to 
invest in the hopes of future growth. The housing market remains weak. 
Commercial real estate is still weak in many areas.
    What's worse: There is a strong sense in the business community 
that the economy is stalling again, and growing well below its historic 
potential.
    I recognize that the Members of this committee share a common 
awareness of the problems facing our economy. And you also share a 
common resolve to do your part to bring prosperity back to America.
    The only question is how.
    What do we need to do in these chambers, or in state capitols, to 
improve the outlook for job creation, business expansion and overall 
prosperity?
    I would urge you to look carefully at your primary responsibility--
to manage the budgetary affairs of the U.S. government--as the place to 
start.
    At $3.8 trillion, the U.S. budget is a powerful force on the U.S. 
economy. Its sheer size means that entire industries--whether heavily 
regulated or not--operate in constant awareness of what you do here.
    When you combine this budgetary power with the separate powers of 
taxation and regulation, the federal government wields significant 
influence over the economy, both directly and indirectly. It is not an 
overstatement to say that right now, the U.S. economy operates 
significantly at the direction and behest of the U.S. government, not 
the other way around.
    I can think of no better example of this trend than the economic 
growth of the Washington D.C. area. The district and its surrounding 
area, is a picture of economic health and growth. Housing values within 
the Beltway have not fallen, as they have elsewhere.
    There is a simple explanation for this: The near-constant growth of 
the main industry of this region--the federal government.
    And while the growth of the federal government is healthy for this 
area, one has to ask at what cost it occurs? Every dollar spent in this 
area was taxed from somewhere else--or borrowed, and therefore not used 
on some other productive activity.
    Let me be clear: I do not believe in a zero-sum economy. But I do 
believe that if the government gets bigger and more powerful, it 
largely does so at the expense of the rest of the economy, because 
government does not contribute to the economy the way the private 
sector does. A dollar spent on government services is not equivalent to 
a dollar of private sector investment.
    Today's federal government did not emerge out of the blue three 
years ago. Far from it. But there is no doubt that the growth of the 
U.S. government, as a share of the U.S. economy, has risen sharply in 
the past three years. Even when the economy began to grow, the 
government's share was growing faster.
    In many cases, the government's growing size and influence was made 
possible by good intentions and hopeful policy ideas. Behind every 
spending program and every tax incentive and every regulation is an 
idea. It might sound good. It might in fact be a good idea.
    But those good ideas, as well as the not-so-good ones, add up. And 
the cost of everything you do here--every line item, every rule, every 
carve-out and phase-out and earmark--drains activity and investment and 
creative effort out of the private sector of the economy.
    That is why my best advice to you is to perform a fundamental cost-
benefit reconsideration of many programs in the federal budget. Please 
know that no matter your good intentions, the government creates 
unintended consequences when it acts.
    What would a cost-benefit analysis show? I read recently of the 49 
different federal job training programs--and that the number of such 
programs continues to grow.
    I wonder about that number. What do we, as taxpayers, get from 49 
job training programs that 39 or 29 or just 9 couldn't accomplish? I 
wonder as well about the people who need the job training. How do they 
know which one is right for them? And who runs these training 
programs--are they being measured on the success with which they get 
people retrained?
    Do these 49 job-training programs operate with any sense that they 
could--and should--be closed if they fail? This is the daily worry of 
every business in America, but I would guess that not one of these 
programs ever worries that they will be put out of business by any of 
the other programs--or by their Congressional funders.
    I wonder about what these job-training programs do, indirectly, to 
programs which are effective at providing focused skills training? Are 
we, by creating government programs, competing with those who actually 
do this work quite well in the private sector?
    In this matter, the sheer size of Congressional ambition is one 
problem. But there are other problems, too. The complexity of the 
programs. The failure to see whether taxpayer money is well-spent. The 
likelihood is great that by setting up these programs, government may 
be keeping someone else from doing the work. Someone who might do the 
job better than the government can, build a business from it, hire 
employees, pay taxes on profits, and so on.
    In short: When you try to solve one problem, you may not only 
fail--you may create several others.
    Now if you multiply that one example across the economy, in 
multiple industries and multiple ways, it is not hard to see what will 
happen, and has happened.
    The government, by growing in influence and extending itself into 
all corners of the economy, makes it less likely that enterprising 
business people will address social needs through some kind of business 
idea or business plan. So it's not only that the government grows 
bigger through every program. Through the power of taxation and 
regulation, it also displaces the private economy--the innovators and 
inventors, the people who risk their own savings on a business idea, 
the established businesses who could grow but don't.
    The losses that follow are significant.
    Someone recently asked a good question: What if the federal 
government tried to invent the mobile phone? What if Congress said: 
``People need to talk to each other and receive information while they 
are out and about, and we need to provide them that technology. So, 
let's fund a bunch of research, and get people the tool they need.''
    Well, you think, that didn't happen and wouldn't have happened. It 
sounds like an extreme example, but in reality, the federal government 
tries to invent solutions to people's problems all the time. Problems 
far more complex than mobile phone technology. Many well-meaning 
programs in the federal budget have this exact flaw: They try to 
accomplish through government fiat what would be better done by 
individuals and businesses who have a vested stake--through the profit 
motive--in achieving success.
    We see this in spending programs, and we see it in taxing programs 
as well. Tax policies that advantage certain economic activities are 
usually just another form of government spending and subsidy. And while 
they grant an advantage to some companies and industries, they tend to 
disadvantage other companies and industries.
    There is a simple question of fairness that I pose to this 
committee: Why should a company pay taxes to support government 
subsidies for one of its competitors?
    I understand that there may be political support for specific 
industries and companies. But we know from recent experience that the 
government is not good at picking winners and losers in the economy. 
And fundamentally, it's not the job of government to pick winners and 
losers in the economy.
    Again, I recognize why government tries to control the marketplace 
by sheer power and size. I recognize it because in my post-governorship 
life, I see it in the private sector as well.
    Big businesses often struggle at innovation because they wrap 
innovation in a heavy veil of bureaucracy and groupthink. Good ideas 
bubble up from time to time, but it takes a special organization to 
recognize how to let it breathe, how to invest in its growth slowly, 
and how to let it struggle before demanding it return a profit. There 
are countless examples of great companies who fail to move with the 
market, simply because a smaller and more nimble competitor arrives 
first with the winning solution.
    But in the private sector, when a big company is beaten to the 
punch, it either learns fast or gets smaller fast. That's just how it 
is. Big companies routinely fail because they don't adapt. And while we 
may bemoan the loss of capital and jobs that follows, we should 
remember that failure is a natural part of a competitive market.
    Most successful business leaders experienced failure at some point 
in their careers. And there is little shame attached to the experience, 
provided one learns from it and improves after it.
    The problem here is that the U.S. government will not fail. None of 
us will allow the government to fail.
    Because the institutional bias within the U.S. government--
especially the U.S. Congress--is not to punish policy failure, nothing 
is allowed to fail. What would occur in most private organizations and 
institutions--failure followed by defunding--simply doesn't happen 
here.
    And so I urge this committee to look carefully at all proposals to 
zero out programs that do not achieve their goals. A simple 
expectation--one that should not be terribly controversial. But I 
realize this will be a new concept to many federal programs
    I want to return to the rationale behind such a process. This is 
not simply about making government more efficient. Government 
efficiency and effectiveness is a worthwhile cause, and I applaud it.
    I am speaking of a much more fundamental goal, which is to apply a 
constant break to the size of the government. To make the government a 
smaller part of the economy.
    The impulse to do something here in Washington D.C., to resolve 
problems that exist in the country, is perfectly natural. But this 
impulse has only made government bigger, while the problems remain. We 
have to ask ourselves whether the status quo--an expensive and 
unaffordable status quo--is the best way to address the problems that 
the Congress has set for itself to solve.
    I thank the Committee for its attention to these issues, and look 
forward to answering your questions.

    Chairman Ryan. Mr. Edwards.

                   STATEMENT OF CHRIS EDWARDS

    Mr. Edwards. Thank you very much, Chairman Ryan and Ranking 
Member Van Hollen, for inviting me to testify today. I am going 
to talk about corporate welfare, entrepreneurs, and economic 
growth. I am going to discuss four reasons why corporate 
welfare is bad, and then I am going to talk about the real 
solution to U.S. economic growth, which is unleashing 
entrepreneurship.
    The first reason why corporate welfare is bad is that it 
costs money. We have trillion dollar deficits right now. We 
can't afford corporate welfare or business subsidies. I 
estimate that business subsidies are about $100 billion a year. 
That is a small part of the total budget, but it is a good 
place to start cutting.
    The corporate welfare is unfair. The largest corporate 
welfare program is farm subsidies. Farm subsidies, in my view, 
they are like a reverse Robin Hood program. They take from 
average taxpayers and give to high-income farm households. Farm 
households have incomes on average 25 percent above the U.S. 
average. So farm subsidies and other business subsidies, in my 
view, are unfair. They take from average folks to give to 
higher-income folks.
    Third, corporate welfare simply doesn't work. Well-meaning 
policymakers, they want to support businesses because they 
believe the subsidies will make them more competitive. I think 
subsidies backfire. For example, on energy subsidies, we have 
been subsidizing energy for four decades, and it has been 
boondoggle after boondoggle. Go all the way back to the 1970s. 
You had a giant project called the Clinch River Breeder 
Reactor, which was a Republican boondoggle in the 1970s. It 
ended up being a total failure, wasted billions of dollars. 
Then you had a Democratic boondoggle, the Synthetic Fuels 
Corporation, started under Jimmy Carter. Wasted billions of 
dollars of taxpayer money. It was a huge boondoggle. So this is 
a bipartisan problem.
    Why doesn't corporate welfare work? Well, one, obviously, 
political pressures often undermine sound economic decision-
making. And we saw that with Solyndra, of course. But more 
importantly, I think business subsidies change the behavior of 
businesses. Businesses, for example, become more spendthrift I 
think when they get subsidies. And you see that with Solyndra. 
Solyndra built this big fancy factory in a high-cost location 
in California. A lean competitive company would not have done 
that.
    Another big problem is that subsidies induce companies to 
invest in extremely risky projects that often blow up. That is 
the story of Enron Corporation. Enron received $3.7 billion in 
subsidies during the 1990s from EX-IM, from OPIC, and many 
other Federal programs. That induced them to invest in all 
kinds of hare-brained foreign investment projects, such as a 
power plant in India. Enron would not have done all the risky 
foreign investing it did without the Federal subsidies. And all 
those foreign investment projects that Enron took part in came 
crashing down and helped pull down the company. So subsidies 
induce bad decision-making by businesses.
    And finally, corporate welfare generates corruption, in my 
view. Federal business subsidies have always generated 
corruption. Go all the way back to the first transcontinental 
railroad in the United States. That generated a huge subsidy 
scandal in the 1870s. More recently, go to Ronald Reagan's 
Department of Housing and Urban Development. It overflowed with 
corruption, as the Secretary Sam Pierce at the time handed out 
business subsidies to his friends and Republican Party donors. 
Go to the 1990s. I believe President Clinton's Commerce 
Department under Secretary Ron Brown also overflowed with 
corruption. He handed out business subsidies in return for 
campaign contributions to the Democratic Party. So this is a 
bipartisan problem.
    So corporate subsidies don't work. So what can we do to 
spur growth? We should unleash entrepreneurs. Most of America's 
economic growth historically has not come from government, and 
it hasn't come from big established companies. It has come from 
new businesses creating new industries. And you can go back and 
look, as I have, at American economic history. The electricity 
industry, internal combustion engines, automobiles, aircraft, 
electronics, plastics, cell phones, personal computers, 
biotechnology, those are all new industries created by upstart 
entrepreneurs, not by established businesses.
    So helping getting out of the way of entrepreneurs I think 
is the most important thing we can do for the economy. I will 
give you a couple examples. The modern telecommunications 
revolution in large part is the result of MCI Corporation's 
battling during the 1970s to compete against the AT&T monopoly. 
Federal Express created a revolution in package delivery by 
battling against government regulations in the 1970s. So I 
think, you know, my policy recommendation, remove business 
subsidies, tear down barriers to entrepreneurs, and I think we 
will unleash more economic growth.
    To give you a few quick examples, I think repealing farm 
subsidies would spur innovation in the agriculture industry, 
like it has in New Zealand. I think repealing the Postal 
Service monopoly would spur innovation in mail delivery, like 
is happening in Europe. Germany and the Netherlands have 
privatized their post offices. We need to go in that direction. 
Privatizing Amtrak, the air traffic control system as Canada 
has done. Those sorts of reforms I think would spur innovation. 
They would give entrepreneurs new industries to innovate in. We 
saw just last week the success of the SpaceX space flight up to 
the International Space Station. That is the example of, I 
believe, the awesome sort of job entrepreneurs can do if we 
give them some space.
    And finally, tax reform is very important, as I know the 
chairman supports lowering tax rates and eliminating loopholes. 
We do need to lower the corporate tax rate and capital gains 
tax rate. It is very important for business investment and 
venture capital and angel investment. So I strongly support the 
chairman's approach to tax reform.
    And that is about all my comments. And we have got all 
kinds of other policy proposals on Cato's Web site, 
Downsizinggovernment.org. Thank you.
    Chairman Ryan. Thank you.
    [The prepared statement of Chris Edwards follows:]

  Prepared Statement of Chris Edwards and Tad DeHaven, Cato Institute

    Mr. Chairman and members of the committee, thank you for the 
invitation to testify regarding corporate welfare, entrepreneurs, and 
economic growth. This testimony will address the problems caused by 
corporate welfare and discuss why spurring entrepreneurship is a better 
approach for generating economic growth.
    Rising spending and huge deficits are pushing the nation toward an 
economic crisis. There is general agreement that policymakers need to 
find wasteful and damaging programs in the federal budget to terminate. 
One good place to find savings is spending on corporate welfare.
    Some people claim that business subsidies are needed to help fix 
market failures in the economy. But corporate welfare is just as likely 
to create failures by misallocating resources and inducing businesses 
to spend time on lobbying rather than on making better products. 
Corporate welfare transfers wealth from average families to favored 
businesses, and it creates corrupting ties between government 
officials, politicians, and business leaders.
    Policymakers are rightly concerned about the competitiveness of 
American businesses in the global economy. But the way to address that 
concern is not through subsidies, but through broad-based reforms such 
as permanent reductions to capital gains and corporate income tax 
rates.
                 the taxpayer cost of corporate welfare
    A forthcoming Cato Institute study finds that federal business 
subsidies total almost $100 billion annually.\1\ That is a fairly broad 
measure of subsidies to small businesses, large corporations, and 
industry organizations. The subsidies are handed out from programs in 
many federal departments including Agriculture, Commerce, Energy, and 
Housing and Urban Development.
    However, there is no precise measure of ``corporate welfare.'' As 
part of the national income accounts, the Bureau of Economic Analysis 
calculates that the federal government handed out $57 billion in 
business subsidies in 2010.\2\ A 1995 Congressional Budget Office Study 
put the total at $30 billion in spending subsidies for businesses at 
that time.\3\
    Ending business subsidies would be one step toward reducing the 
federal deficit, but there would be other benefits as well. The 
following sections discuss the unfairness of corporate welfare, how it 
harms the economy and generates corruption, and why entrepreneur-led 
growth is a better alternative.
                      corporate welfare is unfair
    The Constitution empowers the federal government to take steps to 
ensure an open national economy. The Commerce Clause gives the 
government the authority to ``regulate Commerce * * * among the several 
States,'' but the purpose was to remove barriers to trade, not to 
actively favor some businesses over other businesses and individuals.
    People disagree on the meaning of ``fairness,'' but surely it 
includes supporting the bedrock American value of equality under the 
law. The government's proper role should be that of a neutral referee 
in the economy facilitating the free exchange of goods and services. 
Yet corporate welfare advantages certain businesses at the expense of 
taxpayers, families, and other businesses, as some examples illustrate:
    Farm Subsidies. Farm subsidies redistribute wealth from taxpayers 
to often well-off farm businesses and landowners. ``Farm income 
stabilization'' payments have recently fluctuated between about $13 
billion and $33 billion annually.\4\ This is a welfare hand-out like 
food stamps, yet it goes to higher-income households. In 2010, the 
average income of farm households was $84,400, or 25 percent above the 
$67,530 average of all U.S. households.\5\ Moreover, the great bulk of 
farm subsidies go to the largest farms.\6\
    Sugar Subsidies. The federal government also enriches certain 
businesses in an off-budget manner, as sugar subsidies illustrate. The 
government runs a Soviet-style system of price supports, quotas, and 
import barriers for sugar. The effect is to push up the domestic price 
of sugar to the benefit of U.S. sugar producers while imposing extra 
costs on consumers.\7\ Artificially high sugar prices also hurt 
American businesses that use sugar, and numerous U.S. food companies 
have moved production to Canada and Mexico where sugar prices are 
lower.\8\
    Economic Development. The government runs many so-called economic 
development programs that distribute corporate welfare. As one small 
example, the Community Development Block Grant program recently handed 
out $220,000 to a craft brewery in Michigan.\9\ Meanwhile the Value 
Added Marketing program hands out money to selected wineries across the 
country.\10\ These hand-outs are not fair to taxpayers or the 
breweries, wineries, and other businesses that don't receive such 
special favors.
    Polls show that the public understands the unfairness of corporate 
welfare, and most people want it cut. Most people are against the 
federal government providing loan guarantees to small businesses; only 
29 percent think that the government should help large corporations 
finance their export sales; and a plurality (46 percent) think farm 
subsidies should be abolished.\11\ Polls have also found strong 
opposition to federal bailouts of financial institutions.\12\
                 corporate welfare distorts the economy
    Some policymakers think that subsidies are needed to help U.S. 
businesses compete in the world economy. But the more we subsidize 
businesses, the more we weaken the market's profit-and-loss signals, 
and the more we undermine America's traditions of entrepreneurship and 
gutsy risk-taking by the private sector.
    People argue that business subsidies are needed to fix market 
imperfections. But subsidies usually don't work as intended, and they 
often distort markets rather than fixing them. Robert Novak once said 
that ``the mind-set underlying corporate welfare is that of the central 
planner,'' and yet we know that central planning does not work.\13\
    Consider the energy industry, which Republicans and Democrats have 
been manipulating with subsidies for decades. An early subsidy effort 
was the Clinch River Breeder Reactor, which was an experimental nuclear 
fission power plant in Oak Ridge, Tennessee in the 1970s. This 
Republican-backed boondoggle cost taxpayers $1.7 billion and produced 
absolutely nothing in return.\14\
    Then we had the Synthetic Fuels Corporation (SFC) approved by 
President Jimmy Carter in 1980, who called it a ``keystone'' of U.S. 
energy policy. The government sank $2 billion of taxpayer money into 
this scheme that funded coal gasification and other technologies before 
it was closed down as a failure. The SFC suffered from appalling 
mismanagement, huge cost overruns on its projects, political cronyism, 
and pork barrel politics in dishing out funding.\15\
    Both parties have backed dubious ``clean coal'' projects for 
decades. The GAO found that many of these projects have ``experienced 
delays, cost overruns, bankruptcies, and performance problems.''\16\ In 
a review of federal fossil fuel research, the Congressional Budget 
Office concluded: ``Federal programs have had a long history of funding 
fossil-fuel technologies that, although interesting technically, had 
little chance of commercial implementation. As a result, much of the 
federal spending has not been productive.''\17\
    With the poor record of energy subsidies over the decades, it is no 
surprise that the Obama administration is having trouble with its green 
energy activities. The administration's failures keep piling up--
Solyndra, Raser Technologies, Ecotality, Nevada Geothermal, Beacon 
Power, First Solar, Abound Solar, and Beacon Power.\18\ These subsidy 
recipients have either gone bankrupt or appear to be headed in that 
direction.
    Why don't business subsidies work very well? One reason is that 
political pressures undermine sound economic choices. The Washington 
Post found that ``Obama's green-technology program was infused with 
politics at every level.''\19\ The decision to approve the Solyndra 
loan, for example, appears to have been rushed along by high-level 
politics.
    Perhaps more importantly, subsidies change the behavior of 
businesses. An economist recently quipped to me: ``I don't know whether 
the government is better at picking winners rather than losers, but I 
do know that losers are good at picking governments.'' When the 
government starts handing out money, businesses with weak ideas get in 
line because the businesses with the good ideas can get private 
funding. Enron, for example, was able to grab huge federal support for 
its disastrous foreign investment schemes.
    At recent House hearings on green energy subsidies, most witnesses 
lined up in favor of Department of Energy loan programs, except for one 
witness who heads a solar power firm that does not receive federal 
subsidies.\20\ James Nelson of Solar3D said that subsidizing green 
energy commercialization ``is a wasteful mistake because it doesn't 
work.''\21\ Here are some of the problems he pointed to:
     Firms that receive subsidies become spendthrift. Nelson 
contrasted his firm's lean operations with Solyndra's wasteful ways, 
which included building a fancy factory in a high-cost location. Nelson 
noted that the ``most powerful driver in our industry is the relentless 
reduction in cost.'' Yet government intervention rarely works to drive 
down costs in any activity.
     Subsidies aren't driven by actual market demands. Nelson 
noted that U.S. adoption of solar energy lags behind several other 
nations. But he said, ``this should not bother us if it means that the 
other countries are investing in technology that is not economically 
viable.'' In other words, if other countries are misallocating 
resources, that won't hurt us. The good news, he said, is that America 
is the leader in market-driven private venture capital for ``clean 
tech.''
     Subsidies distort business decisions. Nelson noted that 
``giving companies money to set up manufacturing in the U.S. may doom 
them to failure by financing them into a strategically uncompetitive 
position.'' In other words, if subsidies induce U.S. firms to put more 
production in the United States than is efficient, it will disadvantage 
them in the marketplace.
     Venture capitalists have already funded the best projects, 
leaving the dogs for the government. If venture capitalists ``reject a 
project, it is difficult to believe that the government could do a 
better job of picking a winner,'' argues Nelson.
    The House hearing included testimony from green energy firms that 
had received subsidies. Their comments revealed how subsidies were 
eroding their focus on the bottom line. The firms stressed how many 
jobs they were creating and how their supplier chains covered many 
states--and thus many congressional districts. One solar firm bragged 
that it is ``creating and maintaining jobs locally and across the 
nation,'' while it is ``procur(ing) from a supply chain that stretches 
across 17 states.''\22\ Another solar firm bragged that it ``spent more 
than $1 billion with U.S. suppliers in 35 states.''\23\
    Subsidy supporters at the hearing stressed the ``nonfinancial 
objectives'' of green subsidies, such as jobs.\24\ But as Nelson noted, 
``businesses are not made more successful by more jobs.''\25\ If 
businesses want to succeed in tough global competition, they need to 
minimize their labor and supplier costs, and subsidies erode that lean 
focus. Nelson concluded that success in the marketplace ``requires 
brains, discipline, and grit. It is rarely aided, and often impeded by 
government involvement.''\26\
    Another problem with business subsidies is that they can encourage 
investing in very dubious projects. That is the story of Enron's 
international investments, which played an important role in the 
implosion of the firm. By one estimate, Enron received $2.4 billion in 
federal aid through the Export-Import Bank and the Overseas Private 
Investment Company between 1992 and 2000.\27\ Another study puts total 
federal government subsidies to Enron for its foreign schemes at $3.7 
billion, plus Enron received subsidies from international agencies such 
as the World Bank.\28\ All these subsidies made possible Enron's 
excessively risky foreign investments, which came crashing down at the 
same time that the firm's accounting frauds were being revealed.\29\
    Suppose that the government was capable of channeling subsidies 
only to well-managed companies with sensible ideas. Then the subsidies 
wouldn't be needed because they would simply crowd out private 
investment. That seems to be the case with much of the $7 billion in 
subsidies for rural broadband in the 2009 stimulus bill, as one 
detailed study in 2011 found.\30\
    Or consider the Department of Energy's Advanced Technology Vehicles 
Manufacturing Loan Program, which provides subsidies to companies to 
develop green cars. A former executive with Tesla Motors, which 
received subsidies, concluded that ``private fundraising is complicated 
by investor expectations of government support.''\31\ Subsidies distort 
the venture capital market, having ``a stifling effect on innovation, 
as private capital chases fewer deals and companies that do not have 
government backing have a harder time attracting private capital.''\32\
    A final problem with corporate welfare is that it can create 
broader distortions in the economy. For more than a century, the 
federal Bureau of Reclamation has subsidized irrigation in the 17 
western states. About four-fifths of the water supplied by the bureau 
goes to farm businesses, and this water is greatly underpriced.\33\ 
Because farmers are receiving water at a fraction of the market price, 
they are overconsuming it, which threatens to create water shortages in 
many areas in the West. Subsidized irrigation also causes environmental 
damage.
                 corporate welfare generates corruption
    The creation of corporate welfare programs has spawned an expanding 
web of lobby groups that demand ever more favors from policymakers. The 
more that the government intervenes in the economy, the more lobbying 
activity is generated, and the more new subsidy programs get created. 
It's a vicious cycle.
    Corporate welfare doesn't just create direct economic harm, it also 
erodes support for America's free enterprise system. Businesses that 
become hooked on subsidies become tools of the state. They lose their 
independence, and they may focus more on gaining special benefits from 
Washington than on making good products. The more special breaks that 
businesses receive, the less willing they are to speak out against the 
expansion of big government.
    While some people think that corporations lobby to slash 
government, they mainly do the opposite. Businesses often lobby in 
favor of federal intervention if it will benefit them and hurt their 
competitors. The major airlines, for example, were against airline 
deregulation in the 1970s because existing rules protected them from 
competition.\34\
    Business subsidy programs attract corruption like garbage dumps 
attracts rats, and that has always been the case in Washington. For 
example, federal subsidies for the first transcontinental railroad, the 
Union Pacific, led to the Credit Mobilier scandal of the 1870s, which 
involved payoffs to dozens of members of Congress. In recent decades, 
scandals stemming from corporate welfare have been a bipartisan 
problem, as these examples illustrate:
    HUD Subsidies under Reagan. President Ronald Reagan's Department of 
Housing and Urban Development overflowed with corruption in the 1980s 
under Secretary Sam Pierce.\35\ Pierce routinely dished out grants, 
loans, and other sorts of subsidies to friends and business associates. 
And HUD created programs that involved large subsidies to mortgage 
lenders, developers, and other businesses, with Republican Party 
contributors as frequent beneficiaries.
    Commerce Subsidies under Clinton. President Bill Clinton's Commerce 
Secretary, Ron Brown, used federal business subsidies as a fund-raising 
tool for the Democratic Party in the 1990s. Corporate executives who 
played the game were given access to export promotion trips and loans 
from OPIC.\36\ In subsequent investigations, U.S. District Judge Royce 
Lamberth found that Commerce officials concealed and destroyed 
documents relating to the scandal, and he compared the officials to 
``con artists'' and ``scofflaws.''\37\
    Enron Subsidies under Clinton and Bush. Enron Corporation is a 
poster child for the harm of business subsidies, particularly with 
regard to its disastrous foreign investments. Enron lobbied government 
officials to expand export subsidy programs, and it received billions 
of dollars in aid for its foreign projects from the Ex-Im Bank, OPIC, 
the U.S. Trade and Development Agency, the U.S. Maritime 
Administration, the Commerce Department, and the U.S.-backed World 
Bank. As noted, Enron received about $3.7 billion in financing through 
federal government agencies.\38\ These subsidies induced Enron to make 
exceptionally risky foreign investments, and the resulting losses were 
an important factor in the company's implosion.\39\
    During the Clinton and early Bush administrations, high-level 
officials went to great lengths to aid Enron on an Indian power plant 
deal.\40\ The Washington Post noted, ``President Bush's National 
Security Council led a `working group' with officials from various 
Cabinet agencies to resolve Enron's troubles over a power plant 
venture.''\41\ We saw similar high-level involvement in the failed 
Solyndra investment by the Obama administration. Top government 
officials should be spending their time on policies in the general 
interest of all Americans, not on helping individual companies earn 
higher profits.
    Green Subsidies under Obama. The Washington Post found, ``Obama's 
green-technology program was infused with politics at every 
level.''\42\ The $535 million loan guarantee for Solyndra, is a prime 
example. The DOE approved the loan after receiving pressure from White 
House officials to move ahead so that the vice president could announce 
it at a groundbreaking for the company's factory.\43\ President Obama 
visited Solyndra and called the firm an ``engine of economic growth'' 
just months before it collapsed.\44\
    President Obama's green energy programs illustrate how corporate 
welfare creates corrupting relationships between businesses and 
politicians. The Washington Post found that ``$3.9 billion in federal 
[energy] grants and financing flowed to 21 companies backed by firms 
with connections to five Obama administration staffers and 
advisers.''\45\ It also noted that the ``main players in the Solyndra 
saga were interconnected in many ways, as investors enjoyed access to 
the White House and the Energy Department.''\46\ According to the New 
York Times, Solyndra ``spent nearly $1.8 million on Washington 
lobbyists, employing six firms with ties to members of Congress and 
officials of the Obama White House.''\47\
    American businesses, of course, have a right to lobby the federal 
government. But given that reality, Congress throws fuel onto the 
corruption fire by creating business subsidy programs. When subsidy 
money flows out the door from Washington to businesses at the same time 
that money flows back from businesses to Washington for lobbying, it's 
no surprise that we get influence-peddling. Corporate welfare 
undermines honest and transparent governance, and Americans are sick 
and tired of the inevitable scandals.
               long-term growth depends on entrepreneurs
    Most of America's technological and industrial advances have come 
from innovative private businesses in competitive markets. Indeed, it 
is probably true that most of our long-term economic growth has come 
not from existing large corporations or governments, but from 
entrepreneurs creating new businesses and pioneering new industries. 
Such entrepreneurs have often had to overcome barriers put in place by 
dominant businesses and governments.
    Economic historians Nathan Rosenberg and L.E. Birdzell found that 
``new enterprises, specializing in new technologies, were instrumental 
in the introduction of electricity, the internal-combustion engine, 
automobiles, aircraft, electronics, aluminum, petroleum, plastic 
materials, and many other advances.''\48\ We can update that list to 
include cell phones, personal computers, biotechnology, and all kinds 
of Internet businesses.
    If policymakers want to get U.S. economic growth back on track, 
they should put entrepreneurs front-and-center in their thinking about 
policy. Here are some of the ways that entrepreneurs generate growth:
    Entrepreneurs are Radical Innovators. Their advances are usually 
unexpected and disruptive to existing businesses.\49\ Personal 
computers were pioneered in the 1970s by new companies such as Apple. 
The opportunity was missed both by leading computer firms and by 
government planning agencies such as Japan's MITI.\50\ Big corporations 
were focused on mini and mainframe computers, while the U.S. government 
was subsidizing supercomputers. Governments and big companies often 
overlook niche products that later become revolutionary. In the 1970s, 
microcomputers were an obscure hobbyist activity, and software for 
microcomputers--which Bill Gates helped pioneer--was a niche within a 
niche. The small-scale innovations of entrepreneurs in niches often 
create huge, unforeseen changes.
    Entrepreneurs Generate Competition. Another crucial role of 
entrepreneurs is that they challenge dominant firms and governments. 
One great story is the rise of MCI Corporation in the 1970s and 1980s. 
MCI helped destroy the AT&T monopoly, which paved the way for the 
modern telecommunications revolution. Another innovator was Fred Smith 
of Federal Express. Today we take overnight letter delivery for 
granted, but it was Smith who battled federal regulatory roadblocks in 
the 1970s and provided new competition for the U.S. Postal Service by 
proving that there was an untapped demand for rapid delivery.
    Entrepreneurs Turn Inventions into Innovations. America's long-run 
growth is often portrayed as a steady process of accumulating new 
inventions. Many people seem to think that the government can simply 
pump money into research and the economy will grow. But that ``science 
push'' theory of growth is incorrect. Economies grow because of 
innovations, which are inventions that are packaged and tested in the 
marketplace by entrepreneurs.
    The modern economy is steeped in uncertainty. No one can predict 
the future, not even the best scientists, engineers, and economists in 
big companies and the government. Many experts have made hugely off-
base prognostications about the economy.\51\ Two decades ago, many 
pundits and policymakers were convinced that Japan was taking over the 
global economy. Professor and pundit Robert Reich thought that 
``chronic entrepreneurialism'' was undermining the U.S. economy. And 
past predictions about the computer industry have been laughable, such 
as this comment in 1977 by the founder of Digital Equipment 
Corporation: ``There is no reason for any individual to have a computer 
in his home.''
    Luckily, expert predictions don't drive the economy. Rather, 
successful market economies work by having swarms of entrepreneurs 
freely testing new ideas. Entrepreneurs are the economy's guinea pigs. 
They have the guts to act in the face of uncertainty, and they learn 
from their mistakes and keep trying until they find ideas that work and 
generate profits.
    By contrast, government plans to stimulate the economy are often 
based on ideologies and rigid ideas. Some policymakers believe that 
particular energy technologies are THE solution to America's problems, 
and they support ongoing subsidies year after year regardless of 
marketplace realities. By contrast, in competitive and unsubsidized 
markets, mistakes are usually quickly exposed and businesses cut their 
losses short and change direction.
    It appears that the unexpected fall in solar panel prices helped to 
sink Solyndra. Perhaps businesses that are tethered to governments are 
slower to make the changes needed to survive. The government tends to 
work at a turtle's pace, which doesn't sync well with the fast-paced 
modern economy. We saw a comparison of the government turtle with the 
private-sector gazelle during the first sequencing of the human genome 
in the late 1990s. The government's lavishly funded Human Genome 
Project was a lengthy multi-year research project, but it was upstaged 
when entrepreneur Craig Venter launched Celera Genomics to complete the 
job at a fraction of the time and cost.
    What are the policy lessons from America's great entrepreneurial 
history? One lesson is that because markets have high levels of 
uncertainty, government agencies and dominant companies cannot be 
relied upon to secure our economic future. Instead, we should remove 
hurdles to entrepreneurship every way we can--by tax reforms, by 
repealing barriers to entry into industries, and by reducing financial 
industry barriers to private risk financing.
    While it has become fashionable to criticize Wall Street, the 
financial industry has been crucial to funding waves of innovation in 
the U.S. economy. Risk capital was integral to the railroad and 
telegraph booms of the 1800s, and the radio, electricity, and 
automobile booms of the early 20th century. J.P. Morgan Chase has 
garnered negative headlines in recent weeks, but J.P. Morgan was the 
company that provided seed capital for Thomas Edison's Edison Electric 
Illuminating Company, which became General Electric.\52\
    In recent decades, high-yield bonds, venture capital, and angel 
investment have played key roles in growing new industries. Today, U.S. 
venture capital and angel investors pump more than $50 billion annually 
into young companies.\53\ Tax policy influences investment flows, and 
funding for high-growth ventures is affected by the tax treatment of 
capital gains in particular. One step for policymakers would be to 
create investment certainty by permanently extending the 15 percent 
federal capital gains tax rate. Also, the corporate tax rate should be 
cut to spur greater capital investment--new capital equipment usually 
embodies technological advances.
    Policymakers should put aside the idea that some sort of big 
intervention can permanently ``win the race'' for some particular goal, 
such as energy independence, solar power dominance, or beating China. 
In the recent House testimony, an energy consultant said, ``clean 
energy has been targeted by our major international competitors 
(including China and Germany) as a critical, and perhaps the critical, 
future growth and export industry * * * whether the U.S. wins or loses 
in this race matters because the outcome will have a large impact on 
future U.S. employment and economic strength.''\54\ At the same 
hearing, a solar company executive said that America could ``win in the 
long run'' with a particular solar technology.\55\
    However, those sorts of prognostications are refuted by U.S. 
economic history. There is never any final ``win'' in the marketplace. 
Look at how leadership in cell phones and smart phones has shifted from 
firm to firm and country to country, from Nokia, to RIM Blackberry, to 
Apple and others. Technologies and markets are always changing, so the 
only way for America to permanently ``win'' in the struggle for 
economic growth is to have the best climate for investing, innovating, 
and building entrepreneurial companies.
    We've mainly focused on subsidies to new industries such as green 
energy. But withdrawing corporate welfare from older, established 
industries could spur innovation as well. Consider farm subsidies. New 
Zealand ended virtually all its farm subsidies in 1984, which was a 
bold stroke because that country is much more dependent on farming than 
is the United States. The changes were initially resisted, but New 
Zealand farm productivity, profitability, and output have soared since 
the reforms.\56\ Faced with new financial realities, New Zealand's 
farmers innovated--they cut costs, diversified their land use, sought 
nonfarm income, and developed new markets.
    Thus rather than looking for new ways to subsidize businesses, 
policymakers should be looking for places to withdraw subsidies and 
deregulate in order to spur innovation. For example, just as the break-
up of the AT&T monopoly in the 1980s helped to generate growth in the 
telecommunications industry, ending the U.S. Postal Service monopoly 
today would spur innovation in that industry. Europe is moving in that 
direction, with Germany and the Netherlands already privatizing their 
postal systems.\57\
    The transportation sector is another area where innovation could be 
spurred by the reduction of federal subsidies. For example, Amtrak is 
doomed to inefficiency as a government-run business pumped full of 
subsidies and shackled with regulations. It should be privatized.\58\ 
Other countries are ahead of the United States in privatizing 
transportation infrastructure, or at least in bringing private 
investment into infrastructure.\59\
    The United States subsidizes its air traffic control system, but it 
doesn't need to. Canada privatized its air traffic control system in 
1996, and it operates as a self-funded nonprofit corporation. It has 
been a big success.\60\ Another ripe area to cut subsidies and bring 
the private sector in is space flight. The recent success of the SpaceX 
flight and the 2004 success of SpaceShipOne indicate that the private 
sector is entirely capable of bold and risky technological ventures.
    To sum up, the way to spur economic growth is not through business 
subsidies, but through breaking down barriers to entrepreneurs. Let's 
give entrepreneurs a crack at postal services, air traffic control, 
passenger trains, and other monopoly industries. Let's pursue tax and 
regulatory reforms to maximize the flow of financing to new and growing 
businesses. And let's stop demonizing entrepreneurs who succeed and the 
financial system that allows them to grow. If we want to exorcize some 
demons, we should end the corporate welfare system that is corrupting 
our government and the American economy.
    Thank you for holding these important hearings.
                                endnotes
    \1\ Tad DeHaven, ``Corporate Welfare in the Federal Budget,'' Cato 
Institute, forthcoming.
    \2\ Bureau of Economic Analysis, National Income and Product 
Accounts, Table 3.13.
    \3\ Congressional Budget Office, ``Federal Financial Support of 
Business,'' July 1995.
    \4\ Budget of the United States Government, Fiscal Year 2013, 
Historical Tables (Washington: Government Printing Office, 2012), Table 
3.2.
    \5\ Farm average income from www.ers.usda.gov/Briefing/WellBeing/
farmhouseincome.htm. U.S. average income from Table A-2 in 
www.census.gov/prod/2011pubs/p60-239.pdf.
    \6\ Environmental Working Group, 2011 Farm Subsidy Database, http:/
/farm.ewg.org.
    \7\ Chris Edwards, ``The Sugar Racket,'' Cato Institute, June 2007.
    \8\ www.downsizinggovernment.org/agriculture/regulations-and-trade-
barriers.
    \9\ David T. Young, ``Bell's Brewery Wins Federal Grant to Help Pay 
for Expansion, Kalamazoo Gazette, April 5, 2011.
    \10\ www.downsizinggovernment.org/turning-taxpayer-money-wine.
    \11\ Rasmussen Reports, ``58% Want to End Small Business 
Administration Loan Guarantees,'' August 16, 2011. And see Rasmussen 
Reports, ``Voters See These `Corporate Welfare' Programs as a Good 
Place to Cut Government Spending,'' August 16, 2011.
    \12\ Pew Research Center, ``Possible Negatives For Candidates: Vote 
For Bank Bailout, Palin Support,'' October 6, 2010.
    \13\ Quoted in Timothy P. Carney, The Big Ripoff (New Jersey: John 
Wiley and Sons, 2006), p. x.
    \14\ www.downsizinggovernment.org/energy/subsidies.
    \15\ www.downsizinggovernment.org/energy/subsidies.
    \16\ Government Accountability Office, ``Fossil Fuel R&D: Lessons 
Learned in the Clean Coal Technology Program,'' GAO-01-854T, June 12, 
2001, p. 2.
    \17\ Congressional Budget Office, ``Budget Options,'' March 2003, 
p. 60.
    \18\ Marc A. Thiessen, ``Obama's Equity Problem,'' Washington Post, 
May 27, 2012.
    \19\ Joe Stephens and Carol D. Leonnig, ``Solyndra: Politics 
Infused Obama Energy Programs,'' Washington Post, December 25, 2011.
    \20\ House Committee on Oversight and Government Reform, 
Subcommittee on Regulatory Affairs, Stimulus Oversight, and Government 
Spending, hearing on ``The Obama Administration's Green Energy 
Gamble,'' May 16, 2012.
    \21\ James Nelson, Solar3D, testimony to the House Committee on 
Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012. Nelson was 
not against federal funding of basic energy research, but rather 
against subsidies to businesses for commercialization.
    \22\ John Woolard, Brightsource Energy, testimony to the House 
Committee on Oversight and Government Reform, Subcommittee on 
Regulatory Affairs, Stimulus Oversight, and Government Spending, May 
16, 2012.
    \23\ Michael Ahearn, First Solar, testimony to the House Committee 
on Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012.
    \24\ Gregory Kats, Capital E, testimony to the House Committee on 
Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012.
    \25\ James Nelson, Solar3D, testimony to the House Committee on 
Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012.
    \26\ James Nelson, Solar3D, testimony to the House Committee on 
Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012.
    \27\ Dana Milbank and Paul Blustein, ``White House Aided Enron in 
Dispute,'' Washington Post, January 19, 2002.
    \28\ Jim Vallette and Daphne Wysham, ``Enron's Pawns,'' Institute 
for Policy Studies, March 22, 2002, p. 4.
    \29\ Timothy P. Carney, The Big Ripoff (New Jersey: John Wiley and 
Sons, 2006), p. 209.
    \30\ Jeffrey A. Eisenach and Kevin W. Caves, ``Evaluating the Cost-
Effectiveness of RUS Broadband Subsidies: Three Case Studies,'' 
Navigant Economics, April 13, 2011, p. 6.
    \31\ Darryl Siry, ``In Role as Kingmaker, the Energy Department 
Stifles Innovation,'' Wired, December 1, 2009.
    \32\ Darryl Siry, ``In Role as Kingmaker, the Energy Department 
Stifles Innovation,'' Wired, December 1, 2009.
    \33\ www.downsizinggovernment.org/interior/cutting-bureau-
reclamation.
    \34\ Timothy P. Carney, The Big Ripoff (New Jersey: John Wiley and 
Sons, 2006), pp. 4, 111-118.
    \35\ www.downsizinggovernment.org/hud/scandals.
    \36\ For example, see Bob Hohler, ``Trade-Trip Firms Netted $5.5b 
in Aid; Donated $2.3m to Democrats,'' Boston Globe, March 30, 1997.
    \37\ Bill Miller, ``Judge Assails Shredding in Commerce Case,'' 
Washington Post, December 23, 1998, p. A4. And see Neil A. Lewis, 
``After Judge's Rebuke, Commerce Secretary Widens Inquiry Into 
Mishandling of Papers,'' New York Times, January 3, 1999.
    \38\ Jim Vallette and Daphne Wysham, ``Enron's Pawns,'' Institute 
For Policy Studies, March 22, 2002, p. 4. And see Timothy P. Carney, 
The Big Ripoff (New Jersey: John Wiley and Sons, 2006).
    \39\ Timothy P. Carney, The Big Ripoff (New Jersey: John Wiley and 
Sons, 2006), p. 209.
    \40\ Dana Milbank and Paul Blustein, ``White House Aided Enron in 
Dispute,'' Washington Post, January 19, 2002. And see Timothy P. 
Carney, The Big Ripoff (New Jersey: John Wiley and Sons, 2006), pp. 
211, 212.
    \41\ Dana Milbank and Paul Blustein, ``White House Aided Enron in 
Dispute,'' Washington Post, January 19, 2002. And see Timothy P. 
Carney, The Big Ripoff (New Jersey: John Wiley and Sons, 2006), pp. 
211, 212.
    \42\ Joe Stephens and Carol D. Leonnig, ``Solyndra: Politics 
Infused Obama Energy Programs,'' Washington Post, December 25, 2011.
    \43\ Joe Stephens and Carol D. Leonnig, ``Solyndra Loan: White 
House Pressed on Review of Solar Company Now Under Investigation,'' 
Washington Post, September 13, 2011.
    \44\ Carol D. Leonnig and Joe Stephens, ``Obama Was Advised Against 
Visiting Solyndra after Financial Warnings,'' Washington Post, October 
3, 2011.
    \45\ Carol D. Leonnig and Joe Stephens, ``Federal Funds Flow to 
Clean-Energy Firms with Obama Administration Ties,'' Washington Post, 
February 14, 2012.
    \46\ ``Greenlighting Solyndra,'' Washington Post, December 22, 
2011, www.washingtonpost.com/wp-srv/special/politics/solyndra-key-
players.
    \47\ Eric Lipton and John M. Broder, ``In Rush to Assist a Solar 
Company, U.S. Missed Signs,'' New York Times, September 22, 2011.
    \48\ Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew 
Rich (New York: Basic Books, 1986), p. 277.
    \49\ See the work of Clayton Christensen, 
www.claytonchristensen.com.
    \50\ Nathan Rosenberg and L.E. Birdzell, Jr., How the West Grew 
Rich (New York: Basic Books, 1986).
    \51\ These and other off-base predictions are discussed in Chris 
Edwards, ``Entrepreneurs Creating the New Economy,'' Joint Economic 
Committee, November 2000.
    \52\ ``M&A Century: Same as It Ever Was,'' Wall Street Journal, 
December 31, 1999.
    \53\ Angel investment is currently about $20 billion a year and 
venture investment is about $30 billion. See Jeffrey Sohl, ``The Angel 
Investment Market in 2011,'' University of New Hampshire, Center for 
Venture Research, April 3, 2112. The venture capital figure is from the 
National Venture Capital Association at www.nvca.org.
    \54\ Gregory Kats, Capital E, testimony to the House Committee on 
Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012.
    \55\ Craig Witsoe, Abound Solar, testimony to the House Committee 
on Oversight and Government Reform, Subcommittee on Regulatory Affairs, 
Stimulus Oversight, and Government Spending, May 16, 2012.
    \56\ Vaudine England, ``Shorn of Subsidies, New Zealand Farmers 
Thrive,'' International Herald Tribune, July 2, 2005.
    \57\ www.downsizinggovernment.org/usps.
    \58\ www.downsizinggovernment.org/transportation/amtrak/privatize.
    \59\ Chris Edwards, ``Federal Infrastructure Investment,'' 
testimony to the Joint Economic Committee, November 16, 2011.
    \60\ www.downsizinggovernment.org/transportation/airports-atc.

    Chairman Ryan. Congressman Waxman.

 STATEMENT OF HON. HENRY WAXMAN, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman, Mr. Van 
Hollen, members of the Budget Committee. I am honored to be 
among you to discuss this very important issue, which goes to 
the very question of, what is the role of government? What is 
the appropriate way for a capitalist economy to succeed, 
because all three of us believe in the capitalist market 
economy? But how do we get that economy to function best and 
how do we deal with the market failures and the inequities 
which have left us with a very stark contrast between the 
people who have a lot and the many who have very little, as 
well as the middle class, which is getting very squeezed?
    We have I think a different sense about the vision for 
America. Republicans will argue that government regulations are 
bad for the economy, and public investments harm free 
enterprise. Democrats have a more optimistic vision. We believe 
that the economy works best when the government establishes the 
rules of the road, adopting sensible standards, protecting the 
middle class, promoting competition, and preventing corporate 
abuses.
    We believe that public investments in our country's future 
will pay off. We believe that educating tomorrow's workers, 
supporting entrepreneurs, new industries will grow our economy 
faster and better. And we think history has proved our side of 
the case. Our vision is the right one for America.
    House Republicans seem to want to return to an America that 
pre-dated the New Deal, the Fair Deal, the Great Society, 
really a period of time when the robber barons ran this 
country. The legislation that the Republican-controlled House 
has passed would bring back a world where there are no 
restraints on Wall Street banks and others enriching themselves 
at the expense of everyone else. We tried that.
    In the 1930s, the absence of government regulation and fair 
rules for competition brought us the Great Depression. And in 
2008, the same theory of government brought us the great 
recession. It isn't government regulation that caused our 
economic woes. I chaired hearings in 2008, when I was chairman 
of the Oversight Committee, on the collapse on Wall Street. And 
what we found was the absence of cops on the beat.
    The heartbreaking unemployment hurting America's families 
stems from a philosophy that Wall Street banks should be 
allowed to operate free from regulation, even if that means 
jeopardizing our economic future for their profits.
    Americans cherish clean air, clean water, safe food, 
protections of the environment and their health. But 
Republicans in the House have voted again and again with the 
oil companies and corporate polluters. This is the most anti-
environment House in the history of this country. Last year, I 
asked my staff to start tracking anti-environmental votes on 
the House floor. And to date, the Republican-controlled House 
has voted over 200 times to weaken and eliminate protections 
for human health and the environment. The House voted to repeal 
the health-based standards that are part, in fact they are the 
heart of the Clean Air Act, with no hearings and just 10 
minutes of debate.
    When it comes to health issues, the House is stunningly 
anti-health. Not only do we see proposals to cut back on 
preventive care and opposition to the Affordable Care Act, 
which would provide 30 million Americans with health insurance, 
the Republican budget adopted by the House slashes Medicaid by 
over a trillion dollars. It ends the guarantee for Medicare 
benefits for seniors and individuals with disabilities and 
instead gives them a voucher and tells them to go shop in a 
broken health insurance market.
    The priorities reflected in the House budget are wrong. 
That budget would make seniors pay more for their Medicare. At 
the same time, they would preserve tax loopholes for oil 
companies and then at the same time lower taxes for 
millionaires and billionaires. Corporate subsidies are not just 
government expenditures; they are government expenditures 
through the Tax Code as well. And we see a lot of that going 
on. So I find myself on common ground with some of what Mr. 
Edwards had to say.
    Ninety-eight percent of the Republican Members of the 
Congress have pledged to oppose any increase of tax rates and 
any reduction of tax loopholes to reduce the deficit. No wonder 
the wealthiest continue to grow wealthier, as the middle class 
struggles just to get by. And no wonder we are facing a fiscal 
crisis.
    One especially clear embodiment of the misplaced priorities 
of House Republicans is their hostility to clean energy. The 
International Energy Agency says that trillions of dollars are 
going to be invested in new energy infrastructure over the next 
20 years. Our economic growth and our national security will be 
determined by whether we succeed in building these new clean 
energy industries for the future. Yet House Republicans want to 
defund investments in wind, solar, and other forms of clean 
energy. Their budget protects the billions of dollars in 
subsidies that the oil industry receives, a well established, 
very profitable industry, which will crush competition if the 
government doesn't stand up to allow these new enterprises to 
take their place.
    The House Republican position is based on science denial. 
If you deny the existence of climate change, an overwhelming 
Republican majority denies that science, the urgent need for 
investment in clean energy may not be apparent. But if you live 
in reality, you know the world cannot continue its dependence 
on fossil fuels. And you know that without government 
involvement, we are in danger of losing the booming clean 
energy industry and millions of jobs to competitors, such as 
China and Germany.
    Well, we can outcompete China; we can grow a stronger and 
better America with jobs and opportunities for everyone who 
work hard and play by the rules. But to do so we have to reject 
the defeatist, anti-science, anti-progress, anti-jobs view of 
those who oppose investments in clean energy, who want to 
preserve tax breaks for the wealthiest at the expense of the 
middle class, who want to slash the safety net and end 
Medicare's guarantee.
    This is an important hearing, Mr. Chairman. Democrats and 
Republicans hold starkly different views about the role of 
government, and I welcome this opportunity to discuss these 
differences with you today. Thank you.
    [The prepared statement of Henry Waxman follows:]

      Prepared Statement of Hon. Henry A. Waxman, Ranking Member,
                    Committee on Energy and Commerce

    Today's hearing will contrast two different visions of America. The 
Republicans will argue that government regulations are bad for the 
economy and that public investments harm free enterprise.
    Democrats have a more optimistic vision. We believe that the 
economy works best when the government establishes the rules of the 
road, adopting sensible standards that protect the middle class, 
promote competition, and prevent corporate abuses. We believe that 
public investments in our country's future pay off. We believe that 
educating tomorrow's workers and supporting entrepreneurs and new 
industries will grow our economy faster and better.
    And we think history has repeatedly proven our vision is the right 
one for America.
    House Republicans seem to want to return America to the era of the 
robber barons. The legislation that the Republican-controlled House has 
passed would bring back a world where there are no restraints on Wall 
Street banks enriching themselves at the expense of everyone else.
    We tried that. In the 1930s, the absence of government regulation 
and fair rules for competition brought us the Great Depression.
    And in the 2008, the same theory of government brought us the Great 
Recession.
    It isn't government regulation that caused our economic woes. As 
hearings I chaired in 2008 demonstrated, the collapse on Wall Street 
was caused the absence of cops on the beat. The heartbreaking 
unemployment hurting American families today stems from the Republican 
philosophy that Wall Street banks should be allowed to operate free 
from regulation, even if that means jeopardizing our economic future 
for their profits.
    Americans cherish clean air and clean water, but Republicans in the 
House have voted again and again with oil companies and other corporate 
polluters. This is the most anti-environment House in the history of 
Congress. Last year, I asked my staff to start tracking anti-
environmental votes on the House floor. To date, this Republican-
controlled House has voted over 200 times to weaken and eliminate 
protections for human health and the environment. The House voted to 
repeal the health-based standards that are the heart of the Clean Air 
Act with no hearings and just ten minutes of debate.
    This House is also stunningly anti-health. The Republican budget 
that this Committee adopted slashes Medicaid by over $1 trillion. It 
ends the guarantee of Medicare for seniors and individuals with 
disabilities and instead gives them a voucher to shop in a broken 
health insurance market.
    The priorities reflected in the Republican budget are wrong. The 
Republican budget would make seniors pay more for Medicare to preserve 
tax loopholes for oil companies and lower taxes on millionaires and 
billionaires. Ninety-eight percent of the Republican members of 
Congress have pledged to oppose any increase of tax rates and any 
reduction of tax loopholes to reduce the deficit. No wonder the 
wealthiest continue to grow wealthier as the middle class struggles 
just to get by. And no wonder we are facing a fiscal crisis.
    One especially clear embodiment of the misplaced priorities of 
House Republicans is their hostility to clean energy. The International 
Energy Agency says that trillions of dollars will be invested in new 
energy infrastructure over the next 20 years. Our economic growth and 
our national security will be determined by whether we succeed in 
building these new clean energy industries of the future.
    Yet House Republicans want to defund investments in wind, solar, 
and other forms of clean energy. Their budget protects the billions of 
dollars in subsidies the oil industry receives every year but slashes 
the programs that fledgling clean energy companies need to grow.
    The House Republican position is based on science denial. If you 
deny the existence of climate change--as the overwhelming majority of 
House Republicans do--the urgent need for investment in clean energy 
may not be apparent.
    But if you live in reality, you know the world cannot continue its 
dependence on fossil fuels. And you know that without government 
involvement, we are in danger of losing the booming clean energy 
industry--and millions of jobs--to competitors such as China.
    We can out-compete China. We can grow a stronger and better 
America, with jobs and opportunities for everyone who works hard and 
plays by the rules. But to do so, we have to reject the defeatist, 
anti-science, anti-progress, anti-jobs views of those who oppose 
investments in clean energy * * * who want to preserve tax breaks for 
the wealthiest at the expense of the middle class * * * and who want to 
slash the safety net and end Medicare's guarantee.
    This is an important hearing. Democrats and Republicans hold 
starkly different views about the role of government, and I welcome the 
opportunity to discuss these differences with you today.

    Chairman Ryan. Thank you. So much for bipartisan comity on 
the issue, I guess.
    Mr. Waxman. Are we not allowed to talk about our 
disagreements?
    Chairman Ryan. It is perfectly fine.
    Mr. Waxman. Is that class warfare?
    Chairman Ryan. Let me get into some housework.
    I ask unanimous consent that members have five legislative 
days to insert statements for the record.
    Without objection.
    [The statement of Ms. Castor follows:]

 Prepared Statement of Hon. Kathy Castor, a Representative in Congress
                       From the State of Florida

    I think we can all agree that we want a public education system 
that outperforms and outshines the rest of the world. In order for us 
to stay competitive in the global market, our young people need a high 
quality education. As I said before, Governor, we have a fundamental 
difference in how we go about doing that. Throwing money at for-profit 
companies that run charter schools does nothing but drain traditional 
public schools by diverting those tax dollars to private corporations. 
We need to effectively focus education dollars at all levels of 
government to improving the quality of education for our students.
    Governor, you recently stated that charter schools and vouchers do 
not hand over the keys of public education to any one person or entity, 
but I would like to refer you to an editorial by the then St. 
Petersburg Times outlining the intake of millions of federal dollars by 
Charter Schools USA, one of the largest for-profit charter school 
management companies in Florida. Charter Schools USA is still very 
active in Florida and has pushed, along with your foundation, 
legislation in the state legislature to take funds and power away from 
public schools and give them to charter, private and virtual schools. 
The controversial ``Parent Trigger'' bill is just one example of many 
legislative attempts, supported by your foundation, to privatize public 
schools as charter for profit. This bill failed because Florida parents 
saw through the rhetoric and recognized that the ill-intentioned effort 
to privatize public schools. You say this bill was meant to empower 
parents but not a single Florida parent organization supported this 
legislation. Why is there a continued push on your part for legislation 
aimed at creating charter and private schools when parents are clearly 
opposed to those options for their children? Who really will benefit 
from this legislation? There was also an article by the Miami Herald 
that points out how charter schools in Florida have become cash cows 
for private corporations with little public oversight. What is the 
oversight plan you have to ensure charter schools provide quality 
educational outcomes for our students?
    As far as education reform in the classroom, I agree that online 
learning can serve as great supplement to face-to-face interaction in a 
traditional classroom setting. However, your efforts to completely 
replace the traditional classroom with virtual schools which would 
continue to drain public schools funds and funnel them to private 
corporations. These schools have no accountability as to their 
effectiveness in providing quality education. I would like to refer you 
to a report by The Center for Public Education, a research arm of the 
National School Boards Association, that outline a lack of outcomes and 
accountability that does little to suggest that ``digital classrooms'' 
serve as a better or comparable resource for learning than the 
traditional classroom. Virtual classrooms are not required to take the 
FCAT or even a national test to determine efficiency. Can you explain 
your support for programs that lack the same accountability standards 
that public schools have? Is there a plan to measure the effectiveness 
of both voucher programs and digital classrooms?
    Governor, you served as the head of our state from 1999-2007. 
During that time, you served as a trustee of the State Board of 
Administration (SBA) that had oversight of the state pension plan and 
investments. Five months after you left the governor's mansion, you 
were hired as a consultant for Lehman Brothers. According to a Tampa 
Bay Times article, which I would ask request be inserted in the record, 
Lehman has been an active participant over the years in managing public 
investments and brokering and underwriting bond deals in Florida and 
because of this, Florida lost a substantial amount of money when Lehman 
failed. Local governments, schools, and state retirees and employees 
lost millions because of a bad bet. I would like to detail your 
involvement in these bad debt sales. Governor Bush, how long have you 
had a relationship with Lehman? What was your role in advising the SBA 
while you were a trustee? Did it include counseling the SBA on deals 
with Lehman? Did your relationship with the SBA carry over to when you 
because a consultant for Lehman Brothers? While advising Lehman, did 
you have any discussions with then Executive Director of SBA, Coleman 
Stipanovich, regarding the $842 million of mortgage-back securities 
Lehman sold to the SBA in the summer of 2007, which defaulted within 
four months of purchase and was the most failing debt sold by a bank to 
the state according to Bloomberg? Additionally, how much were you paid 
by Lehman? How much have you been paid by Barclays?
    Lehman Brothers offloaded millions in tainted debt to Florida and 
it would appear that my neighbors around Tampa Bay had no one looking 
out for them at the SBA. I am hopeful that you will answer the 
questions I've laid before you so Floridians can get a better 
understanding of your role in this financial misfortune and assure us 
there was no conflict of interest committed.

    [Additional submissions of Ms. Castor follow:]

                            The Miami Herald

          Florida Charter Schools: Big Money, Little Oversight

                 By Scott Hiaasen and Kathleen McGrory

    Preparing for her daughter's graduation in the spring, Tuli Chediak 
received a blunt message from her daughter's charter high school: Pay 
us $600 or your daughter won't graduate.
    She also received a harsh lesson about charter schools: Sometimes 
they play by their own rules.
    During the past 15 years, Florida has embarked on a dramatic shift 
in public education, steering billions in taxpayer dollars from 
traditional school districts to independently run charter schools. What 
started as an educational movement has turned into one of the region's 
fastest-growing industries, backed by real-estate developers and 
promoted by politicians.
    But while charter schools have grown into a $400-million-a-year 
business in South Florida, receiving about $6,000 in taxpayer dollars 
for every student enrolled, they continue to operate with little public 
oversight. Even when charter schools have been caught violating state 
laws, school districts have few tools to demand compliance.
    Charter schools have become a parallel school system unto 
themselves, a system controlled largely by for-profit management 
companies and private landlords--one and the same, in many cases--and 
rife with insider deals and potential conflicts of interest.
    In many instances, the educational mission of the school clashes 
with the profit-making mission of the management company, a Miami 
Herald examination of South Florida's charter school industry has 
found. Consider:
     Some schools have ceded almost total control of their 
staff and finances to for-profit management companies that decide how 
the schools' money is spent. The Life Skills Center of Miami-Dade 
County, for example, pays 97 percent of its income to a management 
company as a ``continuing fee.'' And when the governing board of two 
affiliated schools in Hollywood tried to eject its managers, the 
company refused to turn over school money it held--and threatened to 
press criminal charges against any school officials who attempted to 
access the money.
     Many management companies also control the land and 
buildings used by the schools--sometimes collecting more than 25 
percent of a school's revenue in lease payments, in addition to 
management fees. The owners of Academica, the state's largest charter 
school operator, collect almost $19 million a year in lease payments on 
school properties they control in Miami-Dade and Broward counties, 
audit and property records show.
     Charter schools often rely on loans from management 
companies or other insiders to stay afloat, making charter school 
governing boards beholden to the managers they oversee. Loans to two 
Pompano Beach schools were disguised as gifts in financial documents to 
avoid scrutiny from the school district and make struggling schools 
appear solvent, the schools' former managers said in court papers.
     At some financially weak schools, tight budgets have 
forced administrators to cut corners. The cash-strapped Balere Language 
Academy in South Miami Heights taught its seventh-grade students in a 
toolshed, records show. The Academy of Arts & Minds in Coconut Grove 
went weeks without textbooks. Schools have also been accused of using 
illegal tactics to bring in more money--charging students illegal fees 
for standard classes, or faking attendance records to earn more tax 
dollars, court records show.
     Charter schools in Miami-Dade take a disproportionately 
lower share of black, poor and disabled children, records show. One in 
three students in Miami-Dade traditional public schools are black, 
while one in five charter school students are black. School district 
officials also suspect some charter schools have deliberately sought 
out high-performing students--contrary to the schools' contracts.
    This year, several South Florida charter schools made headlines for 
violating local rules or state laws, including Arts & Minds, which was 
accused of charging illegal fees to students, and Balere, which the 
school district said turned into an after-hours nightclub on weekends. 
The district withheld funding from both schools--before concluding that 
it does not have the legal authority to do so.
    That's because Florida's charter school laws--considered among the 
nation's most charter school friendly--are aimed more at promoting the 
schools than policing them, leaving school districts with few ways to 
enforce the rules.
    When school districts have taken a hard line with charter schools, 
they have found their decisions second-guessed by state education 
officials in Tallahassee. And as the number of charter schools has 
climbed--almost 200 now operate in Miami-Dade and Broward counties 
alone--state lawmakers have chipped away at local school districts' 
ability to monitor them.
    ``It's frustrating for school district officials,'' said John 
Schuster, spokesman for the Miami-Dade school district. ``The only 
cases where we can really intervene are safety-to-life, severe 
financial distress or poor academic performance.''
                       medicine for what ailed us
Bringing marketplace principles to education
    Charter schools first took hold in Florida in 1996, amid worries of 
overcrowded classrooms and poor student performance in urban school 
districts. They were seen as a cure for many of the problems in public 
schools, bringing innovative techniques and smaller classes to 
populations of students struggling to keep up. Charter schools were 
also designed to give parents more choices, and bring the principles of 
the marketplace to public education. Competition from charter schools 
was expected to force public schools to adapt and improve.
    In many ways, the plan succeeded. Florida now has 519 charter 
schools--from small, specialized schools tucked in strip malls and 
churches to sprawling new campuses with 3,000 kids from kindergarten to 
12th grade.
    Some charter schools rank among the highest in the state in 
academic performance. School districts in Miami-Dade, Broward and 
around the state have responded to the competition by creating more 
magnet schools and specialized programs.
    By design, charter schools are unshackled from many of the 
bureaucratic rules of traditional public schools, with independent 
school governing boards making most decisions instead of the local 
school district. Charter school advocates say this freedom is needed 
for schools to be creative and nimble, and to encourage start-ups.
    While this freewheeling system has minimized the oversight of 
school districts, it has given rise to a cottage industry of 
professional charter school management companies that--along with the 
landlords and developers who own and build schools--control the lion's 
share of charter schools' money.
    In Miami-Dade and Broward, about two in three charter schools are 
run by management companies, which charge fees ranging from 5 to 18 
percent of a school's income. These fees can exceed $1 million a year 
at a large charter school.
    Some management companies handle only school finances, while others 
control the budget, hiring and the curriculum.
    In some cases, the managers effectively take over the schools, 
using financial leverage to render the schools' governing boards 
``irrelevant,'' said Pam Hackett, a retired legislative aide who has 
served on the boards of five Broward County charter schools.
    ``They push the little guy into a corner where they can't afford to 
do anything but acquiesce or go out of business,'' Hackett said.
    Two years ago, Hackett sparred with the Leona Group, a Michigan-
based management company, after the company removed a popular principal 
from two affiliated Hollywood charter schools on whose board she 
serves--Sunshine Elementary and Paragon Academy of Technology. When the 
board tried to rehire the principal, the management company objected, 
saying it alone had that power.
    ``They basically told us: `According to the contract, we can do 
whatever we want,' '' Hackett said.
    The board had other complaints with Leona: The management company 
refused to provide school records, including contracts and spending 
documents, and failed to follow the school's education plan, school 
officials said. The board canceled Leona's contract in July 2009.
    When school officials later tried to access the schools' bank 
accounts, Leona refused to give up the money--and its lawyer accused 
them of attempting to steal it, court records show.
    Leona ``is committed to criminally prosecuting those individuals 
responsible for their attempted theft from the account,'' attorney 
Jeffrey Wood wrote in a letter to the schools' attorney. The dispute is 
now in litigation.
    Leona executives did not return phone calls seeking comment.
    Hackett says the schools now operate without any for-profit 
managers; instead, the principals make all financial and educational 
decisions. ``Overall, it's cheaper and more efficient and more 
accountable,'' she said.
    Many charter schools depend on management companies not just for 
expertise, but for cash.
    Schools often borrow money from the managers, creating an uneasy 
arrangement that can stifle a governing board's independent oversight.
    The Leona Group, for example, gave more than $360,000 to four 
Broward charter schools--money described as gifts in the schools' 
financial reports. But in court papers, the management company said the 
payments were really loans disguised as gifts to make the schools 
appear financially sound.
    ``The funds were referred to as a `one-time gift' so that the 
schools would not have to show the funds on their balance sheets,'' the 
management company's lawyers wrote. The schools insist the payments 
were gifts, not loans.
    It is not uncommon for management companies to give or lend money 
to schools to get them up and running, said Jonathan Hage, president of 
Charter Schools USA of Fort Lauderdale, one of the region's largest 
charter school operators.
    Most charter schools lose money in the first year or two as they 
try to expand enrollment while paying rent, construction costs and 
other start-up expenses, he said. In addition, new charter schools 
often find it difficult to get financing from banks.
    Hage and other charter school supporters say the state's funding 
formula for charter schools is inadequate, making it difficult for 
smaller schools to survive without assistance. Hage's company benefits 
from scale, he said. ``Being able to spread overhead costs over many 
schools and many students helps.''
    Statewide, about one in four charter schools have shut down since 
1996, either voluntarily or at the command of local school districts--
double the national average. Most schools close for financial rather 
than academic reasons.
                      schools and their landlords
For property owners, it's a profitable deal
    Charter schools generally receive more than 80 percent of their 
income in per-student payments from the state. In addition to the 
roughly $6,000 per-student allocation--slightly less than what 
traditional public schools receive--charter schools also get some state 
funds for facilities and maintenance.
    For most charter schools, finding a location is the greatest 
difficulty and expense. Most schools rent their facilities--in 
churches, shopping centers, or brand-new school buildings erected by 
real-estate developers. Any property used by charter schools is exempt 
from property taxes.
    Some schools devote less than 5 percent of their income to rent. 
Others pay crippling rates.
    ``Rent continues to be the greatest financial impact for our 
school,'' administrators at Broward Community Charter West wrote in a 
report to the state Department of Education last year. The school was 
$118,000 in the red that year.
    Neither the state nor the local school districts have rules or 
guidelines on how much a charter school lease should cost; nor are 
schools required to seek independent appraisals. But Hage, of Charter 
Schools USA, said a school's lease should not eat up more than 20 
percent of its revenue.
    A Miami Herald review found 19 schools in Miami-Dade and Broward 
with rents exceeding 20 percent of their income in 2010--about one in 
seven South Florida charter schools renting property that year. One 
Miami Gardens school spent 43 percent of its income on rent, according 
to audit reports.
    Many of the highest rents are charged by landlords with ties to the 
management companies running the schools, The Miami Herald found. At 
least 56 charter schools in Miami-Dade and Broward counties sit on land 
whose owners are tied to management companies, property records show.
    For example, the Lincoln-Marti Charter School in Hialeah paid 
$744,000 in rent last year--about 25 percent of the school's $3 million 
budget, even after the landlord reduced the rent by $153,000.
    The previous year, the school spent one-third of its income on 
rent, audit records show.
    Records show the landlord, D.P. Real Estate Holdings, and the 
management company are run by the same man: former Miami-Dade School 
Board member Demetrio Perez Jr. Perez's son, Demetrio J. Perez, works 
at the management company, which operates three Lincoln-Marti charter 
schools.
    The Lincoln-Marti charter schools were established by three friends 
of the elder Perez, who owns a string of well-known private schools and 
daycare centers also called Lincoln-Marti.
    The younger Perez said the school buildings are too large for the 
student body: Only 364 students attend the school, though the 
facilities can hold up to 1,000 kids. He said the rent, at $9.78 per 
square foot, is below market rate; however, the board did not seek an 
appraisal before approving the lease.
    Board member Gil Beltran said the elder Perez plays no role in the 
school. However, at Perez's request, the board agreed last year to 
guarantee $24 million in loans for his real-estate business, records 
show.
    After school district officials objected, the bank released the 
charter schools from the loan last month. ``We didn't see anything 
inappropriate about it,'' Perez's son said.
    His father's company has also agreed to give the school $350,000 
before the end of the school year as a gift, the younger Perez said. 
The school currently owes $250,000 in overdue rent.
    School districts don't have the authority to dictate the terms of a 
charter school's lease, or any other financial deals. That role falls 
to a school's governing board.
    But in many cases, the governing board includes members with ties 
to the management company or the landlord--creating a potential 
conflict.
    At the Academy of Arts & Minds in Coconut Grove, the school's 
founder, Manuel Alonso-Poch, acts as the school's landlord, its manager 
and the food-service vendor. For the first three years the school 
operated, Alonso-Poch also served on the governing board, school 
records show. He stepped down at the urging of the school district in 
2006.
    Alonso-Poch still has close ties to the board: His cousin, Ruth 
``Chuny'' Montaner, is the chairwoman of the board, which approved all 
of the school's contracts with Alonso-Poch's companies--including a 
lease that cost 28 percent of the school's revenue in 2010. (Montaner 
did not vote on Alonso-Poch's $90,000-a-year management contract.)
    Another Arts & Minds board member, Jorge Guerra Castro, was listed 
as a board member for years, though he lives in Peru. Castro said he 
was unaware that he was named to the board until he was told about it 
by a Herald reporter--yet some school board meeting records purport to 
show his attendance.
    In some instances, the landlords hold significant sway with charter 
schools' governing boards.
    The landlord of the Charter School at Waterstone in Homestead has 
the right ``to be involved'' in any decision to remove the school's 
management company, under that school's lease. Last year, landlord Luis 
Machado warned the school's board not to renew a contract with a 
management firm that had sued the school over a contract dispute, 
records of the school's Jan. 6, 2010, board meeting show. Machado told 
the board he wanted to make sure the school operated ``within his 
business philosophy.''
    The school's board dropped the management company. Machado did not 
return phone calls seeking comment.
                      when schools pursue profits
Strange things can happen, like $600 fees
    As statewide budget cuts have hit the bottom line at all public 
schools, some charters have been accused of cutting costs and boosting 
revenue at the expense of children and parents.
    It's a story Tuli Chediak knows well. As her daughter was preparing 
to graduate from the International Studies Charter High School in Miami 
earlier this year, Chediak was notified that she had failed to complete 
the 120 hours of volunteer service required of all parents. Her family 
was told to pay $600--$5 for each hour--or their daughter could not 
graduate, Chediak said.
    The mother had signed paperwork promising to complete the volunteer 
service, a common requirement at private schools and some charters. But 
Chediak said the school offered few opportunities to complete the 
service. The contract said nothing about a fine or withholding her 
daughter from graduation, she said.
    Chediak refused to pay and complained to the school district, which 
declined to get involved. The school ultimately allowed her daughter to 
graduate, and blamed the dispute on a miscommunication. But the 
experience left Chediak and other parents who were asked to pay 
frustrated.
    ``There are people taking advantage of parents,'' she said. ``It 
shouldn't be that way.''
    The Balere Language Academy saved cash by teaching nine seventh-
graders in a wooden storage shed on campus, records show. One report by 
the school district said students ``had difficulty putting their legs 
comfortably under the desks.''
    The school denied it, but district photographs show colorful 
posters, a whiteboard and student papers hanging from the walls. The 
shed is no longer used for classes.
    Arts & Minds boosted its bank account for several years by charging 
student fees for basic classes like math and reading--a violation of 
state law, school district officials said. The district complained 
about the practice in September, prompting Arts & Minds administrators 
to return all checks received from parents this school year.
    Parents at Arts & Minds, a school that has relied on loans from its 
landlord and founder to stay in the black, had also complained that the 
school did not have enough books for its students, and some classes had 
no teachers for the first five weeks of this school year.
    The complaints aren't new: Earlier this year, school administrators 
were photocopying textbooks, until the school's then-principal 
questioned whether this violated copyright laws, governing board 
minutes show.
    Insiders at the Mavericks High of South Miami-Dade, a Homestead 
charter school for at-risk students, also say the school has broken 
state law to bring in more money.
    Kelly Shaw, a former career coordinator at the school, filed a 
whistleblower suit in June accusing school administrators of defrauding 
the school district by inflating student attendance and enrollment 
figures, to increase the amount of money the school collected.
    A former Mavericks teacher, Maria del Cristo, filed a separate suit 
accusing the school of improperly charging fees to students enrolling 
at the school. Through their attorney, Shaw and del Cristo declined to 
comment.
    Lauren Hollander, the CEO of the school's management company, 
Mavericks in Education Florida, denied the allegations, and said both 
women had been fired ``for cause.'' The lawsuits are still pending.
    Miami-Dade school district officials said they never heard of the 
allegations.
                     keeping tabs on public dollars
More monitoring urged, less monitoring OK'd
    Many problems at charter schools go undetected until they become 
debilitating--if they're discovered at all.
    Charter schools are required to file financial statements with 
their local school districts. The reports are among the most important 
monitoring tools districts have to assess the financial health of 
charter schools.
    Still, the statements don't always show the complete picture. The 
law does not require operators to provide details on day-to-day 
spending--and governing boards can sometimes be left in the dark.
    In 2007, the board of Sunshine Academy in Miramar went to police 
after discovering that the school's principal, Alcira Manzano, had made 
unauthorized withdrawals from the school's account--including $5,200 
for a down payment on an SUV, court records show. The board closed the 
school, and Manzano was arrested on theft charges.
    Investigators later found that Manzano had also made loans to the 
school and personally paid the rent. Broward County prosecutors dropped 
the charges against Manzano in June.
    ``The record keeping at the school and oversight of the school by 
the board of directors was virtually nonexistent,'' prosecutor Kathryn 
Heaven wrote in a memo after dropping the case. ``The school appears to 
have been poorly run.''
    In 2008, a legislative report said the state should adopt stronger 
monitoring methods to detect struggling schools before they reach the 
brink of closing.
    Instead, lawmakers relaxed the rules even more. Earlier this year, 
Gov. Rick Scott signed a bill allowing some high-performing schools to 
file financial reports quarterly, instead of monthly. The
    Legislature also reduced the amount of money that high-performing 
charter schools must pay to school districts to cover the costs of 
oversight.
    Even when school districts detect problems, their ability to assess 
charter schools' conduct and demand compliance is limited.
    For example, state law does not spell out clear conflict-of-
interest rules for charter schools or their governing boards--a 
shortcoming highlighted by legislative analysts in 2008, but never 
changed.
    Nor does the law clearly define how much control a management 
company should have.
    Earlier this year, Miami-Dade school district auditors questioned 
whether four schools--two Life Skills charter schools and two 
Renaissance charter schools--were operating as mere passthroughs to 
their for-profit management companies.
    The Life Skills schools each paid 97 percent of their money to 
White Hat Management of Ohio, which in turn paid the school's 
expenses--including lease payments to another White Hat company. White 
Hat officials did not return phone calls seeking comment.
    The school district's audit committee considered asking the schools 
to modify their contracts, but the district's attorney determined that 
the district could not take action.
    School districts can deny an application for a new charter school 
or refuse to renew a school's charter. But the state Board of Education 
has overturned those decisions 30 times since 2003, state records show. 
(The state upheld 53 denials over the same time period.)
    School districts can also close a school that has received 
consecutive failing grades or has persistent financial problems. But 
some districts, including Miami-Dade, have had that power questioned, 
too.
    In 2010, the Miami-Dade School Board voted to close Rise Academy in 
Homestead after the school ended the year $250,000 in the red. 
Questionable expenses included $8,300 at retail clothing stores; $2,800 
at hotels and Orlando theme parks; and $2,145 at restaurants, according 
to bank records. Meanwhile, teachers had gone unpaid and textbooks were 
in short supply.
    Weeks later, the decision to close Rise was overturned by the state 
Board of Education. State education officials said the school, which 
had boosted its state-issued grade from F to A in a single year, had 
not received a fair hearing.
    Rise never reopened.
    Charter school advocates insist the law and state rules provide for 
enough oversight.
    ``There is absolute accountability,'' said Lynn Norman-Teck, a 
spokeswoman for the Florida Consortium of Public Charter Schools. 
``Parents, if they see something wrong, will call the school, the 
district, Tallahassee.''
    But district officials say it is a frustrating exercise.
    ``School districts are limited in their authority over charter 
schools,'' said Schuster, the Miami-Dade spokesman. ``They have minimal 
ability to impose effective consequences.''
Searching for the reality of virtual schools--at a glance
    You're probably reading this on a screen--whether a monitor, a 
phone, or a tablet--providing more evidence that digital content is 
ubiquitous. Likewise, its place in public education is not a matter of 
debate; it is inevitable. But school leaders and education policymakers 
do need to consider how to manage the influx of online learning 
opportunities in order to make sure students get their full benefit and 
not end up lost in cyberspace.
    K-12 online learning is growing rapidly. Many players see 
opportunities in this burgeoning market and are pushing states and 
districts to expand their offerings of virtual courses and schools. 
They include the ed tech community; major education think tanks; school 
choice and home school advocates; and online learning providers, 
including several major software companies.
    Yet there is little solid research on the impact of online courses 
or schools. In writing this paper, we found a few examples of online 
learning having a positive effect, but most of what we were able to 
uncover is not encouraging. At least not yet. In order to assure the 
public, parents and students that online learning produces the results 
we want, it's imperative for school leaders and policymakers to educate 
themselves.
Main findings
     Online courses and schools enroll a small fraction of the 
52 million public school students, but they are rapidly gaining ground. 
In 2009-10, elementary and secondary students took approximately 1.8 
million courses online. In addition, about 250,000 students were 
enrolled full-time in virtual schools in 2010-11, up from 200,000 the 
year before.
     The development, management and staffing of online courses 
and schools is supported by both public and private providers. For-
profit companies K-12, Inc., and Connections Academy together enrolled 
nearly half of all full-time online students in 2010-11.
     Funding for online learning varies by state, and ranges 
from 70 to 100 percent of state and local per pupil rates. The impact 
on district funds also varies by state. In some states, districts are 
billed for each student enrolled online. In addition, accounting for 
the actual cost of virtual courses and schools is often lacking.
     The jury is still out on the effect of online courses on 
K-12 student achievement. The U.S. Department of Education reviewed 
existing research and found a modest positive impact of online courses, 
but cautioned that the findings were based mostly on results for post-
secondary students.
     Emerging reports show a troubling overall picture of poor 
performance and low graduation rates for full-time online students. Two 
small-scale studies found positive effects for elementary students, 
suggesting that parental supervision could be an important factor.
     There needs to be a clearer accountability path for online 
learning, especially in regard to monitoring student progress and 
performance as well as accounting for the cost of virtual schooling.
Providers
    Online learning comes from many different sources. Some examples:
    For-profit companies. For-profits produce everything from out-of-
the-box courseware to a full, planned curriculum with teachers, tutors, 
proctored exams--literally, a ``virtual school.''
    Non-profit companies. Some non-profit organizations offer online 
learning, often with different philanthropic aims in mind, such as 
helping at-risk students graduate.
    State departments of education. Some states offer their own 
courses. For example, Florida Virtual School offers courses to both 
Florida students (who do not have to pay) and others outside the state 
(who do pay tuition).
    Individual districts. Individual districts may buy online software 
and create their own blended-learning approaches; they may also develop 
online coursework of their own.
Formats
    Combined with the variation in providers is a variation of formats. 
The two most common formats are referred to as ``fully online'' and as 
``blended learning.'' ``Fully online'' can mean that every part of the 
school academic experience is provided online; alternatively, ``fully 
online'' can mean that students can take single courses online, but all 
interaction is done through the computer. ``Blended learning'' is a 
term used to indicate a mixture of in-person and online instruction. 
Most of these courses take place in an actual brick-and-mortar building 
and are supervised by either a proctor or a teacher.
Enrollments
    Online learning is rapidly growing at all levels, but particularly 
among high school students:
     55 percent of public school districts have some students 
enrolled in distance education courses; of these, the vast majority (96 
percent) are high school students (Watson et al., 2011).
     Total K-12 course enrollments were approximately 1.8 
million in 2009-10; special needs students and students from low-income 
families were the least likely to participate in virtual courses 
(Watson et al., 2011).
     Ohio reports the highest number of full-time online 
enrollments in 2010-11 at 31,142, followed by Pennsylvania (28,578) and 
Colorado (15,214) (Watson et al., 2011).
Policies
    States and districts have different policies regarding students in 
online learning courses. The degree to which districts monitor the 
performance of online students varies considerably. In many cases it is 
much less than required for students taking classes in traditional 
schools and should cause some alarm. For instance, while 98 percent of 
districts monitored students' final grades in online education courses, 
only about half tracked students' log in activity or time spent online.


Student outcomes
    The one aspect of online learning that stands out is how little is 
known about its effect on student outcomes, especially at the K-12 
level. Several attempts to document student performance have been 
thwarted by missing and incomplete data, lax monitoring rules, and a 
vague picture of students dropping in and out of the online environment 
and subsequently the accountability system. A few studies document 
online students outperforming their non-digital peers, showing that 
online learning can be a vehicle for high performance under the right 
conditions. Most of the studies we found that examine test scores, 
graduation or completion rates, however, tell a story of students worse 
off than their classmates in brick-and-mortar schools. Reports of high 
school completion rates at or under 25 percent, lower test scores, and 
high dropout rates in some virtual schools raise serious concerns for 
school districts, students, and parents. The contrast between two 
examples should illustrate the need for serious examination:
     A Stanford University study looked at eight Pennsylvania 
virtual charter schools and found that every one of them performed 
significantly worse in reading and math than their traditional school 
counterparts in terms of student gains. The study covered the period 
2007-2010.
     An independent evaluation of Rocketship Education, a 
national ``hybrid'' or blended learning charter school network, showed 
sizable math gains among participating students at kindergarten and 
grade 1 compared to their peers. The average gains were equivalent to a 
5.5 increase in percentile rankings over a 16-week period.
Funding
    Online schools are funded in different ways in different states. In 
some, online schools are funded entirely by the state, while in others, 
funding comes directly out of school districts' budgets. See the full 
paper for a detailed discussion/spa of Pennsylvania, Colorado, Ohio and 
Florida, four of the states involved most heavily in online learning.
    In general, how much funding virtual schools receive does not 
necessarily correspond to how much it actually costs to operate them. 
Clear data for the true costs is hard to come by. And to make it even 
more difficult, determining how many students are enrolled in virtual 
schools can be a problem as well. For example, in Colorado funds are 
distributed to virtual schools based on their enrollments on October 
1st. However, between 30 and 50 percent of those students do not remain 
in the virtual school throughout the year, meaning the virtual school 
keeps the money even though the student has returned to the traditional 
school.
    The bottom line is that in many cases we do not know how much it 
actually costs to provide a virtual education, nor how many students 
the money is funding, nor exactly how the money will be spent.
Moving forward
    Several things should be clear to school leaders and policymakers. 
First, they should ask for more information before expanding access to 
virtual programs, especially full-time online schools. The wide variety 
of purposes, providers and formats, combined with the lack of data on 
outcomes, accountability, and funding, means that we know little of 
what is going on overall in the field. Second, some of the outcomes 
studies have shown troubling results. It is possible for students--
especially struggling ones--to drop in and out of the online world, 
putting them ultimately farther behind. Finally, follow the money. 
Funding for online students should reflect the actual costs of 
providing the instruction. In addition, there need to be clear lines to 
exactly who is accountable for student progress so that parents, 
students and taxpayers know that dollars are well-spent and producing 
results.

    Posted May 2012. Copyright 2012 Center for Public Education.
    This summary is from a report by the Center for Public Education 
team: Patte Barth, director; Jim Hull, senior policy analyst; and 
Rebecca St. Andrie, managing editor.

                       A St. Pete Times Editorial

                          A Charter to Profit

   The explosive growth of for-profit charter schools in Florida is 
                     diverting hundreds of millions
   of public dollars to businesses that pervert the program's intent.

         (c) St. Petersburg Times, published September 22, 2002

    The explosive growth of for-profit charter schools in Florida is 
diverting hundreds of millions of public dollars to businesses that 
pervert the program's intent.
    Jonathan Hage, a former Heritage Foundation researcher and 
political protege of Gov. Jeb Bush, has turned Florida's charter school 
program into a growing for-profit business empire. Five years after 
borrowing $5,000 to start up Charter Schools USA, Hage took in $40-
million last year--almost all of it from the government. And Hage is 
not alone. In the past six years, the number of students approved for 
publicly funded charter schools in Florida has jumped from 574 to 
76,156.
    At that phenomenal rate of growth, charter schools could account 
for as much as $418-million of the state's education budget. But don't 
bother asking the state to account for results. Gov. Bush, the 
education accountability governor, is studiously avoiding comment.
    In a compelling report in last Sunday's editions, St. Petersburg 
Times writer Kent Fischer revealed the ugly little truth about this 
enormous expansion of charter schools. These schools are not 
instruments of educational innovation or community service, as the 
state law intended. They are tools of profit and big business, which 
the law prohibits.
    Lest there be any doubt, Ron Renna of ABS, an Arizona charter 
company, describes his Florida sales effort this way: ``We're out here 
to make money. The more hamburgers you sell, the more money you make. 
If you bring more kids into a program, it makes the financiers in 
Arizona happy.''
    Charters were intended to spur innovation, to give nonprofit 
community groups or educators the chance to run a school freed from the 
normal regulations and bureaucracy. An example is Academie Da Vinci, a 
small elementary school started by a community group that felt children 
needed a specialized arts school in northern Pinellas County.
    The schools being run by Charter Schools USA and other corporations 
are quite the opposite. They represent a big-business, standard-
curriculum approach to education and usually have little to do with the 
communities in which they are located. The chairman of the foundation 
that landed a contract for the North Tampa Alternative School, for 
example, lives in Miami Springs. Asked how he got involved, he said: 
``I was contacted by a lawyer.''
    Even more disturbing, the charter businesses are now teaming up 
with developers of large, and typically higher-priced, subdivisions to 
build what amount to private schools on the public dime. Though the 
charter law requires that such schools accept any students, their 
locations make them convenient only to the homeowners or, in some 
cases, to company employees. A teacher at a Charter USA school in Miami 
was also unusually blunt about how discipline works: ``We have ways of 
asking people not to come back. We really operate like a private 
school.''
    At $418-million and counting, the public policy questions here are 
urgent. Is Florida giving tax money to for-profit corporations that are 
using shell companies to hide their status? Are charter school dollars 
being used as an amenity for developers who build subdivisions? Is the 
law being used to create private schools that cater to the children of 
higher-income families and business employees? How much profit is being 
made off the charter school public subsidy? Are children learning in 
these schools?
    The governor refused to answer questions from Fischer, which is 
particularly odd, given that this new charter school explosion is in 
large part Bush's creation. Hage himself said as much: ``It was first 
Jeb Bush's idea, not mine, to promote charters in Florida. * * * Quite 
honestly, I wasn't that familiar with charter schools.''
    Bush is running for re-election on his educational record, which 
includes making Florida the most prolific state in the nation for 
school privatization. The trouble is that his Department of Education 
has shown no inclination to investigate alleged fraud in the voucher 
program for disabled students, or to oversee the escalating vouchers 
awarded through dollar-for-dollar state corporate tax credits. In this 
case, Bush's name was actually used as a reference on charter 
applications that might be contrary to state law.
    Is this what the governor means by education accountability?

                  Wall Street Journal, August 27, 2007

                    Jeb Bush: Lehman's Secret Weapon

                           By Dana Cimilluca

    In the arms race by private-equity firms to line up ever-higher 
profile ``advisers,'' Lehman Brothers may have just taken the lead.
    According to a small handful of reports Friday, including this one 
in Investment Dealers' Digest and another in Private Equity Hub, the 
investment bank has hired former Florida Governor and presidential son 
and brother Jeb Bush for its in-house investing arm.
    No sign of an announcement from Lehman on the hire.
    Private-equity firms hire politicos and former corporate honchos 
all the time to help them open doors to deals, as well as to manage 
government relations and the companies in their portfolios. Carlye 
Group chief David Rubenstein, in fact, discussed the increasing value 
of such moves in this Q&A published in The Wall Street Journal today.
    No family these days has better door-opening skills in Washington 
or corporate America than the Bushes. The family of the 41st and 43rd 
presidents is no stranger to Wall Street either. Jeb's father, George 
H.W., used to serve as an adviser to Carlyle, and his grandfather was a 
partner at Wall Street firm Brown Brothers Harriman.
    It is the second corporate gig for the former Florida governor, who 
stepped down after two terms in January. He already has joined the 
board of Tenet Healthcare.

                    Published Thursday, June 4, 2009

                   Florida Stands to Lose $1 Billion
                 Because of Lehman Brothers' Bankruptcy

     By Sydney P. Freedberg and Connie Humburg, Times Staff Writers

    A price tag is now emerging for what last year's collapse of 
investment giant Lehman Brothers could cost the state of Florida: more 
than $1 billion.
    The losses could make Florida and its citizens among the biggest 
casualties in the biggest bankruptcy ever.
    More than $440 million disappeared from the pension fund that pays 
benefits for some 1 million retirees and public employees.
    Counties, cities and school districts face a loss of more than $300 
million for roads, sewers and schools.
    The state has $290 million less to pay for everything from 
hurricane claims to health care, community colleges and care for 
infants with disabilities.
    While the general losses have been expected, this is the first 
public accounting of the magnitude of the Lehman-related public losses 
for Florida.
    The outlook is bleak in bankruptcy court. In years to come, the 
state will be lucky to collect pennies on the dollar.
    In an interview, even the ever-optimistic Gov. Charlie Crist could 
not muster a sunny side: ``It is, to say the least, an unfortunate 
situation.''
    Lehman Brothers, which built the nation's railroads and survived 
the Great Depression, filed for bankruptcy protection last September.
    Its failure sank banks and stocks, but the fallout reverberated far 
beyond Wall Street.
    In Florida, Lehman Brothers was an icon of finance and real estate, 
managing public assets, selling securities, underwriting bond deals and 
handling residential and commercial mortgages.
    In the last decade, Florida paid Lehman at least $27 million in 
fees for managing public investments and brokering and underwriting 
bond deals.
    The storied bank hired former Gov. Jeb Bush as a consultant in June 
2007, five months after he left office. As governor, Bush also served 
as a trustee for the State Board of Administration, which invests 
public money.
    Lehman was the dominant Wall Street broker that sold the SBA $1.4 
billion of risky, mortgage-related securities that started tanking in 
August 2007.
    Bush has said he had nothing to do with those sales.
    ``As Governor Bush has stated several times in response to your 
inquiries, his role as a consultant to Lehman Brothers was in no way 
related to any Florida investments,'' said his spokeswoman, Kristy 
Campbell.
    ``It is unfortunate the St. Petersburg Times continues to 
perpetuate this incorrect and baseless conjecture.''
    The risky investments Lehman sold the SBA meant losses to the 
budgets of almost 1,000 state and local governments.
    The local governments still get principal and some interest 
payments but are stuck with about $556 million in tainted securities 
that they can't redeem.
    The off-limit funds mean less operating cash for sewers in Port St. 
Lucie and classrooms in Jefferson County.
    Hillsborough, already shedding jobs and cutting services, faces a 
loss of $11.3 million. ``When you're making cuts, every additional cut 
is more painful than the last,'' said budget director Eric Johnson.
    Pasco faces a loss of $6.6 million.
    ``That's a huge amount of money for us,'' said Commissioner Michael 
Cox, a financial adviser. ``To put it in perspective, our whole parks 
and libraries budget is $19.8 million.''
    He said Florida made a costly mistake by not selling the tainted 
investments long before the bankruptcy.
    State officials are telling local governments that if they hold on 
long enough, they just might recover their losses.
    Still, the state has filed a claim in bankruptcy court in 
Manhattan, seeking to recoup $675.8 million for the bad investments.
    In its complaint, Florida says Lehman Brothers sold it securities 
that were not registered with the Securities and Exchange Commission. 
Such securities are meant only for qualified, sophisticated buyers that 
understand the risks.
    But documents show that SBA managers were made aware of the risks 
all along. Before they bought the securities, they received 
confidential memos, e-mails and investor reports from brokers and 
sponsors that detailed the risks.
    Florida lost more than $400 million in sales of Lehman stocks and 
bonds. It also faces a loss of more than $80 million on bonds it hasn't 
sold yet. That has squeezed dozens of state organizations--from the 
Division of Blind Services to the Chiles tobacco endowment to a health 
insurance subsidy for retirees.
    The biggest casualty is Florida's giant public pension fund. It 
took a $230 million hit on Lehman stocks and bonds. The pension fund 
holds another $53 million in Lehman bonds that have lost most of their 
value and has $323 million tied up in tarnished mortgage-related 
securities purchased from Lehman. If the state sold those securities 
today, the pension fund would lose about $188 million more.
    Almost 1 million public employees and retirees--from teachers and 
firefighters to social workers and police officers--participate in 
Florida's plan.
    The SBA, which manages the pension fund, downplayed the long-term 
effect of the Lehman bankruptcy. Spokesman Dennis MacKee said that 
benefits paid to retirees won't be affected. Government employers would 
have to pay more to plug any pension funding gap. But MacKee said the 
Lehman holdings were such a small part of the pension fund portfolio 
that it's ``very unlikely'' the losses would result in higher costs.
    Here are how some other agencies with Lehman bonds fared:
     The state's hurricane catastrophe fund, which helps 
insurance companies pay for storm damage, lost $81 million.
     Citizens Property Insurance held $39 million of the bonds 
the day of the bankruptcy. It lost $9 million and now holds bonds 
originally worth $26.5 million--on the books for just $3.3 million.
     The state Treasury saw more than $75 million evaporate and 
holds an additional $53 million in troubled Lehman assets. That reduced 
earnings for, among others, universities, housing subsidies and clean 
water programs.
    Lehman's failure also hurt cities and counties that invested on 
their own in what they thought were top-rated Lehman securities.
    Karen Rushing, comptroller of Sarasota County, told a U.S. House 
committee on May 5 that the Lehman bankruptcy had a ``devastating'' 
impact.
    The county saw $40 million disappear, Rushing said, meaning it 
couldn't build a fire station, two libraries and 11 parks and also 
could cost jobs.
    Rushing and locals in California and Colorado and elsewhere are 
lobbying the U.S. government to cover Lehman losses with federal 
bailout money.
    Florida ``is navigating very difficult times,'' Rushing said. 
``High in job losses, high in foreclosure rate, a housing crash and an 
insurance crisis * * * all affect our ability to withstand the 
consequences of the collapse of Lehman Brothers.''
    Bankruptcies move slowly; it could take years for Florida to 
recover anything.
    ``Florida gets to wait in line like everyone else,'' said Andrew 
Gottesman, a vice president at SecondMarket, which is a marketplace for 
bankruptcy claims.
    Estimates vary on how much Florida might recover, from a few cents 
on the dollar to 20 cents. An average guess is about 14 cents on the 
dollar.

    [Prepared questions submitted by Ms. Kaptur follow:]

         Questions Posed to Mr. Bush From Hon. Marcy Kaptur, a
           Representative in Congress From the State of Ohio

    The Guardian newspaper in Britain reported in 2010 
(www.guardian.co.uk/business/2010/mar/12/lehman-brothers-gimmicks-
legal-claims that a US bankruptcy examiner concluded that grounds exist 
for legal claims against top Lehman Brothers bosses and auditor Ernst & 
Young for signing off misleading accounting statements in the run up to 
the 2008 collapse.
    The newspaper said a 2,200-page forensic report by Anton Valukas 
into Lehman's collapse revealed that Barclays, which bought Lehman's US 
businesses out of bankruptcy, got certain equipment and assets to which 
it was not entitled.
    Based on this article, the Valukas report also revealed that during 
Lehman's final few hours, CEO Dick Fuld sought to convince Prime 
Minister Gordon Brown to overrule Britain's Financial Services 
Authority when it refused to fast-track a rescue by Barclays. The 
examiner's report found evidence to support ``colorable claims'' 
against Fuld and three successive chief financial officers--Chris 
O'Meara, Erin Callan and Ian Lowitt.
    According to the Guardian, ``During the bank's final hours in 
September 2008, Fuld tried desperately to strike a rescue deal with 
Barclays but the FSA would not allow the British bank an exemption from 
seeking time-consuming shareholder approval. The chancellor, Alistair 
Darling, declined to intervene and Fuld appealed to the US treasury 
secretary, Henry Paulson, to contact the prime minister.''
    According to the Valukas report, ``Fuld asked Paulson to call prime 
minister Gordon Brown, but Paulson said he could not do that ... Fuld 
asked Paulson to ask president Bush to call Brown, but Paulson said he 
was working on other ideas.''
    According to the Guardian, ``In a ``brainstorming'' session, Fuld 
then suggested getting the president's brother, Jeb Bush, who was a 
Lehman adviser, to get the White House to lean on Downing Street.''
     Governor Bush, to your knowledge, did your boss, Mr. Fuld, 
in fact make such a suggestion, as the Guardian reported?
     Did you in fact ever make any contact with anyone at the 
White House about Lehman's travails at the time?
     Did you in fact ever make any contact with anyone in 
Congress about Lehman's travails at the time? If so, who did you 
contact? When did you contact them? What did you discuss?
     Did you in fact ever make any contact with anyone in any 
federal or state regulatory agency about Lehman's travails at the time? 
If so, who did you contact? When did you contact them? What did you 
discuss?
    The press has further reported that Barclays eventually bought the 
remnants of Lehman's Wall Street operation from receivership for $1.75 
billion.
     Did that price accurately reflect the value of that 
purchase?


    Chairman Ryan. We just got the employment numbers about a 
half hour ago. Only 69,000 jobs added last month. That is about 
half of the 150,000 that the markets were expecting. The last 2 
months job growth was revised downward by 49,000 jobs. The 
unemployment rate has now gone up to 8.2 percent. The U-6 
unemployment rate, which lots of us track, which is people who 
are looking for a job that didn't find one, people who stopped 
looking for a job, or people who are in a part-time job that 
still want a full-time job, went from 14.5 percent up to 14.8 
percent. It is not working. The economic policies we have today 
are not working.
    And I always try not to say what it is my political 
adversary is in favor of. I will let him speak for himself. But 
what I think what we are trying to establish here is that both 
parties have messed this up. I think Mr. Edwards did a pretty 
good job of going through the past about how, with good 
intentions, Republicans and Democrats have believed that if 
they could just put some kind of a preference in law for a 
selected industry, for a selected goal, for a selected company, 
that good things would result from that. And it is helpful to 
us to go back and look at the track record of this bipartisan 
idea that government is smarter and better at picking winners 
and losers in the marketplace than the market itself is.
    And what we have learned from this bipartisan approach is 
that corruption does occur, cronyism does occur, and that what 
ends up happening is those who are connected, those who have 
established connections, those who know the ways of Washington 
end up usually getting the benefits, and those who are out 
there around America working hard, slaving away, creating 
ideas, coming up with companies in their garages, they are not 
on the inside of this. And so we end up erecting barriers to 
entry that protect established businesses, connected 
businesses, or sectors, or businesses, and that necessarily 
comes at the expense of tomorrow's entrepreneur. That makes it 
harder for people to rise and create new ideas and businesses, 
which as we have learned through the economy, through economic 
evidence, is the greatest chance of giving people prosperity, 
of decentralizing wealth in this country, of allowing people to 
rise and have social mobility.
    And so what we are trying do is recognize that both parties 
messed this up. Let's not sit around and point fingers at each 
other. Let's recognize both parties messed it up. Let's go back 
with what works. What works is entrepreneurship, small business 
growth, risk taking, and yes, regulations that are fair for 
all, regulations that do put the guardrails up so that we have 
transparency, so that we have honest play, so that we have 
rules of the road that apply equally to everybody, equality 
before the law. That is what we are trying to reestablish here.
    No one is suggesting that we have some sort of dog-eat-dog 
society, where just the powerful and connected survive at the 
expense of everybody else. No, what we are saying is the same 
rules apply to everybody so that you, based on your own merit, 
your own God-given talent, that determines success. So that our 
goal in America is try to advance the starting line so we can 
promote equal opportunity so people can make the most of their 
lives instead of having people pick and choose winners in 
Washington. Because what ends up happening, whether a 
Republican is in the White House or a Democrat is in the White 
House, or whoever is running Congress, is interest groups get 
involved, and they decide how this is all done at the end of 
the day. That doesn't work. We have seen our friends in Europe 
try this, and now we look at the results of that.
    And so Governor Bush and then Mr. Edwards, you have seen 
this work. You have great experience in government. Has this 
worked at the State level? State governments have to do this a 
lot. The stimulus, for example, sent a lot of money to the 
States. Did that work? Do these 49 different job training 
programs, which clearly were created with good intentions, had 
various groups advocating for this or that job training 
program, does that work to actually giving people the tools 
they need to go into getting skills so they can get on to a 
career path that they were in an obsolete industry that is 
gone?
    You know, where I live, we lost four auto factories since 
2008. So all my friends that I grew up in high school with, the 
guys I know from my childhood, don't have a sector that they 
can work in that they got their training in. And now, you know, 
people are trying to go back to school to learn a new skill to 
get back on their feet again. Does this approach work? Did 
stimulus spending work? Do the 49 different job training 
programs work?
    And then, Mr. Edwards, give more examples about the 
Canadian system. I think that is very intriguing. You write 
about how Canada actually went after a lot of this corporate 
welfare, this cronyism. Give me more anecdotes and story on 
that, because I think there is something we could learn from 
the Canadians on this front. Governor Bush.
    Mr. Bush. Well, we had a mini stimulus package when I was 
Governor in the early 2000s. And for some States, it worked, 
because there were chronic budget deficits, and they filled the 
gap. And they consider that stimulative rather than changing 
how they do things. In the case of Florida, we actually took 
that money and used it on a one-time basis to try to help 
create--to invest in basic research, in essence, which I think 
is a proper role of government. This is where maybe my Cato 
Institute friend and I might disagree. I do think that there is 
a proper role for government in things to build capacity, to 
build infrastructure. And that is what we used the money for. 
It wasn't stimulative in terms of an economic recovery, but we 
already handled our budget because we have a balanced budget 
requirement as almost every other State did. We had to make 
tough choices. We had to challenge how we did things. And we 
got through the budget challenges quite well.
    Similarly, I think many States did the exact same thing 
this last year. Florida did not raise taxes last couple years. 
Florida hasn't raised taxes. In fact, Florida has cut taxes. 
And they have done it, the challenge became an opportunity, 
which happens in the private sector as well. When you don't 
have the pressure of a balanced budget requirement, as you all 
don't have here, then, you know, it doesn't really matter. But 
every other jurisdiction, local and State governments have that 
challenge, and they adjust.
    I would say, to use the clean energy example, a better 
approach would be to spend less money, but spend it on basic 
research that creates the disruptive technologies that are 
market-based that will be sustainable over the long haul, 
rather than trying to create a wholly-owned venture capital 
subsidiary inside the Department of Energy, where there is 
winners and losers picked that is not going to create any 
advancement of new technologies. It basically protects, and in 
the cases of the failed companies, it ended up protecting 
companies that didn't have the best ideas. And the market then 
punished them, and the United States Government was out-of-
pocket.
    So a better approach would be for the government to do what 
it does best, which is to fund basic research, applied research 
to be able to create the next generation of industries. But let 
the market solutions be the means by which we achieve the 
desired result.
    Mr. Edwards. You know, I believe in the 50 States as 
laboratories of democracy. I believe in federalism. I believe 
we ought to get a lot of these programs out of Washington and 
let the 50 States figure out whether they want do them.
    Job training programs, you know, we have had them since 
John F. Kennedy's administration. They have never worked very 
well. The GAO has said they have never worked very well. Let's 
let the States fund it and do it. Then the States can learn 
from each other to see what works.
    So, you know, the problem is we have over a thousand 
Federal aid to State programs now. They are massively 
bureaucratic. The money pours out of Washington. There are 
rules and regulations with each of these programs. They put 
State governments in a straitjacket, which doesn't make any 
sense. And we see that now with No Child Left Behind. The 
States have rebelled against that. One political scientist 
said, you know, the problem now is we have got sort of a marble 
cake with American federalism. Between the three layers of 
government, we should have a layer cake. Each of the levels of 
government should fund their own programs, do their own 
programs, and the States could look at each other to see what 
works.
    To transition over to Canada, you know, this is one of the 
things Canada did. Two decades ago, Canada was in a horrible 
budget situation like we are today, massive deficits, 
overspending, Wall Street was downgrading its debt. So they did 
a series of 5 years of really big spending cuts. They chopped 
their total Federal budget 10 percent in just 2 years, which 
would be like us cutting $400 billion out of the budget in just 
2 years. So what did they cut? They cut business subsidies. 
They cut aid to the lower governments. They cut defense. So 
they cut all kinds of stuff. And it has worked extremely well. 
The Canadian economy did not go into a recession with these 
government spending cuts. It boomed. The Canadian economy 
boomed for 15 years, even as these spending cuts dramatically 
dropped the size of their government.
    So just to put a couple numbers on that, go back a couple 
decades, the Federal Governments in Canada and United States 
were both around 23, 24 percent of GDP. The Canadian Government 
now, Federal Government, is around 15 percent of GDP. Ours is 
up around 23 or 24. So they massively cut the size of their 
Federal Government. They decentralized their federation, and it 
has worked extremely well.
    Chairman Ryan. Thank you.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    I do believe that there is a lot of agreement. But let me 
just start with what sort of got me going here. The chairman in 
his opening remarks again talked about the Obama administration 
and crony capitalism. They continue to refer to the auto 
rescue, not as an example of an important government 
intervention that helped millions of jobs, but as an example of 
crony capitalism.
    So I just want to ask you, Governor Bush, I believe you 
supported, as did a lot of us, not all of us, on a bipartisan 
basis the effort that President Bush took to help rescue the 
financial sector, which in part precipitated the crisis. And 
many of us believe that it was also appropriate to take the 
actions that President Obama did to help rescue the auto 
industry and a million jobs. Did you support that effort?
    Mr. Bush. No.
    Mr. Van Hollen. No. Okay.
    Mr. Bush. I wasn't in office, though, at the time. So that 
is easy for me to say.
    Mr. Van Hollen. Do you agree with Governor Romney's 
position that we should have let them go bankrupt?
    Mr. Bush. They did go bankrupt. It was in a way where the 
government--it was a government-induced bankrupt that allows 
now, for example, tax loss carry forwards that never, under 
normal bankruptcies, would exist, allows for General Motors now 
not to pay taxes based on profits that otherwise they would 
have to be paying taxes on. That is the form of capitalism when 
the government intervenes in a very muscular kind of way. And I 
don't believe that that is appropriate.
    Mr. Van Hollen. All right. Well, maybe I made an 
assumption. Maybe I was wrong. Did you support the rescue of 
Wall Street banks?
    Mr. Bush. You know, I have never been asked that either. I 
was out of office. So now you are asking.
    Mr. Van Hollen. Yeah.
    Mr. Bush. And I think, given the circumstances of the 
potential for a meltdown that would have been hard to recover, 
some support was appropriate. Was, therefore, then the next 
step of adding regulations on top of regulations? The 
Congressman in his remarks made an interesting point, assuming 
that there was no regulation on the banks or financial services 
industries prior to Dodd-Frank's passage. In fact, there was 
massive regulation. I would argue that maybe enforcement was 
where the problem was, not the fact that we had a deregulated 
financial industry.
    So, for a short term solution to a problem that had global 
implications, I think that was probably the right thing to do. 
But then to take it and then to add on top of this challenge 
that we face massive rules that will take years to implement, 
that creates more uncertainty, and the probability of more 
unintended consequences that will create a weakening economy 
rather than a strengthening one, I think was the wrong 
approach.
    Mr. Van Hollen. Thank you for stating your position on the 
record. I think many of us believe that the decision to help 
rescue the financial industry was a bitter pill but a necessary 
one. And many of us also thought it was worth taking 
extraordinary action to help save over a million jobs in the 
auto industry.
    Let me just talk about the budget issues and some of the 
government expenditures. The figure of government spending 
right now is about $3.6 trillion, according to the 
Congressional Budget Office. A big part of that is Social 
Security, which of course came about after the Great Depression 
as a way to provide retirement security for Americans. I am 
assuming from your testimony you don't think that that is an 
inappropriate government interference in the marketplace?
    Mr. Bush. That is correct.
    Mr. Van Hollen. Okay. Another major part of that $3.6 
trillion is the Medicare program. Because we realized in the 
1960s that the private health insurance market didn't see a lot 
of profits to be made in insuring older and relatively sicker 
people. So that is a major chunk. I mean, I assume, putting 
aside the issue of reform, that you think that that is an 
appropriate intervention in the marketplace.
    Mr. Bush. Putting aside reform?
    Mr. Van Hollen. The Medicare program, the idea that there 
should be some government role in providing health security to 
seniors.
    Mr. Bush. In a dramatically different way, I could see it 
happening. But I am not sure that accepting Medicare as it was 
created in 1965 in 2012--I mean, that is the problem is that we 
have this attitude that if you start something in the mid-20th 
century, it is appropriate to keep doing it the same way 50 
years later.
    Mr. Van Hollen. Governor, actually, there is a difference 
of opinion as to what kind of reforms we need to take in 
Medicare. That is a longer discussion. But I think everybody 
around this table recognizes that we need to address those 
issues. We have different models. And they are efforts to 
modernize the program.
    The part of the budget that most of this conversation has 
circled around, at least with respect to the spending side, is 
the discretionary budget. It represents about 16 percent today 
of our overall budget. It is a shrinking part of the budget. As 
a result of the trillion dollars in cuts that we made in the 
Budget Control Act last August, it will actually be reduced to 
the lowest percentage of the economy since the Eisenhower 
administration over the next 10 years. It is a shrinking part 
of the budget. That is the part of the budget that helps the 
FBI, Homeland Security, and you mentioned basic research.
    NIH, I think you agree, does an incredible amount of 
important research. There are lots of those investments in NIH 
research that don't pan out. They don't cure cancer. They don't 
necessarily--I hope you will agree with the logic that just 
because some of those investments in particular research 
projects don't pan out, that the solution is to get rid of 
investment in NIH. You are not suggesting that, are you?
    Mr. Bush. Well, there is a huge difference between 
investing, or a loan guarantee for Solyndra and investing in 
basic research in NIH. If you are trying to equate the two, I 
would disagree. I don't think that there is--of course, 
research never works out exactly. But through trial and error, 
great minds develop discoveries, in cooperation with other 
scientists, that yield results that improve the human 
condition. So it is not a venture capital investment, it is 
more related to an expenditure that I think is more than 
appropriate for the Federal Government to have. And you know, 
there may be cuts over a very high base, but there has been 
dramatic increases in spending in NIH if you look at it over 
the last 20 years.
    And I am not uncomfortable with that. I do think that the 
same thing that my testimony I brought out that there should 
be--you should challenge every basic assumption about how this 
money is spent. There should be benchmarks. If it doesn't work, 
you ought to move on to other things. But a particular science 
project by a particular researcher if it doesn't work out, that 
is not my point.
    Mr. Van Hollen. I just want to clarify. I didn't think it 
was. I mean, we also have student loan programs. Not every 
student loan gets repaid. I don't think that--most of us 
anyway, those of us who support a student loan program, say, 
well, we didn't get all the loans repaid, so we are going to 
shut down the student loan program. Or Small Business 
Administration makes loans. Not every small business is 
successful. I don't think the solution is to shut down the 
Small Business Administration.
    You mentioned specifically doing more advanced sort of 
cutting-edge research into energy at the Department of Energy. 
I agree. I think that is a very important role. The budget that 
is coming out of this House significantly cuts back in the 
proposals that the President has asked for in that very area. 
So I think that, you know, the chairman asked about actions 
taken by Governors. I know lots of Governors, including 
yourself, who took efforts in the renewable energy area. Some 
of them may have been successful; some not. But I just hope we 
don't, you know, take the lesson that because some of these 
things don't work out, we shouldn't be making investments in 
areas of basic research, and as you said, in some cases applied 
research.
    Let me just close with this. I agree with you--first of 
all, I also agree with Mr. Edwards that we should get rid of 
some of those agriculture subsidies. We put forward a proposal 
recently to do exactly that in this committee.
    Chairman Ryan. And our budget does as well.
    Mr. Van Hollen. But I agree with you, Governor Bush, that 
if we find a program that is not working, let's get rid of it, 
let's reduce the deficit. I wonder if you would take that same 
approach to tax expenditures that aren't serving their purpose. 
In other words, would you agree that if you identify a tax 
expenditure that is not serving any useful purpose, that we 
just get rid of it to reduce the deficit?
    Mr. Bush. You know, I would love to see common ground to 
see dramatic reductions of tax expenditures, or whatever you 
want to call them, and have a dollar-for-dollar reduction in 
tax rates that would spur economic activity that would move us 
away from an L-shaped recovery to a V-shaped recovery.
    Mr. Van Hollen. So just to be clear, you disagree with the 
recommendations of Simpson-Bowles and Rivlin-Domenici that says 
through tax reform, we should do exactly what you say, which is 
to try and make the Tax Code a little simpler, but we should 
also use some of the funds generated to help reduce the 
deficit. You disagree with that. You agree with essentially the 
form of the Grover Norquist pledge, which is not--do you agree 
with the Grover Norquist pledge?
    Mr. Bush. Okay. So I ran for office three times. The pledge 
was presented to me three times. I never signed the pledge. I 
cut taxes every year I was Governor. I don't believe you 
outsource your principles and convictions to people. I respect 
Grover's political involvement. He has every right to do it. 
But I never signed any pledge.
    Chairman Ryan. Thank you.
    Mr. Van Hollen. Thank you, Governor.
    Chairman Ryan. Mr. Cole.
    Mr. Cole. Thank you very much.
    Governor, good to see you. Thank you for being here.
    And if I may, thank you for being here not only as a 
representative of a family with an extraordinarily remarkable 
record of public service to this country in every way, but 
being here as a person with considerable accomplishments of 
your own, and certainly with the ability to speak for yourself, 
not for every other member of your family. So thanks for being 
here. And thanks by the way.
    Mr. Bush. Mr. Congressman, can I say that my brother sends 
his warm regards to Congressman Waxman?
    Mr. Cole. I am sure he does, and I am sure he does it from 
a great distance, too.
    But I appreciate your brother's class, frankly, since he 
has left office, as well, and the manner which he has handled 
himself. And we saw an example of that yesterday that reflected 
both very well on him and former First Lady Bush and on the 
First Family today, on the President and First Lady Obama as 
well. So maybe if our committee operated a little bit more like 
we saw yesterday at the White House, we would get a little bit 
further down the road.
    We have dealt with a lot of history here. I am not exactly 
sure why we are always looking back, because I think we are 
trying to score political points and that. I want to ask you 
about a couple of problems that we are going to be facing very 
quickly. The 2001 and 2003 tax cuts all expire. The President 
saw fit to extend those 2 years ago. He could have ended every 
single one of them had he chosen to, but he must have thought 
at least at that point those tax cuts were in the best 
interests of the economy. Got a couple other things he wanted 
as well, extension of unemployment and a payroll tax cut. But 
we are going to, all those questions are being revisited. I 
would like very much your views on whether those tax cuts ought 
to be extended and then what other things within the Tax Code 
you think we ought to be doing to try and achieve the 
objectives you outlined in your remarks.
    Mr. Bush. I think that, given the economic circumstances 
that we are in, I think they should be extended. The idea that 
a cut in taxes that took place 12 years ago is an extension of 
a tax cut rather than what it truly is, which on December 31, 
if nothing happens, a massive tax increase--something close to 
3 percent of GDP, which would be a historic tax increase. The 
country has never done anything of that scale--speaks to the 
language of Washington. I mean, I have never understood why we 
wouldn't--maybe it is because of budgeting considerations that 
it is an extension of a tax cut. But basically you are talking 
about a massive tax increase. And I don't think that is the 
proper way to restore economic growth.
    I think the objective ought to be that if we are growing at 
1.5 percent per year at a time where historically, in this time 
of the cycle, we should be growing at 4, 5, 6 percent and have, 
say, stable growth over a sustained period of time--say, 3.5 
percent instead of 1.5 percent--that 2 percent incremental 
growth over a 10-year period, which is how you all look at your 
budgets, that 2 percent incremental growth creates a Germany in 
the tenth year. The incremental growth creates something like 
$2.9 trillion of additional economic activity. And based on the 
tax rate, the effective tax rate in our country today, State, 
local, and Federal, that is over $1 trillion of revenues 
without raising taxes.
    So the focus ought to be, in my mind, how do you create 
sustained economic growth? And then you restore the proper 
balance of government. If we are always reacting--assuming that 
we are only going to grow at 1 percent per year, then we are in 
a heap of trouble. There is no way to get out of the mess we 
are in, where we are spending--roughly 40 cents of every dollar 
spent is financed and it is financed in increasingly shorter 
durations with monetary policy that yields zero percent 
interest rates.
    At some point, we are not going to be slightly larger than 
the smallest country in Europe, and the focus of the world's 
financial institutions and investors are going to be looking at 
the United States. And when that happens and we are not 
prepared, because we haven't dealt with the structural 
challenge we face and we are not creating a high growth 
economy, then the price we pay is enormous, particularly for 
the next generation. So I would say the place where you could 
get the greatest sustained growth would be an energy policy 
based on our own resources and based on American innovation.
    I would argue--I am a little out of step with my own party 
here perhaps, temporarily--I would argue for looking at 
immigration as an economic solution to our problems; that we 
identify aspirational people, allow them to come in to pursue 
their dreams in our own country. I think a total review of the 
rulemaking process and the existing regulations on our country 
today to apply 21st century rules on top of our economy would 
be a burst of economic activity. And then at the State and 
local level, a transformation of our education system.
    Those things aren't necessarily ideological. You can have 
your budget fights and the tax fights. I am sure they will go 
on with without me. That could, I think, help create sustained 
economic growth. And then the debate might not be about the 
ones we are having in Washington today. It would be about 
something different.
    So tax reform and those four things that I brought up, I 
think would create a really interesting climate for sustained 
growth.
    Mr. Cole. Thank you Governor. I yield back.
    Chairman Ryan. Thank you. Your immigration views sounded 
good to me. Mr. Doggett.
    Mr. Doggett. Well, they may sound good to me, too. Welcome, 
Governor. Let me just ask you specifically whether then you 
support the DREAM Act as it has currently been introduced, so 
that young people who came here, through no decision of their 
own as a child, have a path to citizenship if they have played 
by the rules, gone to school, and are ready to contribute to 
America.
    Mr. Bush. I haven't seen the current form of the DREAM Act 
so I can't comment on it.
    Mr. Doggett. It is the same version we have offered the 
last four sessions against Republican opposition. You are not 
familiar with it?
    Mr. Bush. I don't want to insult you, but I don't follow 
everything. But I do support, I have read Senator Rubio's----
    Mr. Doggett. It doesn't provide a path to citizenship.
    Let me go to something you are familiar with, which was 
your testimony which I think raises the right question: Why 
should a company pay taxes to support government subsidies for 
one of its competitors?
    Mr. Edwards answered that question very specifically in 
saying the place to start is to eliminate $100 billion, almost, 
of business subsidies every year. Do you agree with him?
    Mr. Bush. Yeah. This is a place where there seems to be 
common ground. We should have a thoughtful review of all sorts 
of subsidies.
    Mr. Doggett. Well, I know we want to be thoughtful and I 
know we want to review, but you agree with him that we should 
eliminate $100 billion of business subsidies?
    Mr. Bush. With all due respect, I don't know--give me the 
specifics and I am happy to answer it.
    Mr. Doggett. I am relying on his specifics. But I will give 
you a smaller specific that I think is included, and that is $4 
billion every year in preferential tax treatment to Exxon, 
Chevron, and the other Big Five oil companies for drilling off 
our coastlines. Do you favor eliminating those subsidies?
    Mr. Bush. In return for lower tax rates, I think that is 
exactly what we ought to be doing.
    Mr. Doggett. Great. We have had discussions about 
simplifying the Federal Tax Code. Everyone is for it. But it 
has been simply impossible to get a description of any 
preferential tax provisions or loopholes that ought to be 
closed.
    Could you identify, in addition to closing the preferential 
treatment for Exxon any other tax loopholes or preferential tax 
provisions, that you favor closely?
    Mr. Bush. Well, first of all, I don't favor--just to be 
clear because this is a ``gotcha'' kind of environment, it 
seems like. I am not for specifically closing loopholes just 
for Exxon. I mean let's be clear. I would say this ought to be 
industry-wide in return for lower rates. Are you targeting--are 
you asking me, should we target one company against other 
companies?
    Mr. Doggett. I am asking you, if we were to lower corporate 
rates, which is actually something that I agree with you on, 
whether--and we are not going to borrow from the Chinese and 
the Saudis to do it--you have indicated that you would be 
willing to close the loopholes for Exxon and Chevron to help 
pay for that. And I am asking you if you can identify anything 
else, because I can't get my colleagues to do that, to identify 
any of the tax loopholes they would close. Which other ones are 
you in favor of closing in order to get lower corporate tax 
rates and not have to borrow from the Chinese?
    Mr. Bush. I would start by doing it, like maybe you all 
could come up with an idea like the BRAC Commission and start 
with all of them being eliminated and build from that basis. So 
I think the general approach ought to be that this crisis that 
we face is an opportunity to recast who we are as a Nation. And 
do we trust the American people interact amongst themselves in 
ways that have historically created more prosperity than this 
command-and-control approach that we----
    Mr. Doggett. Well, I appreciate that. And we, of course, 
have had some bipartisan commissions looking at our budget. 
Senator Domenici and Alice Rivlin, the Simpson-Bowles 
Commission, every one of them have said, We cannot get our 
budget in balance without due revenues. In contrast, Republican 
Presidential candidates, when offered the choice of $1 of new 
revenue for $10 of reduced spending, said they wouldn't agree 
to a bipartisan agreement like that. Would you?
    Mr. Bush. Ten to one?
    Mr. Doggett. Yes, sir.
    Mr. Bush. This will prove I am not running for anything.
    Yeah. If you could get a----
    Mr. Doggett. I appreciate your candor. I mean, basically, 
we cannot close the budget gap without addressing both spending 
and revenue, as all of those bipartisan commissions have 
recommended; wouldn't you agree?
    Mr. Bush. If you could bring to me a majority of people to 
say that we are going to have $10 of spending cuts for $1 of 
revenue enhancement, put me in, Coach.
    Chairman Ryan. The problem is the 10 never materializes.
    Mr. Bush. I have never seen a $10 cut.
    Chairman Ryan. Thank you for your testimony, Governor.
    Mr. Bush. That would be wonderful. Let's see it. That would 
be spectacular.
    Chairman Ryan. Mr. Lankford.
    Mr. Lankford. Thank you. Thanks, all of you, for the chance 
to be here.
    It is interesting when we talk about targeted tax cuts that 
we always do seem to go back to the same areas, that all the 
problems in America seem to reside around the energy companies. 
When I went back to the Fortune 500 list, I often hear about 
the top five energy companies there and how much money they 
make. I rarely hear anyone talk about the top five technology 
companies on the Fortune 500 list who make more than the top 
five energy companies. But the conversation is always about, 
what do we do to hit the oil companies? And it begs back to the 
same question. It is this body trying to determine who they 
like and don't like today, and then to determine tax policy to 
determine that company makes too much money and I don't like 
them; that company makes just as much money, but I do like them 
so they will have different tax policies.
    So the challenge becomes how do we handle a tax policy that 
actually reforms the system and it cleans up all the 
preferences that are out there on that? Mr. Edwards, you have 
made multiple comments on this. I enjoyed hearing your comments 
on some of the issues of how do we start the process that you 
see of working through the system here; that it doesn't come 
down to this body to determining I-like-you, I-don't-like-you, 
type politics in tax policy.
    Mr. Edwards. I think the most important tax reform we need 
in the United States is to lower our corporate tax rate. We now 
have the highest rate in the world, 40 percent with State taxes 
included.
    The chairman mentioned Canada. Canada has actually chopped 
their Federal corporate tax rate to 15 percent now. And what is 
astounding, if you look at the Canadian 15 percent Federal 
corporate tax rate and our 35 percent Federal corporate tax 
rate, in both countries the corporate tax raises about the same 
percent of GDP and revenue, about 2 percent. So what is going 
on here? The Canadians collect just as much as we do with a 
rate that is less than half as high.
    What is going on is that there has been a massive reduction 
in tax avoidance in Canada. The biggest loopholes in our 
corporate Tax Code are actually not the legislated loopholes, 
like the ones for the energy industry and the like. They are 
what I call automatic loopholes. If you have a high rate, it 
pushes companies to really bend the law, to move their profits 
offshore in fancy ways with fancy financial accounting. If we 
lowered our rate, that money would come back to the United 
States.
    You mentioned the difference between tech companies and 
energy companies. It is the tech companies that are probably 
the best at this automatic loophole stuff. Apple and Microsoft, 
for example, are great at legally moving their profits offshore 
because, of course, their production, their profits, are very 
mobile in the global economy. Intellectual property is very 
mobile. So these companies move their intellectual property 
offshore, you know, in legal ways. We can only get that money 
back if we lower our corporate tax rate. And I think that is 
the most important thing for us to do.
    Mr. Lankford. Okay. Let me mention a couple of things. We 
talked about bankruptcy as well. I am astounded at the number 
of times that we are talking about the GM bailout. And as the 
Governor mentioned here as well, that was a bankruptcy process. 
It was just tightly controlled by the Federal Government with a 
lot of new bankruptcy rules that were put into it. Many of us 
fly Delta Airlines or American Airlines, who is currently going 
through bankruptcy. There is this perception that if GM went 
through bankruptcy, we would no longer have automobile dealers 
or manufacturing because it would all go away. I will get on an 
American Airlines flight later this afternoon, currently going 
through bankruptcy. This is something that has been a 
constitutional responsibility of this body for a very long 
time.
    But again, you go back to the preferences of how we pick 
and choose what is our favorite group and how are we going to 
help them and not help another one. There wasn't a rush to go 
bail out American Airlines when they started going through 
bankruptcy. It was just a rush to go to other groups.
    Another one is the venture capital. There is an 
entrepreneur in Oklahoma City who created an incredible 
product, has made a ton of money off of it, and is spending a 
lot of his time now helping companies get started in technology 
areas. He sinks a lot of his time into that.
    This body seems to spend a lot of time saying well, we have 
access to a lot of money; maybe we should do the same things. 
This entrepreneur loves to do that kind of stuff, but it is his 
money so it is a different animal. How would you suppose we 
process through some of those areas of a startup, when we move 
from the difference of research to actually implementation?
    Mr. Edwards. Well, I mean with venture capital and angel 
investment, tax rates which I have written about, are extremely 
important. Capital gains tax rates are of course important 
because these often wealthy people and serial entrepreneurs, as 
they call them, they build up a lot of money, they invest in 
new companies. What is their return for investing in new 
companies? They pump $50,000 or $100,000 into a new company. 
They have to patiently wait a few years to see if the company 
makes it into profitability. And if it does, they get a capital 
gain as a return. So the capital gains tax is a direct tax on 
them. It is a direct disincentive for them to invest. Ordinary 
income tax rates are very important I think also because a lot 
of people in the very top income group are small business 
people and are angel investors. There are about 300,000 angel 
investors in the United States. These are rich people, like 
Bill Gates and Paul Allen and many others who spend a lot of 
time pumping money into small startups. If you raise the tax 
rates on them, they are simply going to have less cash and less 
incentive to put their money into new startup companies. So I 
really think we have to look at the tax policy to spur more 
financing of entrepreneurship.
    Chairman Ryan. Thank you. Mr. Yarmuth.
    Mr. Yarmuth. Thank you, Mr. Chairman. Thanks to the panel.
    Governor, welcome. My family owns a company based in your 
State. My brother is down there running it. Sonny's Barbecue. I 
think he even contributed to your campaign at one point.
    Mr. Bush. I like the barbecue.
    Mr. Yarmuth. Very good. Thank you. I appreciate the plug.
    I am kind of astounded in one way that throughout this 
entire conversation, there is all this talk about cronyism and 
special interests and preferences and so forth. And there has 
been no discussion in terms of how in approaching that, about 
the way these preferences get into the law. I am talking about 
the campaign finance system in this country.
    In terms of dealing with all of these things, do you 
believe that that has any role or that we ought to address the 
way we finance campaigns, particularly at the congressional 
level, where many of these preferences get put into law because 
of the lobbying and the money that is in the political system?
    Governor, first. You have seniority here.
    Mr. Bush. What is that based on, age?
    Mr. Yarmuth. Well, you testified first. That is all.
    Mr. Bush. Thank you.
    In the perfect world, we could have a different financing 
system. I love the idea of having campaigns be funded directly 
rather than indirectly and have no limits and total 
transparency. So if people were offended by a large donor, that 
the candidate--he or she would have to accept responsibility 
for the message and for the amount of money and for who gave 
it, that would be, for me a--talking about markets rather than 
government--controlled kind of response. That would be a better 
approach.
    But you know magic wands don't exist. The law exists the 
way it is. I would suggest to you that Congress ought to show 
more self-restraint about allowing that influence to change 
policy, if that is the view. I mean, this should not be a honey 
pot for people to create either a sanctuary for their own 
business, to give them an advantage at the expense of another 
business, or to give them a special deal that hinders our 
ability to recover in a more robust way.
    Mr. Yarmuth. Mr. Edwards, would you like to comment briefly 
on that? I am just curious. We have the Koch brothers, for 
instance--why not pick on energy--who said they are going to 
spend $400 million in this election. They are not doing it, I 
am sure, because they just think that we ought to let the free 
market work its will and that alternative energy should--I am 
sure they would want to promote that. I won't go into that. The 
question stands.
    Mr. Edwards. Corporate leaders, just like any Americans, of 
course, have a fundamental right to lobby or petition Congress. 
And frankly, I don't think there is anything we can do about 
that. That is a fundamental right. It is always going to 
happen. You can pass as many laws as you want. I don't think it 
will stop it. I think campaign finance laws too often act as 
sort of incumbency protection deals.
    But what you can do is, as the Governor pointed out, you 
can stop spending the money out. I think having business 
subsidy programs, you throw fuel on the fire of the lobbying. 
The more business subsidies companies like Boeing get, the more 
they are going to lobby for more business subsidies. So it is a 
vicious cycle. But the way to stop it I think is to cut the 
spending.
    Mr. Yarmuth. Congressman Waxman would you like to comment?
    Mr. Waxman. The rich and powerful want to stay rich and 
powerful. And the less government gets involved to make things 
fairer for everybody they will get richer and they will be more 
powerful. And now that we have opened the campaign laws to 
unlimited and dead-end unreported contributions from 
corporations, I don't think that the lower income people are 
going to benefit. It is going to be the well-to-do. And some of 
these guys, like the Koch brothers and the energy companies, 
they don't want competition from alternative energies. They 
want to squash competition. That is why government has got to 
be involved.
    All three of us and a number of people on the committee 
have said, Well, we certainly ought to fund research. Right now 
on the House floor, we are dealing with the appropriations for 
the energy and water bill, and we are now cutting the money for 
ARPA-E, which does cutting-edge energy research, by below the 
administration's request and nearly a third below current 
levels. So we are cutting back on research and we are hearing 
that everybody is to blame, so what we need to do is to have 
the government do less and let the rich and powerful stay rich 
and powerful.
    Mr. Yarmuth. Quick question, and I only have 20 seconds. 
Governor, I really applaud your comments about research and 
also about immigration reform. I think that is important.
    What would you say about infrastructure? Is that an 
important thing that we ought to be dealing with in that same 
category? Should we really be cutting back on infrastructure 
spending in the country right now?
    Mr. Bush. I am an old-school guy. I think that the role of 
government is to protect our shores, to provide security on our 
streets, to be the means by which we build infrastructure so 
that we can grow, and, I would add, build capacity--this is not 
the role of the Federal Government--build capacity so that 
these gaps in income are dealt with in a more fundamental way, 
which is to prepare people to be competitive in a more open 
system rather than trying to redistribute wealth and then 
provide support. So I am a conservative.
    Beyond that, then everything ought to be challenged. If you 
don't challenge it, then those things are the things that get 
squeezed out.
    Mr. Yarmuth. Thank you.
    Chairman Ryan. Thank you. Mr. Rokita.
    Mr. Rokita. Thank you, Mr. Chairman. I appreciate all the 
witnesses' testimony. It has been very educational, as always.
    Governor, my hat is off to your family as well. I associate 
myself with Tom Cole from Oklahoma. I was very proud to be an 
American last night, for how your family acted and how the 
Obama family acted. It was great to see. I hope every American 
gets to see that tape.
    I also don't think you are old-school. I just think you 
believe in the plain meaning of the Constitution and perhaps 
that it was one of the greatest documents to prove American 
exceptionalism; in fact, a unique document in that it is the 
first time those ideas ever came together at the same time in 
the same place, and I hope we never lose sight of that.
    I want to focus a little bit on my colleague Mr. Waxman's 
comments which I agree with--we have some questions to answer 
and that we are at a crossroads for the heart and soul of this 
Nation. I was intrigued, however, by his use of the term 
``rules of the road,'' as if that is what one of the groups 
around here wants to do and as if the other group around here 
simply wants to engage in anarchy, which couldn't be further 
from the truth. I think we all understand that there is a need 
for government and a need for it to have reasonable regulations 
so that there is an even playing field, so that there is an 
equal opportunity for success, if not an equal outcome. And 
perhaps that is where the difference is.
    On another level I think this is really about how much 
control is appropriate for government to have over the 
individual. And I think that is where we really disagree.
    For this last year, I engaged in my little rank-and-file 
office in a program called Red Tape Rollback. This is just one 
Congressman's work to try to roll back the scope and heavy boot 
of this Federal Government. We had 71 different Indiana 
businesses and individuals write us about 41 separate different 
regulations, and not all of them made the paper, nor should 
they. Most were very obscure. But they prove that what this 
Federal Government and what a certain group of people here in 
Washington, D.C. want to do--and that goes far beyond 
establishing the rules of the road. Several farmers wrote in 
and said, the EPA is considering regulating the dust that my 
tractors kick up as we cultivate the fields as particulate 
matter. That is not establishing the rules of the road. Another 
group of farmers wrote in and said, you know what, they want to 
limit the kind of work that farm kids do.
    This country was built on work ethic and character and 
liberty and all those qualities in past generations, and in the 
current generation, occurred through work on a farm and work in 
other places.
    The Department of Labor is also considering prohibiting 
youth soccer referees--right--I used to be a referee. I played 
soccer. I ref'd for a while as an adult. The Department of 
Labor is considering prohibiting these kids from earning the 
$10 a game from refereeing little soccer games that happen on 
the weekends and after school all over this country. For some 
of us, that is establishing apparently the rules of the road. 
For others of us, that goes way beyond and is unnecessary.
    I don't know any other country on the face of the Earth 
that is more masochistic than we are when it comes to sucking 
or carving something out of the ground, like coal or oil, and 
considering it wealth. Every other country understands this and 
exploits it, in the best sense of that word, to its benefit, 
except for a group of people here in America who can't 
understand that. That is beyond the rules of the road.
    What also is beyond the rules of the road is that we, as 
American people, are getting told what light bulbs to use, how 
much water can be in our toilets, that a farmer not only has to 
get a permit to use pesticides on his crops but has to get two 
or three pesticide permits from the same agency. There is a 
medical device tax being proposed. There are 300 medical device 
companies in Indiana, all of them started through 
entrepreneurship, another foundation of this country. Yet we 
somehow think--at least a group of us think--that it is within 
the rules of the road to put a tax on these folks and think 
that they are going to keep innovating, that they are going to 
keep creating.
    That is just a couple of examples in this document. Mr. 
Chairman, I thank you for the time. I yield back. And I thank 
the witnesses again.
    Chairman Ryan. Thank you. Mr. Honda.
    Mr. Honda. Thank you, Mr. Chairman. And I want to thank the 
panelists for being here this morning.
    I am a classroom teacher. I am not a financial expert. But 
I felt like we bounced all over the map when we talked about 
the title is free enterprise and barriers to free enterprise. I 
heard from each one of you things I do agree with, and some of 
you I disagree with very strongly. But I guess what we are 
hearing are high points and low points of each other's parties 
and positions. I think this country is looking for some 
balance.
    So I guess what I will ask each one of you, what do you 
agree with and what do you disagree with on each other's 
presentation in terms of, you know, looking at a balanced 
approach to our economy, a balanced approach to being fair to 
each of our citizens in this country, and do you really think 
that money behind each person is the factor that gives power to 
a vote? I mean, it seems like when we talk about votes, we talk 
about money first, rather than the power of each individual's 
singular power of their own vote. One man, one vote, regardless 
of their standing.
    Where would we be today in this country if each person had 
the same amount of votes without reference to their economic 
standing or the power of their pocket? And how do you think 
that will affect our economy in this country?
    Mr. Bush. We would be in a heap of trouble. Empowering 
people to make decisions for the future of the country is the 
path. I agree with what you are saying, Congressman, 
completely. As it relates to money and politics, we basically 
have parity. Both sides effectively spend about the same amount 
of money if you total it all up. Four years ago, I think maybe 
President Obama and his team probably spent significantly more. 
This time it looks like it is about the same.
    Mr. Honda. Excuse me, Governor. With respect to one person 
and one vote without respect to their pocketbook.
    Mr. Bush. I am for it.
    Mr. Honda. And you were just going through a comparison 
between if you had the money and how that would be different in 
the outcome.
    Mr. Bush. All I am saying is that money goes to both 
parties. It is an equal opportunity funder.
    Mr. Honda. Mr. Edwards.
    Mr. Edwards. Well, I mean, you are suggesting that because 
you know the wealthier, they are more powerful and they can----
    Mr. Honda. I am not trying to suggest--I am just asking 
you, if the situation exists that each person had a vote and 
that one vote counted without respect to their pocketbook, how 
would that be different than what we are looking at today?
    Mr. Edwards. I mean, it is sort of like a political science 
question. It seems to me the main reason why policymakers, 
Members of Congress, make decisions because of the voters in 
their districts. It is actually not money. It is what they 
think the voters want in their districts. So I think we already 
have sort of an equality between voters like that.
    Mr. Honda. Then why do we need Supreme Court decisions that 
define corporations as individuals rather than individual 
people, human beings having the power for that vote?
    Mr. Edwards. You know I don't buy the line--the thing 
someone mentioned earlier, the idea that corporations have so 
much power in Washington, more power than anyone else. If that 
was true, why do we have the highest corporate tax rate in the 
world? If corporations were so powerful they would have cut the 
corporate tax rate and they would have done all other kinds of 
things to benefit them. I think the problem is that 
corporations spend all their time pushing for these narrow 
benefits just for their company, often to get a competitive 
advantage against other businesses. So I want the government in 
the economy to be a referee to provide equal treatment. So I am 
against any kind of unequal treatment for businesses or 
individuals.
    Mr. Waxman. Mr. Honda, Chairman Ryan talked about the 
special interests here in Washington and how they influence 
things to get their way, often at the expense of ordinary 
taxpayers. He is absolutely right. But we have now opened up 
the special interests to win elections by distortions.
    For example, there is a fantasy that has been circulated 
that EPA wants to regulate farm dust. And this was referred to 
a minute ago. That is just not true. They are not even 
proposing anything like that. But that example, promoted by the 
special interests, is being used to undermine a bill that 
Governor Bush's father signed, which was the Clean Air Act, 
which called for regulation of arsenic and toxic pollutants for 
mines and power plants and other industrial facilities that 
poison kids. Kids get their minds destroyed, often before they 
are even born, because of exposure to these chemicals.
    So they take a little example that doesn't exist, blow it 
up. You don't even know who is paying for the ads. And then 
they get their way to try to repeal--the Bush that I respected 
the most, President George H.W. Bush's, greatest 
accomplishment--only because I don't know Governor Jeb Bush 
well enough--to regulate. And you have got to have regulations 
because the benefits from regulations so heavily outweigh the 
costs in terms of protecting people's health, saving lives, 
promoting a community that can work together and accomplish 
great things. So money speaks very loudly. And that Supreme 
Court decision gave a big megaphone to people who have a lot of 
money.
    Chairman Ryan. Thank you. Mr. Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman. And I want to thank 
the panel for being here as well. I have really enjoyed the 
conversation so far. And I want to just pass on to Governor 
Bush, I had the chance to visit with your son George within the 
past year and we have exchanged some emails and he is a great 
guy, and I am really glad to get to know him as well, and I am 
sure he reflects the values that you have taught him well. But 
I appreciate your family.
    And also I, I want to talk about States rights, States 
responsibilities and actually where the States are the solution 
to the problems that we have. I really do believe that the 
States are going to be the solution to the problems that the 
Federal Government has created and has been a major part of.
    I was in the Indiana legislature in 2005 when Governor 
Daniels was elected. And we had a transportation hole to fill. 
And we were talking about Garvey bonds, we were talking about 
gas taxes, and none of those were the good options. None of us 
felt that that was the right thing to do, to either raise taxes 
or to borrow more money from the future. So Indiana leased the 
toll road that we have in Indiana for $3.8 billion from the 
private sector. Now Washington is wanting to punish Indiana 
because we were creative, we were trying to find other ways of 
funding transportation programs.
    Governor Bush, if you could talk a little bit about that. 
And also, Mr. Edwards, if you could talk about that. And 
Congressman Waxman, coming from the State of California that 
has a lot of fiscal issues as well, talk about where the States 
can--why can't we allow States to be creative in finding 
solutions like that within the States, and why it is important 
that Washington shouldn't punish those States for being 
creative?
    Mr. Bush. Well, thank you, Congressman. Personally, I loved 
that deal because they overpaid. So in this case, Indiana 
leased out a road that effectively people from Illinois and 
Ohio paid disproportionate fares for, to get to and from and 
the money was reinvested in infrastructure in places where, 
disproportionately, Hoosiers got the benefit from the 
infrastructure. It was a very creative deal.
    And, interestingly, around the world, this is commonplace. 
Center left, center right, it doesn't really matter. The 
administrations, it seems as though this idea of private-public 
partnerships is very common. In the United States, with huge 
infrastructure needs as we have discussed, has lagged way 
behind other countries in this regard. So this is an example 
of, well, We must do it the way we have been doing it because 
we were doing it the way we were doing it, rather than pausing 
for a moment and saying, Are there best practices that we could 
apply from other places to maybe create more creative 
approaches. And I think you are right, to allow States to be 
the laboratories for this to work out would be a great idea.
    Canada, to use the Canadian example, again, of 
transformation which has allowed them to weather these huge 
storms that our country is facing right now far better than we 
did. Their reforms and their pension obligations and their 
spending and the things that they did to get their government 
back to a proper level were done under conservative and liberal 
administrations. This was not as an ideological battle, it was 
simply a recognition that there are structural problems that 
exist. Fix the structural problems. That seemed to be the duty 
of leaders in Canada. And now they are paying a huge dividend 
because of it.
    So I will give you another example real quick. Medicaid. We 
got under--I guess the Bush that you don't like as much as 41--
I got a waiver or the State got a waiver to try a different 
approach on Medicaid that now is based on independent analysis. 
It has been proven to be more effective and at a lower cost, 
where we moved effectively to a defined contribution system, 
away from a pay-and-chase system that the Federal Government 
pays enormous amounts for. We got better health care outcomes. 
We empowered people to make decisions for themselves, and it 
yielded a better result.
    Now that pilot that exists--now there is--the State law has 
changed based on that. I think the law is even better than what 
we proposed. It was modified based on seeing what the pilot 
yielded. And now they are in front of President Obama's 
administration to see if they can get an extension of the 
waiver, and it is possible that they will.
    Mr. Waxman. Mr. Stutzman, you are absolutely right, letting 
States try things out on their own. In California we adopted a 
medical malpractice law that has held down insurance rates for 
doctors. So what do the Republicans want to do when faced with 
the failure of 30 million, 50 million people without getting 
insurance? They say, Oh, let's adopt a Federal law, take the 
power away from States and have one-size-fits-all medical 
malpractice. And that is their solution to health insurance 
inequities where people can't buy insurance because the 
insurance companies discriminate against them. Let the States 
do things. Let's not preempt them. We are going to learn a lot 
from them.
    Mr. Stutzman. Can I count on you to help me stop the 
punishment from Senator Bingaman to punish Indiana for the 
lease of the toll road? Would you help me with that?
    Mr. Waxman. Well, I would certainly want to learn more 
about it. And if I can help you, I would be glad to.
    Mr. Stutzman. I yield back, Mr. Chairman.
    Chairman Ryan. I will let you guys do a colloquy later. 
Another Californian, Ms. Bass.
    Ms. Bass. Thank you. Mr. Waxman, I have two questions. I 
want to get my questions out and then let you have the rest of 
the time.
    After July 2010, the government ended subsidizing banks to 
make federally guaranteed student loans. Switching to a 100 
percent government direct lending saved taxpayers $61 billion 
over 10 years. I wanted to know if you thought reforming the 
student loan program was in the best interests of the taxpayer 
and put the students first.
    And then my second question involves a hearing that you had 
in 2008 where you held a series of hearings with the CEOs of 
Lehman Brothers, AIG, and others into the causes of the Wall 
Street collapse. So I wanted to know if you could share what 
you learned from the testimony that was given in particular 
about the need of the government to regulate.
    Mr. Waxman. I think there are a lot of people who look at 
the law and then try to figure out how to get around it or 
abuse it. You see that in the tax system all the time. They 
have to pay their taxes but they look to see if they can expand 
loopholes to their benefit. And that means that sometimes we 
have to look at the laws and revise them.
    The student loans have been abused a lot by the private 
colleges that get students' Federal loan money and then don't 
really deliver the education that they prompted to these 
students. That is one abuse. The other is that we have a chance 
to lower the interest rates for students that are struggling 
under the cost of student loan higher interest that are going 
to come about if we don't change the law. And we have been 
trying to figure out how to pay for that. So the Republicans 
say, Let's take away preventive health care. That makes no 
sense. We ought to prevent diseases rather have to pay to treat 
them later.
    They have come up with a new proposal I read about in the 
paper today that they want to take away--Governor, you would be 
interested in this--they want to take away the ability of 
States to raise money for their Medicaid costs through taxes on 
the providers. It has been used by many States--I don't know 
about Florida, but it has been used in California. If the 
States can't come up with their money, the States can't provide 
service for the very poor. So we are being told we have got to 
cut the benefit for health for the very poor, usually disabled 
people, in order to pay for student loans? That doesn't make 
sense to me.
    We had a lot of interesting hearings about what happened in 
2008. And the most dramatic one to me was when Alan Greenspan, 
who had the power as the head of the Federal Reserve to 
regulate some of these loans that were being used for mortgages 
and then diced and sliced and sold off, that brought about the 
downfall. And he had the power to regulate, and he didn't. And 
I asked him whether his ideology kept him from recognizing the 
failure in the market. And he said he was absolutely shocked, 
that he was blinded by his ideology, that he thought markets 
would correct themselves.
    Now what I am concerned about, Chairman Ryan, and others, 
is that there is too much of a faith that markets are going to 
correct themselves, that businesses will do things right. Well, 
they will if they have the rules of the road to regulate them, 
to be sure they don't abuse their powers, because often they 
are very powerful and they want to squelch out competitors. And 
it also means that you have got to protect the public health 
and well-being.
    So one of the biggest problems for the 2008 recession was, 
whatever laws we had, they weren't being enforced. Laws that 
could have been adopted were not adopted by the Federal 
Reserve. And the cops were not there to tell the banks, You 
just can't use other people's money and take these kinds of 
risks. That was something for both parties when we did away 
with the Glass-Steagall restrictions, which came about during 
the Great Depression, when we said, Banks, we are going to 
protect you with Federal dollars but we are not going to let 
you take depositors' money and take risks with them. And that 
was repealed under President Clinton, with strong bipartisan 
support--I voted against it--and it allowed the banks to take 
all those risks. And with those risks, the taxpayers ended up 
having to pay the cost. And a lot of people are still suffering 
because of unemployment.
    Ms. Bass. With the remainder of your time, if you would 
like to elaborate some on the document that Mr. Rokita had 
about regulations.
    Mr. Waxman. Oh, well, he gave a bunch of examples that I 
couldn't agree more with, stupid regulations. We don't want 
stupid regulations. To say that regulations are all stupid, 
that is just--we don't want that. But regulations are needed in 
order to protect the public interest.
    President George H.W. Bush signed the law that put in place 
a cap-and-trade program that told private enterprise, You 
figure out how to reduce the sulfur emissions that are causing 
acid rain. They are killing the forests and the streams in the 
Northeast and in Canada. And he said, We can't allow that. So 
we said, You have got all the market incentives. Industries 
came in and said, oh, my God, we will go bankrupt. Well, they 
did it at a fraction of the price that they said it would cost 
them, and it was successful.
    Chairman Ryan. Thank you. Mrs. Black.
    Mrs. Black. Thank you, Mr. Chairman. This has been a very 
interesting conversation. Mr. Edwards, we have talked about tax 
deductions and subsidies a little bit. But one program that I 
have become aware of in my last 16 months since being in this 
office and visiting a number of the industries in my district, 
those that are in the food production area have made me aware 
of market allotments, something that I guess I really didn't 
know much about until I had them educate me. But the fact that 
we in the sugar program have market allotments to certain 
producers based on their history and their expected 
productions, this has made it extremely difficult for new 
entrants to come into the market, which they tell me really 
does cause an unnatural high cost for sugar.
    Does the sugar program, through these market allotments, in 
your opinion, provide a structural barrier to entry?
    Mr. Edwards. Yeah. Actually the sugar program is something 
I have written about. And it is an interesting example of 
corporate welfare that is basically off-budget. It is a 
regulatory corporate welfare program. Basically, in my view, 
the United States has kind of a Soviet-style system for sugar 
production. We have import barriers. We have detailed quotas. 
We have loan programs that essentially guarantee the price. And 
I think, unfortunately, what it does is, by blocking entry into 
the industry, it raises the domestic sugar price that usually, 
you know, the price varies. But it is usually about twice the 
world sugar price. And the effect of that is not only to hurt 
consumers--and there has been Department of Commerce studies on 
this--it hurts consumers by the tune of about $2 billion a 
year. But it also hurts U.S. companies that produce food items 
with sugar, so companies like Kellogg and companies that make 
chocolate bars and confectioneries and that sort of thing, they 
have had to move their production out of the country to either 
Canada or Mexico to access the lower-priced sugar. So the sugar 
program in my view is an example of its corporate welfare. It 
has actually helped some sugar producers but it creates this 
broader damage to other businesses.
    Mrs. Black. I do want to note that one of the pieces of 
information they gave me was an actual advertisement that was 
coming from the Canadian companies to say, Produce your cake 
here in the United States, but send it to Canada to get its 
sugar frosting, because they can save so much money. And this 
is truly happening. So we see now a market that is moving into 
Canada, taking jobs away from us, and then also increasing the 
costs to the consumer at the other end. So I appreciate your 
information on that.
    Are there other market allotments that you would raise up 
here besides the sugar?
    Mr. Edwards. The milk program. We have a similar sort of 
program with U.S. dairy production, milk and cheese and the 
like. Essentially it acts the same way. It is sort of 
competition for--it blocks competition in favor of existing 
producers and it pushes up the price of milk and dairy 
products, which often hurts lower-income Americans, for 
example. So I think that there is a lot the Federal Government 
does that helps certain businesses, but it actually hurts 
consumers and particularly lower-income consumers.
    Mrs. Black. Thank you so much.
    And Governor Bush, I want to go to--since I was in State 
government and we had TennCare in the State of Tennessee at the 
same time that you were dealing with your Medicaid issue, and 
we were looking at your State as the model for a defined 
benefit for those who are on Medicaid. And I know it was a very 
successful program. Unfortunately, I didn't have the kind of 
support I needed to bring that same model to the State of 
Tennessee.
    But given what you are saying about the success there, 
would you agree that block-granting Medicaid may be a more 
effective way, an affordable way, for States to come up with 
their own ingenuity on how they can best provide for those who 
need that safety net?
    Mr. Bush. I do. I think that there ought to be a careful 
review of the rules that go along with the block granting. You 
have to apply--if you don't get a waiver from some of the 
requirements, that would be a challenge. But it is a far better 
approach to be forced to innovate because State budgets--I 
don't know if there is a single State that doesn't have a 
challenge with their Medicaid budget. And they are forced then 
to either stop spending on other things--because we have 
balanced budget requirements--or reform how Medicaid works.
    So being given the freedom to reform and innovate in return 
for some fixed amount of money that would come--in our case I 
believe we were probably one-half of the growth projected--that 
we gave up that half of the growth in return for the ability to 
innovate, that that is a good trade-off.
    Mrs. Black. Well, thank you for that because I think too 
many times we just continue to think about taxing and bringing 
more revenue through taxing to help subsidize these programs, 
and yet there are some innovative ways to do it using market 
competition. I yield back my time.
    Chairman Ryan. Thank you. Ms. Castor.
    Ms. Castor. Thank you, Mr. Chairman. And welcome to our 
panel. If I have learned anything in my 45 years is that 
nothing is black and white. There are very few absolutes in 
this world. And that is one of the reasons that I think the 
extreme Tea Party ideology is so divorced from reality. Free 
enterprise and government are not either/or propositions. Thank 
goodness we have both. And we celebrate capitalism and free 
markets in America.
    But I hope that we recognize that after living through the 
worst economic collapse in our lifetimes, that reasonable 
oversight of Wall Street excess is important.
    Now when we talk about government in America, I view 
government as a way to secure opportunity for all. In fact, 
Thomas Jefferson wrote in the Declaration of Independence that 
we are all endowed by our Creator with certain unalienable 
rights; among these are life, liberty, and the pursuit of 
happiness. But then Jefferson went on and he said that to 
secure these rights, governments are instituted.
    People want good government. And thank goodness in this 
230-year-plus experiment that has created the greatest Nation 
in the world, we have successes to celebrate in government. 
When other countries look at us, they see the premiere 
government-funded medical research center second to none across 
the globe. We can build bridges, airports. Our commitment to 
taking care of our veterans is second to none across the world. 
That is something government does a pretty darn good job of. 
And our public schools and our colleges and universities are 
the envy of the world, and people want these institutions to 
succeed.
    That is why I just don't understand this kind of extreme 
Tea Party ideology that says government has no role to play and 
the free markets are the answer to all. Because really what I 
think drives citizens crazy more than all, are these 
impediments to free enterprise and good government, when 
special interests achieve an unfair advantage, whether that is 
in business or these special interests use campaign 
contributions or their political influence to gain an undue 
advantage when it comes to public policy.
    I have seen it in the State of Florida. We have a 
fundamental discriminant policy over education. Governor, you 
are an outspoken advocate for school vouchers. I don't think 
that is a secret.
    I view vouchers as kind of a corporate welfare scheme, 
where you are taking money from the public schools, undermining 
their mission, giving those funds to private for-profit 
centers. I think it is oftentimes those vouchers come with no 
accountability for a student's success or fiscal responsibility 
or oversight of those profit centers. And I fear that what is 
happening with your push to take taxpayer dollars and give it 
to the digital classroom as a substitute for a good teacher--a 
good classroom as a supplement, fine--but to drain public 
resources and hurt our public schools by focusing on a digital 
classroom that have a poor record of student success I think is 
questionable.
    So here is the inconsistency: Vouchers, digital schools 
without classrooms, I think you could include private for-
profit tutoring companies that came in under No Child Left 
Behind. These are not free enterprise, are they? A free 
enterprise in education would be an independent private school 
not dependent on government funds. But what we have here are 
government-backed, government-funded businesses. What do you 
call it when a private for-profit business uses its political 
contacts to get the government to direct money to private 
business rather than public schools? Is that--you said honey 
pot. Is that capitalism, ``crony capitalism'' the chairman has 
thrown around here, or just effective lobbying?
    So the National Education Policy Center wrote in a recent 
report that these policy prescriptions are part of a corporate-
driven agenda to access public education funds. These folks 
talk about the free market, but they couldn't exist without 
taxpayer dollars.
    Chairman Ryan. Since you used up all your time for the 
preamble and the question, and it is directed straight to 
Governor Bush, go ahead, Governor Bush, and take time to 
respond.
    Mr. Bush. The voucher programs that exist are three in 
Florida. You have a corporate tax scholarship program where 
companies voluntarily give a dollar-for-dollar credit to an 
organization that is not for profit, that provides for low-
income Floridians a chance to go to a private school. The best 
I can tell, every one of those is a not-for-profit, not a for-
profit.
    We have a McKay scholarship program which says that if a 
parent is not satisfied, based on Federal law, with the 
individual education plan under the IDEA law, that they can 
take, dollar for dollar, the money that is not the government's 
money; it is their money for their child to go to a private 
option. The best I recall every one of those entities is a not-
for-profit as well.
    So to use the Thomas Jefferson analogy, I don't think that 
President Jefferson, if he knew that we were spending at the 
level we were spending, if he saw the size and the scope of the 
Federal Government, he would be appalled. Why not empower 
people that don't have choices to be able to--be able to go to 
another option? It has worked. Public schools in the State of 
Florida are better off based on the only measurement that 
matters, Congressman Castor, which are outcomes. Based on the 
NAEP scores, public schools are better. We have gone from, for 
example, 29th out of 31 in fourth grade reading, to something 
like now I think we are 11th out of 50 States.
    Ms. Castor. But those same accountability standards have 
not been applied to many of----
    Chairman Ryan. The gentlelady's time has expired.
    If we give you 10 minutes, then everybody else. So the time 
for the gentlelady has expired. He gets time to respond since 
you used up all your time to ask him a question.
    Mr. Bush. On digital learning, a great majority of the 
courses on digital learning will be done in the classroom, 
high-quality content brought in. Using the Internet and the 
abilities for adaptive software to enhance the learning 
experience seems to be a 21st century solution that ought to be 
embraced by everybody. In fact, a great majority of people in 
the States, left and right, are supporting this. Thank you.
    Chairman Ryan. Thank you. Mr. Huelskamp.
    Mr. Huelskamp. Thank you, Mr. Chairman.
    And Governor, I want to thank you for being here. And I am 
glad the gentlelady--or I guess you brought up the McKay 
Scholarship issue. That is I think a tremendous model for 
providing options for special needs children and their 
families. It has been a very successful program.
    I also applaud the State and your efforts on Medicaid 
reform and actually presenting some options. I come from the 
State of Kansas. We tried to emulate and implement some of 
those, even under our former Governor, who is now head of the 
HHS. It is kind of interesting that we put some proposals 
before her as a State that she wanted to do when she was 
Governor, so I look forward to her approval of those.
    But one thing I want to talk about this morning is the 
Obama jobs deficit, though. Based on the projections from the 
administration that with their stimulus package, that if 
nothing had passed in the stimulus package they projected the 
unemployment rate today, this month, would be 6 percent if 
nothing was done. It is sitting at 8.2 percent. The Obama jobs 
deficit is a 13 million dollar--13 million job failure that 
they failed. Its impact has not worked.
    And I will ask Chris and the Governor as well, can you tell 
us why you think that stimulus plan failed? Again, it is going 
to cost us about $1.1 trillion. So I open it up for that 
question.
    Mr. Edwards. I think it is astounding. I think the Governor 
mentioned that it is the slowest recovery of any of the 
recessions since World War II, which is remarkable. I think, 
you know, what market economies do when they are left alone is 
they naturally adjust, prices and wages adjust, and the economy 
starts growing again. We have seen that in every recession that 
when the government leaves it alone, it naturally starts 
growing again. Go back to 1921, there was a terrible recession; 
unemployment soared to 15 percent. But the government at the 
time, Congress at the time didn't do anything, and the U.S. 
economy very quickly adjusted and started growing again. I 
think that there has been lots of mistakes.
    I think the jobs problem I think is ultimately a business 
investment problem. If you look at the national income accounts 
data, U.S. companies are not building new factories. They are 
not expanding their factories. They are buying equipment. 
Investment and the like has recovered. But investment in new 
factories has not recovered. It plunged, and it is at very low 
levels today. When businesses invest, they need to hire new 
workers. And so we need to get the business investment first, 
which is why I have suggested corporate tax rate cuts.
    I think there has been lots of mistakes. I think the 
extended unemployment insurance benefits artificially pushed up 
the unemployment rate. If you have unemployment benefits the 
last 2 years, you create this national incentive for people not 
to make the tough decisions they need to to go out and find 
jobs. So, you know, I don't believe that the basic idea of 
Keynesian spending stimulus works. We have had trillion dollar 
deficits 4 years in a row now. So, even this year, the 2009 
stimulus bill has basically already ended, but we have still 
got a trillion dollars of so-called stimulus with the Federal 
Government deficit. That is, in basic sort of textbook 
Keynesian terms, that is stimulus. And yet look at the results. 
The results are still very high unemployment.
    So I don't think this model works. I think when the 
government spends more money, it takes money away from the 
private sector. I think the private sector is more efficient. 
So the bigger the government gets, the more you push down GDP. 
And it just hasn't been working.
    Mr. Waxman. I had an employer in my area tell me I don't 
care how much they give me in tax breaks, I am not going to 
hire more people unless there is a demand, unless the economy 
is growing. And we see in Europe the idea of austerity; it has 
put England into a double dip recession. We see people all over 
Europe bridling under the yoke of this austerity notion.
    What we needed to do in this country was to work together 
on a bipartisan basis to do something about it. But everything 
that the President Obama proposed the Republicans opposed. And 
I haven't heard any jobs proposals from the Republicans except 
give upper-income people more tax breaks.
    Mr. Huelskamp. Mr. Waxman, I appreciate that. I do have a 
question for you.
    Mr. Waxman. Oh, good.
    Mr. Huelskamp. And it would be great for you to defend a 
stimulus that is 13 million jobs short of what the President 
promised us. And I wasn't here. And I presume you voted for it. 
But one thing that has bothered me on the regulatory side as 
well is this idea that--and I want this question asked for you 
because it is a question constituents ask me. And they say, 
Congressman, do you think Washington politicians and regulators 
can make better decisions than businessmen and women? And that 
would be my question for you.
    Mr. Waxman. That is a good question. There are things 
called market failures.
    Mr. Huelskamp. And there are things called government 
failures.
    Chairman Ryan. Let's let him answer the question.
    Mr. Waxman. There are market failures. And that is where 
government needs to step in. For example, if you don't regulate 
pollution, the waste disposal into the air would be free. The 
market provides no incentive for polluters to control 
pollution. It imposes social costs on everybody in terms of 
disease and death that far outweigh the costs to clean up.
    The other area where there is a failure of the market is 
insurance companies. I have so many people tell me I want----
    Mr. Huelskamp. Could you answer the question, Mr. Waxman?
    Mr. Waxman. You asked me about----
    Mr. Huelskamp. I am out of time. I am wondering if you 
could answer the question.
    Mr. Waxman. On the stimulus? I am trying to answer your 
question.
    Mr. Huelskamp. Yeah.
    Mr. Waxman. The market failure of insurance for health 
care. People cannot buy it if they have preexisting medical 
conditions. You can't blame the insurance companies, because if 
they have to provide insurance coverage for sick people, they 
have to raise the cost of insurance for everybody. So the idea 
behind the Romney plan in Massachusetts and the Obama plan here 
was to spread the costs out with the requirement that everybody 
participate. Stimulus, either by tax cuts or direct 
expenditure, is what you need when there is strong unemployment 
to get people back to work. And that is what we needed to do. 
And I wish there were some Republicans who would have helped. 
There was not a single Republican in the House that voted to 
help President Obama.
    Chairman Ryan. Thank you. I think you did answer his 
question, but I want it keep on time.
    Mr. Ryan.
    Mr. Ryan of Ohio. Thank you, Mr. Chairman. We have covered 
a lot of ground here this morning. And I just want to kind of 
go back over a couple things. One, first of all, with the auto 
bailout and the government getting involved, the reason the 
government got involved is because there wasn't any private 
sector money to help marshal them through this bankruptcy. A 
State like Ohio, one in every eight jobs in Ohio is tied 
directly to the auto industry. And they are good manufacturing 
jobs. We would have lost a lot of those.
    And I will tell you that it was my Republican car dealer 
friends who were coming to Washington, D.C., weekly to tell us 
how we needed to do this. And I will quote here about Bob Lutz 
from General Motors, the vice chairman, also happens to be a 
Republican, talking about some of other Republicans letting the 
auto industry go belly up. He says, quote, ``It is once again 
the fiction that ah, we didn't need the government and this 
could have been a privately run bankruptcy with the normal 
chapter 11. What these people always deliberately forget is 
there was no money. Nobody had any money.'' And that is why the 
government had to intervene. And for those of us in Ohio, we 
are very, very glad that they did.
    Also there was an issue of, and I think it is this balance 
between public-private partnerships. And the gentleman from 
Indiana talked about the Indiana turnpike. I think it is very 
important for those people who are listening to know that the 
tolls on the Indiana turnpike have doubled in the last 5 years, 
because you are not only maintaining the road, you are not only 
making sure it is cared for, you also got to factor in some 
profits. So the tolls on the Indiana turnpike that have been 
privatized have doubled in the last 5 years.
    Mr. Stutzman. Would the gentleman yield?
    Mr. Ryan of Ohio. Sorry, man. I only got 5 minutes.
    Mr. Stutzman. Be glad to talk to you about it later.
    Mr. Ryan of Ohio. Be happy to. Can't alter the facts, 
though, and those are the facts.
    The other thing that you mentioned, Governor Bush, and I 
agree with you wholeheartedly, was the issue of Canada, how 
Canada solved their problem by the Conservatives and the 
Liberals coming together to solve the problem. The issue in 
Canada, though, is that the Conservatives in Canada would be 
moderate Democrats in the American political system. And there 
is no question about that as well. And so what we are trying to 
argue here is that it is going to take a balance, it is going 
to take both parties. And it has got to be a moderate approach, 
like I think you probably espouse, and like your father 
certainly espoused as well. Is that--down the middle. Be happy 
to, if you want to comment on that.
    Mr. Bush. Well, structural reform is not really 
ideological, but it did take outyear entitlement costs and 
pension costs and modified them in a way that made it possible 
for them to reduce their size of their government as related to 
the size of the economy. Now, I am not sure that is a--that is 
not an ideological thing, but it is reality checking. When you 
have structural problems you have to pause and deal with them. 
And many countries do that. And, you know, so I would disagree 
that Conservatives are moderate Democrats or moderate liberals 
or whatever.
    Mr. Waxman. Nobody in Canada said, take away their health 
care for all the people. They said let's do some things on a 
bipartisan basis that make sense.
    Here we have proposals to cut the safety net out of the 
poor, take away the guaranteed benefit for Medicare so that 
millionaires and billionaires can have tax cuts. That makes no 
sense to me. And I don't think it makes sense to the American 
people.
    And the auto bailout was a success. Why are we fighting 
against what was a success?
    Mr. Ryan of Ohio. I agree.
    Let me just ask Governor Bush one question, because I think 
the debate of investments and what the role of government is 
today I think is a very important question for us. And I know 
that in the Florida budgets, when you were Governor from 1999 
to 2006, had went up significantly from $48 billion in 1999 to 
$74 billion in 2006. And my question is just what were the 
investments that were made? What were the priorities that were 
given? And explain some of those increases, and has Florida 
yielded some of those benefits from the investments that you 
made?
    Chairman Ryan. You have 30 seconds left. So if you are 
going to ask him a big open-ended question like that, give him 
a second to answer it.
    Mr. Bush. The largest increase was our Medicaid budget, 
which the Federal Government was our partner in increasing. And 
it grew dramatically because we had no control over it. We did 
spend increased money in real terms on public education. We 
increased money on land conservation and things that--the 
objective was to take one-time moneys as best as possible and 
spend them on long-term things. So we created a research focus 
of taking one-time moneys to spend over the long haul and 
brought five or six private research institutes from 
California.
    And so, you know, we did, we prioritized. Our government 
grew slower than personal income growth in the State. We had 
22,000 fewer State workers, in spite of the growth of the 
government. And I think our job creation in the State, not 
because of the government, but because it was--they were good 
times and we had a good business climate--grew faster than 
any--we created more jobs than any State in the United States, 
roughly about 20 percent of all the jobs during that period. So 
it was a different time than we are in right now, that is for 
sure.
    Chairman Ryan. Thank you.
    Mr. Ribble.
    Mr. Ribble. Thank you, Mr. Chairman. Thanks to the panel. I 
will get right at it, since I only have 5 minutes. Mr. Edwards, 
if you had--let's just say the existing Tax Code disappeared 
and you had a blank piece of paper in front of you. Would you 
tell me your top three principles that you would use as your 
guide in writing a new Tax Code?
    Mr. Edwards. Yeah. I would say economic efficiency, 
simplification, and visibility and transparency. So, you know, 
economic efficiency, the key is lowering marginal tax rates. 
And the chairman's plan certainly does that. Lowering rates 
down to 10 and 25 percent.
    Simplification: The Tax Code is usually complex, especially 
for business and small business. That is just a compliance tax 
on the overall economy that doesn't do any of us good.
    And transparency and visibility: I would take steps, for 
example, Americans only see half of the Social Security and 
Medicare tax on their pay stubs every couple of weeks. So they 
only know half the giant costs of Social Security and Medicare. 
I would make that visible on pay stubs. So that is the type of 
thing I would do.
    Again, I would say the most important thing, economic 
efficiency. Lowering the corporate tax rate is the single most 
important thing we can and should do in this country. And 
again, that has been a bipartisan reform around the world. I 
mean, even the most socialist welfare states in Europe, France 
and the like, have chopped their corporate tax rates just 
because of this realization that they want their businesses to 
do well in the global economy. And we should do the same.
    Mr. Ribble. Just a quick follow up on that. Where does any 
corporation get the money to pay the taxes? Where does that 
money come from?
    Mr. Edwards. Of course, corporate taxes are really--the 
ultimate burden lands on either workers, consumers, or workers 
for corporations. Every economist, left and right, agrees with 
that. There is disagreement about where corporations actually 
push down the burden. But in a global economy, the general rule 
is that the burden lands on the most immobile factor of 
production. The most immobile factor of production is labor. So 
economists more and more agree that the corporate tax burden 
ultimately lands on labor, American workers. And there has been 
studies by AEI scholars and others that find that most of the 
corporate tax burden has the effect of lowering wages of 
workers.
    Mr. Ribble. Thank you.
    Governor, what would be your principles?
    Mr. Bush. Those sounded pretty good to me. Simple, 
transparent, and at a place that creates, you know, the most 
efficiencies for economic growth and for the government to 
receive the revenues that they need to do the basic things.
    Time and time again you see examples of higher rates not 
necessarily yielding higher revenues for government. So there 
is a point where there is a balance, you know, there is an 
efficiency, a place of efficiency where the rate will yield a 
greater amount and will create--at the same time create 
economic activity, which is really ought to be the objective. 
Because a growing economy based on our Tax Code creates far 
more revenue for government, disproportionately more.
    Mr. Ribble. Can I do a follow up question on that topic? If 
we reform the Tax Code to eliminate the expenditures, take the 
savings and apply it to a lower rate that is essentially the 
effective rate, which is what it is, have we really done 
anything to gain competitiveness? Or do we need to go below the 
effective rate?
    Mr. Bush. I think the first thing that happens when you do 
that is that you are shifting power away from Washington and 
the surrounding areas, which is probably the place of greatest 
economic prosperity right now, back to the rest of the country, 
where decisions, economic decisions are made by individuals 
that want to risk their capital and pursue their dreams. Right 
now, you know, it is fun to go to Dulles Airport and drive by 
there. These are major companies that have huge growth, lots of 
construction, housing prices are incredibly high, income levels 
here are the highest in the country. And why is that? I am sure 
that Maryland has a great business climate, and so does 
Virginia. But it is because this is a source of business now 
that is incredibly important for all sorts of businesses. So 
you would shift power away from Washington. And I think you 
would have more economic activity if you simplified the code 
that would generate more revenues for the government.
    Mr. Ribble. All right. Thank you.
    I just make one comment to Congressman Waxman. Thank you 
for being here today. I know it is tough to come in here. But I 
would say you used the phrase that House Republicans seem to 
want to return America to the era of robber barons. I will just 
give you my take of a robber baron. A robber baron is a 
government that steals money from middle class hard-working 
taxpayers and gives it to rich bundlers like Solyndra. Thank 
you. And I yield back my time.
    Chairman Ryan. The gentleman okay?
    Mr. Waxman?
    Mr. Waxman. I don't think that was a question. It was his 
comment, and he has his views. I disagree.
    Chairman Ryan. Okay. I just want to make sure because you 
were invoked. Out of fairness.
    Who is next? I don't know if you know this, the gentlelady 
from Florida, her name is Ms. Wasserman Schultz.
    Ms. Wasserman Schultz.
    Ms. Wasserman Schultz. We have met.
    Mr. Bush. Yes, we have.
    Ms. Wasserman Schultz. Governor, it is good to see you.
    Welcome to the Budget Committee. I want to ask my question 
and frame it from my standpoint as a mom, who is raising three 
young children attending the public schools in Florida and also 
as someone who served for 6 years of my tenure in the 
legislature with you as Governor.
    And the one-time moneys that you just referenced that were 
created to lure five or six research institutes from 
California, and I do find some irony here that you are here 
today under the guise of removing barriers to free enterprise.
    While in office, you recall, you spearheaded a deal to use 
more than $600 million in public money to lure the Scripps 
Research Institute to build a facility in Florida. Now, as a 
State legislator at the time, I remember being called into 
special session of the legislature so that we could pass a one-
time $310 million gift to the Scripps Research Institute from 
Federal stimulus moneys that were allocated from Florida. In 
fact, Palm Beach County anted up about $269 million to pay for 
land and buildings for Scripps.
    At the time, you were quoted as saying there is no better 
way to spend the one-time Federal economic stimulus money than 
by investing in a project that spurs targeted economic growth.
    Now, I was on the Appropriations Committee, and remember 
distinctly questioning your staff and you about the importance 
of accountability with that investment. You insisted that 
wasn't necessary.
    I remember distinctly attempting, through amendments, that 
we could ensure that if the promised jobs were not created, 
that Scripps would have to pay some of the funds back to the 
State. You opposed that and said it wasn't necessary.
    In spite of our strong reservations about this gift with no 
accountability at all to a private entity, Democrats, including 
me, voted for the Scripps bill. I voted for the Scripps bill.
    Mr. Bush. I know you did.
    Ms. Wasserman Schultz. So we tried it your way.
    Let me describe the results. As of 2010, Scripps Florida 
employed 377 people. That is $1.32 million per employee. The 
operation is projected to employ 545 people by 2014. That is 
over $900,000 per employee. In fact, Governor Bush, estimates 
of the Scripps Florida deal and the promises of massive job 
creation were massively overblown. Depending on which proponent 
you were listening to, it would create 2,800 direct jobs after 
15 years. But as of the end of year seven, Scripps Florida 
employed just 377 people. Estimated spin-off jobs in other 
companies were largely overblown, from 6,500 at the time to 
40,000 or 50,000 were predicted.
    Quoting directly from the Florida Office of Program Policy 
Analysis and Government Accountability, in fiscal year 2004 
Scripps had only supported the creation of a projected 615 
full-time and part-time equivalents, and in fiscal year 2007, 
it had supported of creation of just an estimated 1,327 jobs.
    In 2003, the year the Scripps giveaway passed in Florida, 
there was a $40 million cut for State universities, and the end 
of enrollments in the Healthy Kids Children's Health Insurance 
Program. Given the employment numbers, which were far lower 
than projected, was it a good decision to fund a private 
enterprise ahead of education and health care? How many low-
income children could have had health insurance, or students 
could have received tuition assistance at the equivalent of 
$1.32 million per employee?
    This same policy is writ large in the Romney-Ryan budget 
plan, which doubles down on a policy that benefits large 
private corporations and the wealthiest, most fortunate 
Americans, and leaves the middle class and working families to 
fend for themselves. Florida has had one of the worst high 
school graduation rates in the country. And roughly half of 
Florida's graduates require remediation when they get to 
college. Yet we are paying for a company dependent on importing 
highly educated and trained employees to relocate rather than 
investing in education, which is the main draw for good 
employers. Just this year, Florida will forced universities to 
cuts $300 million from their reserves and operating budgets.
    Chairman Ryan. Is the gentlelady going to give the 
gentleman time to respond?
    Ms. Wasserman Schultz. I am trying.
    Mr. Waxman. It is her time.
    Ms. Wasserman Schultz. You just took some seconds off my 
time. So if you would restore it, I would appreciate it. All 
because the economic policies originally established by you, 
Governor, gave away billions of dollars in taxes that could 
have gone to education, infrastructure, and other important 
investments. So here is my question.
    Is this, quoting from your testimony this morning, because 
you said, that is why my best advice to you is to perform a 
fundamental cost-benefit reconsideration of many programs in 
the Federal budget. You said, please know that no matter your 
good intentions, the government creates unintended consequences 
when it acts. You go on to ask what would a cost-benefit 
analysis show? And later, in reference to your example of the 
supposed 49 different Federal job training programs, you asked, 
are they being measured on the success with which they get 
people retrained? Good question. So how do you think that if we 
apply your advice to the Scripps deal, that a cost-benefit 
analysis of $1.32 million of State funds per job would hold up? 
Given that students in our State graduate unprepared for 
college level work, tens of thousands of low-income children 
languish on State waiting lists for affordable child care, how 
could you justify giving away $600 million in public funding 
with no accountability to a private company?
    Chairman Ryan. Again, welcome to the Budget Committee, 
Governor Bush. You have nine seconds to respond. We will let 
you go over your time.
    Mr. Bush. So the Scripps Research Institute is not a 
corporation. It is not a for-profit company, it is a premier 
not-for-profit research institute that does world-class 
research. The accountability that you voted for--I am glad that 
you voted for it. You weren't against it before you were for 
it. You were for it before you were against it now. I am happy 
that we had your vote--was based on the money would go out 
based on the 575 jobs that are in the process or probably have 
already been completed. So this is an idea to spur innovation, 
to spur additional activity. It gets hit by the downturn in the 
economy, but there has been significantly higher numbers of 
jobs, spin-off jobs or jobs created because of Scripps, and 
Burnham, and Torrey Pines and other institutes. And we have 
increased, at least during my tenure, I haven't followed the 
budget of the State since I left, but we increased funding for 
research for our universities as well.
    So in the life science sector, Florida has gone from being 
in the back of the pack to aspiring to top tier status. I would 
say we are probably in terms of research spending, probably 
number five or number four. And 10 years ago, we were probably 
25 or even higher than that. So I think, from that perspective, 
it ought to be reviewed. I completely agree with that. There 
ought to be an analysis done. But I think for something that is 
a work in progress, I would say it has been a success. And I 
would add that had we not spent this one-time money on these 
long-term things, the money would have been spent. And it would 
have been spent creating huge recurring gaps that many other 
States have had to deal with that would have ended up creating 
higher taxes for Floridians that would have hurt our economy 
and made our business climate worse.
    Ms. Wasserman Schultz. Mr. Chairman, I don't want----
    Chairman Ryan. The time of the gentlelady has expired.
    Ms. Wasserman Schultz. I know, Mr. Chairman. I am not going 
to respond. I would just ask----
    Chairman Ryan. Unanimous consent to include something in 
the record? Is that what you are asking for?
    Ms. Wasserman Schultz. Yes. And let me just say what it is 
so that I can get it included. It is an article from the Sun 
Sentinel that shows that Palm Beach County's----
    Chairman Ryan. The gentlelady ask for unanimous consent to 
include a Sun Sentinel article in the record?
    Ms. Wasserman Schultz [continuing]. Should return to its 
farming roots because it was such a debacle.
    Chairman Ryan. Without objection, the gentlelady's article 
will be included in the record.
    [The information follows:]

    Palm Beach County OKs Replacing Biotech Property With Sugar Cane

      Mecca Farms, the $100 million intended home for the Scripps
       Research Institute, would be leased to sugar cane growers

               March 6, 2012--By Andy Reid, Sun Sentinel

    Mecca Farms, Palm Beach County's $100 million biotech-investment-
turned-real-estate-blunder, should return to its farming roots, county 
commissioners decided Tuesday.
    The 1,919-acre property once slated to become a ``biotech village'' 
anchored by The Scripps Research Institute would instead be leased to 
sugar cane growers under a proposal approved by the County Commission.
    Pope Farms Inc. proposes to pay $200 an acre a year to lease 750 
acres for at least five years. That would generate about $150,000 a 
year for the old citrus groves west of Palm Beach Gardens, next to the 
J.W. Corbett Wildlife Management Area.
    The commission chose Pope from among three potential agricultural 
tenants. Final terms of the lease still must be negotiated and then 
approved by the commission.
    ``We have been trying to find a use for that site ever since the 
(Scripps) deal collapsed,'' County Commissioner Steven Abrams said. 
``It's farmland. * * * This is the best of the deals.''
    In addition to generating revenue on Mecca Farms, finding a tenant 
allows the county to avoid paying about $250,000 a year for security 
and maintenance of property.
    The Sun Sentinel in August reported that the county was paying the 
Sheriff's Office $116,000 a year for a deputy to provide security at 
the overgrown former citrus grove north of Northlake Boulevard.
    Sugar cane is a far cry from what Palm Beach County once expected 
to grow from Mecca Farms.
    County and state leaders once envisioned Mecca Farms becoming a 
biotech-industry hub, featuring high-tech businesses bringing new jobs 
and spawning thousands of homes in new neighborhoods on surrounding 
farmland.
    The county in 2004 paid $60 million for Mecca Farms and then 
invested another $40 million in planning, permitting and initial 
construction. The county also built a $51 million pipeline to provide 
water to development it expected on Mecca Farms and beyond.
    But in 2006, environmental concerns killed plans to build Scripps' 
East Coast headquarters and research labs there. Instead, Scripps moved 
to Florida Atlantic University's Jupiter campus.
    The county's fallback plan for Mecca Farms if Scripps went 
elsewhere was to sell the land to developers and recoup taxpayer money. 
But soon after Scripps left, the South Florida housing boom went bust 
and serious development interest in Mecca Farms disappeared.
    The county still has visions of selling Mecca Farms. As currently 
proposed, the county could buy its way out of the lease deal with Pope 
Farms if a potential buyer for Mecca Farms surfaces within the five-
year lease period.
    Loxahatchee community activists voiced concerns about allowing 
sugar cane on Mecca Farms.
    The practice of burning sugar cane fields during harvest threatens 
to worsen air-quality problems in The Acreage, blamed on burning 
western sugar cane fields and pollution from a new power plant nearby, 
said Alex Larson.
    ``New sources of pollution are not a good idea,'' Larson said.
    Abrams said burning sugar cane fields is a longstanding practice 
and likened proposed burning at Mecca Farms to the controlled burns 
conducted at nearby nature preserves.

    Chairman Ryan. Governor Bush, were you finished with your 
answer?
    Mr. Bush. I am finished. It is a joy to be here.
    Chairman Ryan. Mr. Amash.
    Mr. Mulvaney. We do this every day.
    Mr. Bush. I know. It is amazing.
    Mr. Amash. Thank you, Mr. Chairman.
    And thank you all for being here. I won't give a 5-minute 
campaign speech.
    Mr. Edwards, to what extent is it necessary for government 
to provide infrastructure? And how much can the private sector 
do?
    Mr. Edwards. The Governor actually touched on this. He 
commented that we are actually behind a lot of countries around 
the world in terms of privatizing our infrastructure, moving at 
least to a public-private partnership structure. The Indiana 
toll road was mentioned. But where I live in Virginia, the 
Capitol Beltway is being widened by a billion dollars of 
private money. Down around Norfolk and Virginia Beach, they are 
building new tunnels and bridges, all with private money. So 
there is a heck of a lot the private sector can do in terms of 
infrastructure spending. I am actually on a monthly email list 
by this consulting company that tallies the global totals in 
private money going into public infrastructure. And the United 
States is way behind. I mean, countries like Australia and 
Canada are ahead of us on this. So that there is a hell of a 
lot we can do.
    You know, I mentioned Canada, for example, in terms of 
infrastructure. They privatized their air traffic control 
system back in 1996. Now, people in this country think, you 
know, wow, that is crazy, something as important as the air 
traffic control system. In Canada, it is run by an independent 
self-funded nonprofit corporation. And it has been a huge 
success. It has got international awards for innovation. So, 
you know, the private sector can do a heck of a lot if we 
really opened up some of these barriers to investment.
    Mr. Amash. And Mr. Waxman earlier talked about market 
failures when my colleague from Kansas was speaking to him. Do 
you have any general thoughts about market failures versus 
government failures?
    Mr. Edwards. Well, I mean, I actually think that, you know, 
there is a lot of government failures that led up to the big 
crash in 2008. I think the central bank, the Federal Reserve, 
held interest rates too low. I think all these housing 
subsidies that helped create the housing bubble. And I think 
that, you know, the idea of more regulation is really 
problematic because I think some of the biggest scandals, I 
mean the Bernie Madoff one, for example, was not a result of 
lack of regulation. That one was a result that the SEC was 
simply sitting on its hands and ignoring the obvious evidence 
that was out there. The Enron Corporation debacle to me, that 
was just outright fraud. You know, that is always illegal. So I 
don't think regulation is going to solve our problems.
    Mr. Amash. This is a change of topic. People are paying 
most of their taxes to the Federal Government rather than to 
State or local governments. Do you think that is the right 
balance? Should we shift in the long term toward more taxes 
going to local governments rather than the Federal Government?
    Mr. Edwards. You know, for a century now, there has been 
this huge pressure of centralization in the United States which 
I think is really problematic. If you look at total government 
spending in the United States, it is now 70 percent Federal and 
30 percent State and local, which is rather astounding. It 
should be the other way around, in my view. The Federal 
Government should have some basic functions that we all agree 
with, and we ought to leave a lot of stuff like infrastructure 
and education to State and local governments. Again, I believe 
in the laboratories of democracy. I think when State and local 
governments fund their own programs, they have control over 
their own programs, there is a lot more information. The 
programs are leaner and better run. And that is the direction 
we should move in.
    Mr. Amash. And as I talk to constituents, whether they are 
Tea Party people or people in the Occupy movement, there seems 
to be a lot of anger about similar things. It is the bailouts, 
the subsidies, the revolving door between Wall Street and the 
Treasury Department. These are the kind of things, these crony 
capitalist features, which seem to be a part of 
interventionism. Do you think that cronyism, corruption, waste 
are a natural byproduct of interventionism? Is it inevitable 
that when you have a government that is this big, you are going 
to get cronyism, corruption, waste?
    Mr. Edwards. Yes. Absolutely. I mean, again, we are always 
going to have lobbying, and that is always going to be a 
problem. But we don't need to have all these subsidy programs. 
I calculated that the United States now has--the Federal 
Government has 2,000 different subsidy programs, all the way 
from Medicare down to, you know, hundreds of obscure programs 
most of us have never even heard of. All of those 2,000 
different subsidy programs, they get lobby groups, you know, 
grab onto them and they lobby for more and more and more. That 
is the fundamental problem. I actually think Congressman Waxman 
and myself could probably get together and find a lot of these 
corporate crony programs in the budget and agree to cut them. 
And I think that is what Congress ought to be doing.
    Mr. Amash. Governor Bush, do you have any thoughts on that?
    Mr. Bush. On what?
    Mr. Amash. Cronyism in general.
    Mr. Bush. The more complex, the bigger government gets, the 
more interactions, the more the unintended consequences, and so 
you are going to see more of this. And the less clarity on what 
the rules of engagement are. A good example of that is Dodd-
Frank, with 500 separate rulemaking processes that will take 7 
or 8 years to implement. The unintended consequences of all 
this will play out. And Congress will have to adjust it. But in 
the interim, it freezes job-creating kind of activities. And it 
is not a question of regulation. We had regulation in place. 
And to the Congressman's point, if the Federal Reserve chairman 
at the time said, well, we just didn't apply the regulations 
that the law already allowed, that is a separate subject than 
being deregulated or unregulated.
    Mr. Waxman. Greed is not unique to government. Greed is 
unique to people. And therefore, you need to establish 
restrictions so that people don't take advantage of others. 
That is why we have police. That is why we have law. The rule 
of law needs to apply to government and to individuals. There 
is abuse in the private sector. When we have cronies decide 
that salaries of CEOs who also have contracts to do work for 
the executives of those same companies, you can be sure they 
are going to recommend an inflated amount of pay for those 
CEOs. Government has nothing to do with that. That is just 
rampant greed. And that is why I was pleased, as a result of 
one of our hearings, that the advisers for compensation 
realized they couldn't also be the consultants for the 
corporation. But they didn't pay attention to that, and there 
was an area where there was abuse because of greed. And let's 
keep that in mind.
    Chairman Ryan. Thank you.
    Ms. Kaptur.
    Ms. Kaptur. Yes, Mr. Chairman. I would like unanimous 
consent to place certain newspaper articles in the record.
    Chairman Ryan. Without objection.
    [The information follows:]

                The Wall Street Journal, August 27, 2007

                    Jeb Bush: Lehman's Secret Weapon

                           By Dana Cimilluca

    In the arms race by private-equity firms to line up ever-higher 
profile ``advisers,'' Lehman Brothers may have just taken the lead.
    According to a small handful of reports Friday, including this one 
in Investment Dealers' Digest and another in Private Equity Hub, the 
investment bank has hired former Florida Governor and presidential son 
and brother Jeb Bush for its in-house investing arm.
    No sign of an announcement from Lehman on the hire.
    Private-equity firms hire politicos and former corporate honchos 
all the time to help them open doors to deals, as well as to manage 
government relations and the companies in their portfolios. Carlye 
Group chief David Rubenstein, in fact, discussed the increasing value 
of such moves in this Q&A published in The Wall Street Journal today.
    No family these days has better door-opening skills in Washington 
or corporate America than the Bushes. The family of the 41st and 43rd 
presidents is no stranger to Wall Street either. Jeb's father, George 
H.W., used to serve as an adviser to Carlyle, and his grandfather was a 
partner at Wall Street firm Brown Brothers Harriman.
    It is the second corporate gig for the former Florida governor, who 
stepped down after two terms in January. He already has joined the 
board of Tenet Healthcare.

                               Bloomberg

           Barclays Buys Lehman U.S. Units for $1.75 Billion

          By Ben Livesey and Yalman Onaran, September 17, 2008

    Barclays Plc, the U.K.'s third-biggest bank, will acquire the North 
American investment-banking business of bankrupt Lehman Brothers 
Holdings Inc. for $1.75 billion, three days after abandoning plans to 
buy the entire firm.
    Barclays rose as much as 11 percent in London trading after it 
agreed to pay $250 million in cash for the Lehman operations and $1.5 
billion for the New York headquarters and two data centers, it said 
today in a statement. The London-based bank plans to raise at least 600 
million pounds ($1.1 billion) in a stock sale to help fund the deal and 
may buy other Lehman units.
    Lehman becomes the second Wall Street institution after Merrill 
Lynch & Co. to lose its independence in the industry's biggest 
retrenchment since the Great Depression. Barclays President Robert 
Diamond seized a ``once in a lifetime opportunity'' to buy a business 
ranking seventh in advising on U.S. mergers and employing about 10,000, 
almost two-fifths of Lehman's total, after it filed the biggest 
bankruptcy in history on Sept. 15.
    ``It looks a steal,'' said Leigh Goodwin, a London-based analyst 
for Fox Pitt Kelton Ltd. ``The money they are raising may also allay 
concerns that they may not have had enough capital to do this deal.''
    Barclays rose 17 pence to 325 pence at 10:20 a.m. London time, 
valuing the company at 26.6 billion pounds.
    Barclays plans to ``immediately commence discussions'' to buy 
Lehman operations outside the U.S., New York-based Lehman said in a 
separate statement.
                          `wonderful outcome'
    ``This is a wonderful outcome for a great number of our employees 
that will preserve and strengthen our terrific franchise,'' Lehman 
Chief Executive Officer Richard Fuld said in a separate statement.
    The purchase price of Lehman's assets is on par with the market 
value of Sanders Morris Harris Group Inc., a Houston, Texas-based 
brokerage with 617 workers, and is less than a third of the value of 
KBW Inc., a New York-based firm that employs 529.
    ``Certain Barclays shareholders have expressed support for the 
transaction and interest in increasing their shareholdings, Barclays 
said. Further details of the share issue will be announced due course 
it said.
    Lehman is selling off pieces of itself that weren't included when 
the holding company filed for bankruptcy. Diamond said last month he 
wants the bank to take market share from Wall Street firms weakened by 
the credit crunch and break into the ``top tier'' of U.S. securities 
firms.
                              m&a rankings
    The purchase includes the equities and fixed-income sales, trading 
and research businesses, commodities and foreign exchange, merger 
advisory and prime brokerage units, Barclays said.
    Lehman slipped to seventh in advising on mergers and acquisitions 
involving U.S. companies this year from fifth in 2007, according to 
data compiled by Bloomberg. Barclays ranks 35th in that market.
    Lehman is in discussions to sell its investment-management unit to 
private-equity bidders Bain Capital LLC and Hellman & Friedman LLC, 
according to people familiar with the negotiations. The firm is also 
proceeding with an auction announced last week as part of Chief 
Executive Officer Richard Fuld's failed plan to save the 158-year-old 
firm.
    Diamond was in New York last weekend as Lehman met with Wall Street 
executives to discuss a rescue plan. Lehman needed a bailout after 
Korea Development Bank pulled out of a plan to provide new capital and 
Lehman shares lost most of their value.
                              walking away
    Barclays declined to bid for all of Lehman after three days of 
emergency negotiations involving the U.S. Treasury and Federal Reserve, 
Barclays spokesman Leigh Bruce said Sept. 14. Barclays couldn't get 
guarantees from the government to mitigate what it called Lehman's 
``open-ended'' trading obligations.
    Bank of America Corp. also walked away from a possible Lehman 
acquisition over the weekend.
    ``Clearly Barclays's negotiating position is strong, which suggests 
a value-creating deal,'' said JPMorgan Cazenove Ltd. analysts in an e-
mail note to clients before the deal was announced. ``Investors will 
want reassurance on the impact on Barclays's capital,'' said the 
analysts, who rate Barclays ``neutral.''
    Credit Suisse Group, Deutsche Bank AG and JP Morgan Cazenove Ltd. 
were finance advisers on the deal, Barclays said.
                             lagging behind
    Barclays's so-called core equity Tier 1 capital ratio, a closely 
followed measure of a bank's ability to absorb losses and writedowns, 
rose to about 5.8 percent from 5.1 percent after it raised 4.5 billion 
pounds in a share sale in June. Barclays's ratio lags behind U.K. peers 
including HBOS Plc and Royal Bank of Scotland Group Plc.
    CEO John Varley, 52, said in June that Barclays would use half the 
proceeds for growth, including acquisitions. Barclays sold shares to 
sovereign funds in Qatar, Singapore and China.
    The deal, which requires legal and regulatory approval, 
``accelerates the execution of our strategy of diversification by 
geography and business in pursuit of profitable growth on behalf of our 
shareholders,'' Varley said in the statement.
    While Barclays ``traded satisfactorily'' in July and August, the 
average pretax profit in the two months through August was below the 
average for the first six months of the year, it said ``reflecting 
usual seasonality.''
    Barclays Capital, the bank's London-based securities arm, has 
16,000 employees and contributes about 16 percent of Barclays's 
earnings, down from 39 percent a year ago. First-half pretax profit 
slumped 69 percent to 524 million pounds after the unit wrote down 2.8 
billion pounds of subprime and Alt-A mortgages and other assets damaged 
by the credit turmoil.
    Barclays's highest priority is to sell or liquidate troubled 
assets, Diamond said Aug. 7.
    Lehman ranked No. 7 in global equity underwriting this year, 
according to data compiled by Bloomberg. Barclays, which wasn't listed 
among the top 25 on the list, could also use Lehman to increase its 
share of bond underwriting in the U.S. and add mergers and acquisitions 
advice worldwide.

   Lehman Brothers Bosses Could Face Court Over Accounting `Gimmicks'

     Andrew Clark in New York, the Guardian, Thursday 11 March 2010

    A court-appointed US bankruptcy examiner has concluded that there 
are grounds for legal claims against top Lehman Brothers bosses and 
auditor Ernst & Young for signing off misleading accounting statements 
in the run-up to the collapse of the Wall Street bank in 2008 which 
sparked the worst financial crisis since the Great Depression.
    A judge last night unsealed a 2,200-page forensic report by expert 
Anton Valukas into Lehman's collapse, which includes scathing criticism 
of accounting ``gimmicks'' used by the failing bank to buy itself time. 
These included a contentious technique known as ``repo 105'', which 
temporarily boosted the bank's balance sheet by as much as $50bn.
    The exhaustive account reveals that Barclays, which bought Lehman's 
US businesses out of bankruptcy, got certain equipment and assets it 
was not entitled to. And it reveals that during Lehman's final few 
hours, chief executive Dick Fuld tried to get Gordon Brown involved to 
overrule Britain's Financial Services Authority when it refused to 
fast-track a rescue by Barclays.
    With Wall Street shaken by the demise of Bear Stearns in March 
2008, Valukas said confidence in Lehman eroded: ``To buy itself more 
time, to maintain that critical confidence, Lehman painted a misleading 
picture of its financial condition.''
    The examiner's report found evidence to support ``colorable 
claims'', meaning plausible claims, against Fuld and three successive 
chief financial officers--Chris O'Meara, Erin Callan and Ian Lowitt.
    Valukas said the bank tried to lower its leverage ratio, a key 
measure for credit rating agencies, through a device dubbed ``repo 
105'', through which it temporarily sold assets with an obligation to 
repurchase them days later, at the end of financial quarters, in order 
to get a temporary influx of cash. Lehman's own financial staff 
described this as an ``accounting gimmick'' and a ``lazy way'' to meet 
balance sheet targets.
    A senior Lehman vice-president, Matthew Lee, tried to blow the 
whistle by alerting top management and Ernst & Young. But the auditing 
firm ``took virtually no action to investigate''.
    During the bank's final hours in September 2008, Fuld tried 
desperately to strike a rescue deal with Barclays but the FSA would not 
allow the British bank an exemption from seeking time-consuming 
shareholder approval. The chancellor, Alistair Darling, declined to 
intervene and Fuld appealed to the US treasury secretary, Henry 
Paulson, to contact the prime minister.
    ``Fuld asked Paulson to call prime minister Gordon Brown, but 
Paulson said he could not do that,'' says the examiner's report. ``Fuld 
asked Paulson to ask president Bush to call Brown, but Paulson said he 
was working on other ideas.''
    In a ``brainstorming'' session, Fuld then suggested getting the 
president's brother, Jeb Bush, who was a Lehman adviser, to get the 
White House to lean on Downing Street.
    Barclays eventually bought the remnants of Lehman's Wall Street 
operation from receivership for $1.75bn--a sum that has enraged certain 
bankruptcy creditors who believe it was a windfall for the British 
bank.
    The examiner's report finds grounds for claims against Barclays for 
taking assets it was not entitled to, including office equipment and 
client records belonging to a Lehman affiliate, although it says these 
were not of material value to the deal--the equipment was worth less 
than $10m.
    A lawyer for Fuld last night rejected the examiner's findings. 
Patricia Hynes of Allen & Overy said Fuld did not structure or 
negotiate the repo 105 transactions, nor was he aware of their 
accounting treatment. She added that Fuld ``throughout his career 
faithfully and diligently worked in the interests of Lehman and its 
stakeholders''.
    A spokesman for Ernst & Young, which is headquartered in London, 
told Reuters the firm had no immediate comment because it was yet to 
review the findings.

    Ms. Kaptur. Thank you very much. Along with the governor's 
biography as presented to the committee.
    Chairman Ryan. That is already in the record. But okay.
    [The information follows:]

                                Jeb Bush

    Jeb Bush is the 43rd governor of the state of Florida, serving from 
1999 through 2007. He was the third Republican elected to the state's 
highest office and the only Republican in the state's history to be 
reelected.
    Governor Bush remained true to his conservative principles 
throughout his two terms--cutting $20 billion in taxes, vetoing more 
than $2.3 billion in earmarks and reducing the state government 
workforce by more than 13,000. His limited government approach help 
unleash one of the most robust economies in the nation, creating 1.4 
million net new jobs and improving the state's credit ratings on Wall 
Street.
    To further strengthen the economy, Bush launched a strategic plan 
to diversify the state's economy. After securing the second campus of 
the renowned Scripps Research Institute, an international leader in 
biomedical breakthroughs, Florida's life sciences industry began to 
flourish with several more leading research institutes moving to the 
state.
    During his two terms, Bush championed major reform of government 
programs. In education, Florida raised academic standards, required 
accountability in public schools and created the most ambitious school 
choice program in the nation. After gaining permission from the federal 
government, Florida launched Medicaid Reform to improve quality and 
control the rising cost of the $16 billion state-federal partnership 
that pays for the healthcare of 2.2 million poor, disabled and elderly 
citizens. The state also launched and accelerated restoration of 
America's Everglades, the largest project of its kind in the world, to 
save the habitat of 60 threatened and endangered species and provide a 
long-term supply of drinking water for eight million people in South 
Florida.
    On the national stage, Governor Bush is most widely known for his 
leadership during two unprecedented back-to-back hurricane seasons, 
which brought eight hurricanes to the state of Florida in less than two 
years. To protect the state from loss of life and damage caused by 
catastrophic events, such as hurricanes, Bush worked tirelessly to 
improve the state's ability to respond quickly and compassionately to 
emergencies, while also instilling a `culture of preparedness' in the 
state's citizenry.
    Bush served as Florida's secretary of commerce under Bob Martinez, 
Florida's 40th governor. As secretary of commerce, he promoted 
Florida's business climate worldwide. Following an unsuccessful bid for 
Governor in 1994, Bush joined forces with the Greater Miami Urban 
League to establish one of the state's first charter school, Liberty 
City Charter School, in one of the most underserved parts of Miami-Dade 
County. He also co-authored Profiles in Character, a book profiling 14 
of Florida's civic heroes--people making a difference without claiming 
a single news headline.
    Bush earned a bachelor's degree in Latin American studies from the 
University of Texas at Austin. He moved to Florida in 1981, where he 
started a real estate development company with partner Armando Codina.
    Currently, Bush is the President of the consulting firm Jeb Bush 
and Associates and a Senior Advisor to Barclays Capital. He is on the 
boards of Tenet Healthcare Corporation, Angelica Corporation, Rayonier, 
Inc., Empower Corporation and CorMatrix Cardiovascular, Inc. In civic 
and charitable affairs, Bush is the Chairman of the Foundation for 
Excellence in Education and the Foundation of Florida's Future, 
Honorary Chairman of Volunteer USA, and serves on the National Civic 
Leaders Advisory Board of America's Promise Alliance, the George H.W. 
Bush Presidential Library, the George W. Bush Institute Board and the 
Bloomberg Family Foundation Board. He and his wife Columba live in 
Miami and have three grown children. Bush is the son of President 
George H.W. Bush and Barbara Bush.

    Ms. Kaptur. Thank you very much.
    Welcome, Governor, Congressman Waxman. Thank you all for 
being here today. Governor Bush, I read your testimony with 
interest, and apologize, I was on the floor and couldn't be 
here for the earlier part of the hearing. But in your 
testimony, you state, and I quote, ``I understand that there 
may be political support for specific industries and companies. 
And we know from recent experience that government is not good 
at picking winners and losers in the economy. And 
fundamentally, it is not the job of government to pick winners 
and losers in the economy.''
    I would like to learn more about your thoughts then on the 
financial services industry, one that I understand from press 
reports you have worked with. According to the Wall Street 
Journal, shortly after you left the Governor's office you went 
to work for Lehman Brothers in what is described as the in-
house investing arm of the company. Was that correctly 
reported? Is that correct?
    Mr. Bush. I was on the private--the advisory council of the 
private equity arm of Lehman Brothers.
    Ms. Kaptur. Thank you. And you were working for or with 
Lehman Brothers then when it collapsed? Is that correct?
    Mr. Bush. I was a consultant, an adviser to Lehman 
Brothers.
    Ms. Kaptur. Okay.
    Mr. Bush. Not an employee.
    Ms. Kaptur. Excuse me, sir?
    Mr. Bush. Not an employee.
    Ms. Kaptur. And did you receive compensation for that 
engagement?
    Mr. Bush. Yeah. Sure.
    Ms. Kaptur. Do you still work for Lehman Brothers Merchant 
Banking, which I understand was spun off?
    Mr. Bush. No.
    Ms. Kaptur. You do not?
    Mr. Bush. No.
    Ms. Kaptur. Thank you. Thousands of people lost their jobs 
when Lehman Brothers collapsed and many people lost money. What 
was your job at Lehman Brothers exactly?
    Mr. Bush. I was an adviser to Lehman Brothers. Had dealt 
with--basically spent most of my time dealing with their 
customer base. Providing insights in things like the madness of 
Washington, D.C., sharing my experiences with customers to try 
to add value in the relationship. So it was not related to 
internal functions of the company. It was related to client 
interface.
    Ms. Kaptur. If you could provide any specificity for the 
record, it would be greatly appreciated.
    Do you think the government picked winners and losers 
during the financial bailouts?
    Mr. Bush. I think government oversight was lax, not the 
rules that were created afterwards, but the oversight was lax 
for sure.
    Ms. Kaptur. Might I get some clarification on another small 
point? Because of some reporting in The Guardian newspaper in 
Britain, for whom do you work now? And do you have any 
relationship to Barclays?
    Mr. Bush. I do.
    Ms. Kaptur. You do. What is your relationship?
    Mr. Bush. I am a senior adviser to Barclays capital.
    Ms. Kaptur. All right. The Guardian newspaper in Britain 
reported in 2010 that a U.S. bankruptcy examiner concluded that 
grounds exist for legal claims against top Lehman Brothers 
bosses and auditor Ernst & Young for signing off misleading 
accounting statements in the run up to the 2008 collapse. The 
newspaper said a 2,200-page forensic report, which I am sure 
you are familiar with, by Anton Valukas----
    Mr. Bush. No.
    Chairman Ryan. Look, does the gentlelady have a question 
about the subject of the hearing at hand?
    Ms. Kaptur. I do. Revealed that Barclays, which bought 
Lehman's U.S. business out of bankruptcy, got certain equipment 
and assets to which it was not entitled. I am quoting. Are you 
aware of any of these allegations, and do you have a response 
to them?
    Mr. Bush. No, I am not.
    Ms. Kaptur. The Valukas report revealed that during 
Lehman's final few hours, its chief executive officer, Dick 
Fuld, sought to convince Prime Minister Gordon Brown to 
overrule Britain's Financial Services Authority when it refused 
to fast track----
    Chairman Ryan. Does the gentleman imply that this gentleman 
had anything to do with that?
    Ms. Kaptur. Well, Mr. Chairman, if you could just allow me 
to finish here.
    According to The Guardian, and I quote, ``During the bank's 
final hours in September 2008, Fuld tried desperately to strike 
a rescue deal with Barclays, but the FSA would not allow the 
British bank an exemption from seeking time-consuming 
shareholder approval. The chancellor, Alistair Darling, 
declined to intervene, and Fuld appealed to the U.S. Treasury 
Secretary Henry Paulson to contact the Prime Minister. And 
according to the Volukas report, Fuld asked Paulson could to 
call Prime Minister Gordon Brown, but Paulson said he could not 
do that. So Fuld asked Paulson to ask President Bush to call 
Brown, but Paulson said he was working on other ideas. But in a 
brainstorming session, Fuld then suggested getting the 
President's brother, Jeb Bush, who was a Lehman adviser, to get 
the White House to lean on Downing Street.''
    Governor Bush, to your knowledge, did your boss, Mr. Fuld, 
in fact make such a suggestion?
    Mr. Bush. First of all, he wasn't my boss. I was a 
consultant to Lehman Brothers, as I stated. And no, he didn't 
ask me to do anything, and I didn't do anything.
    Chairman Ryan. The time of the gentlelady has expired. And 
I would simply say, why don't you direct your questions to Mr. 
Fuld? This gentleman doesn't have any information on that.
    Mr. Garrett.
    Ms. Kaptur. Well, Mr. Chairman, it is very interesting how 
terse you were with my questioning this morning.
    Chairman Ryan. You are not asking him questions about the 
hearing here. You are injecting innuendo it seems. And the 
gentleman has answered your questions.
    Ms. Kaptur. It seems to me it is important for the American 
people to under to understand the witnesses that are before us 
and what their financial connections actually are.
    Chairman Ryan. Mr. Garrett.
    Mr. Garrett. So I will bring it back to the hearing. I will 
start off with actually testimony from the witnesses.
    Mr. Waxman, or Congressman, you made the comment with 
reference to the I guess the appearance of impropriety--let's 
call it that way--when you have consultants who are on the 
payroll for the companies on the one hand and they are also the 
ones that are involved with the decision-making of the salaries 
and what have you, the positions there. Certainly there is an 
appearance of impropriety there.
    I guess in politics you can sometimes see the same things, 
where you have people who are making donations to politicians 
or elected officials on the one hand, and at the same time, 
those very same politicians or elected officials are making 
decisions with respect to those donors. Is there not the same 
situation there for us politicians?
    Mr. Waxman. I think there is an appearance of unseemliness. 
And that is why I think the system we have for funding 
campaigns is one that we ought to definitely change. But I 
think there are distinctions between the two. But I get your 
broader point.
    Mr. Garrett. I appreciate that. So we have the same 
situation on financial matters, since the gentlelady brought it 
up, and the situation at MF Global, where you have an 
individual who is now one of the largest bundlers for this 
administration on the one hand, and on the other hand, that is 
the same individual who is being investigated, or is at least 
the company is being investigated by that very same 
administration. So there is at least an appearance of 
impropriety when someone donates to the administration and that 
administration is either investigating or maybe not doing a 
valid investigation there.
    Mr. Waxman. We need to go beyond the appearance and look at 
the facts. For example, in the Solyndra investigation----
    Mr. Garrett. I am not on that, but thank you very much. 
What I am concerned about is your testimony when you make the 
accusations that Republicans want to return to an era of robber 
barons, with no restraint on Wall Street, and enriching 
themselves at the expense of everyone else. I don't know 
actually how you can say that.
    Furthermore, you go on to say that the problems of 2008 
were demonstrated on the collapse of Wall Street was caused by 
the absence of cops on the beat. Really? There were cops all 
over the beat. When you look at the institutions that failed, 
AIG, they were a regulated institution. Lehman Brothers, they 
were a regulated institution. This gentleman next to you was 
not sitting inside Lehman Brothers at the time, but there were 
regulators who were sitting inside Lehman Brothers on a daily 
basis and they failed to do their job.
    Mr. Waxman. I would dispute that fact. I would absolutely 
dispute that fact.
    Mr. Garrett. There were regulators at Lehmans.
    Mr. Waxman. They may be regulated for some things, but 
their financial practices were not being regulated or being 
watched. And I think Governor Bush was absolutely right when he 
said there was not government oversight. At the SEC, it was 
shocking how poorly the SEC did its job.
    Mr. Garrett. Exactly. And that is exactly my point here, is 
that you had regulators from the SEC, from the OTS, to the 
Federal Reserve, and each one of these institutions were 
regulators involved with starting from Bear Stearns on out, the 
regulators had the authority, they had the information, they 
had the wherewithal to try to prevent the meltdown in 2008 so 
we would not find ourselves in this situation today, but the 
regulators failed to do the job. So whereas your testimony 
likes to point the finger entirely at Wall Street and the free 
enterprise system and capitalism for failing in greed over 
there, I think we can equally point the finger back at the 
regulators who were sitting in these companies. They failed to 
do the job.
    Mr. Waxman. The solution isn't to end regulation, which is 
what I hear from the Republicans, or to put in people who won't 
enforce the regulations.
    Mr. Garrett. And I appreciate that. But as you can see from 
both in this committee and Financial Services, there is not a 
single Republican who has ever said to end regulation. Everyone 
simply said to reform it.
    But let's turn to another issue that I know is dear to the 
Governor's heart, and that is the area of education. And that 
is also important to me as well. So you have K through 12 
education, and we know what has been able to be done in various 
States, such as yours, as far as reforming it, which will 
provide for better educated students and a better economy going 
down. My question to you is this, though. Do the States have 
enough flexibility in this area in order to achieve what they 
need to achieve, or is this one other area where the Federal 
Government has intruded to such an extent that we are once 
again providing for an impediment or a barrier to free 
enterprise to be able to grow by allowing for a flourishing 
educational system in the States?
    Mr. Bush. Well, historically the Federal Government's role 
in education has been limited. It has grown in the last few 
years. The last decade it has grown I would say. But it is not 
similar to say health care, where the Federal role is now 
significantly, both in regulation, spending, and the two major 
programs, significantly higher. But there should be 
flexibility. I think the objective ought to be a year's worth 
of knowledge in a year's time. There ought to be effective 
measuring. And States ought to try to apply different 
approaches.
    In our case, we had an accountability system that was based 
on grading schools, 100 percent based on student learning, 
ending social promotion, school choice, compensation for 
teachers that was different than just longevity of service 
driving it. Digital learning being an element now of the 
Florida strategy. And the results are there.
    Just Congressman Waxman will probably appreciate this, low-
income Hispanic kids do better than the California average on 
the fourth grade reading test even though we spend, you know, 
we spend less than $7,000 per student. It is because we had a 
focused, strategic approach. Washington is not equipped to 
provide that. And Florida is different than California. We are 
different than other States. And so, you know, we ought to be 
given more freedom to do things.
    I think the Title I moneys is a place where maybe there 
could be more innovation, for example, in the lower performing 
schools. You know, I think you could trust Governors and State 
legislatures and the communities in States to be able to come 
up with the best solutions.
    Chairman Ryan. Thank you. A vote has been called, so we 
have to move with dispatch. And the last, but not least, is Mr. 
Mulvaney.
    Mr. Mulvaney. Very quickly, Mr. Edwards, thanks very much 
for coming.
    I am going to ask a question on a different topic, which 
are miscellaneous tariff benefits, something that is getting 
some attention here this week. By way of quick introduction, 
these are reductions in tariffs on things that are not made 
here that are generally available to the marketplace. And we 
are having some debate now as to whether or not those are 
earmarks, whether or not those are tax subsidies. In fact, 
there is some specific discussion as to whether or not 
miscellaneous tariff benefits are a subsidy similar to tax 
loophole. And I would just like your opinion as to whether you 
think MTBs are tax subsidies or tax loopholes.
    Mr. Edwards. Tariffs are taxes. I mean, they are taxes on 
international trade. Ultimately, we should move to 
international trade agreements, get rid of all tariffs. You 
know, tariffs don't just hurt American consumers. Tariffs hurt 
American businesses that use imported products. You know, you 
look at big corporations like General Motors, I mean, they 
import an enormous amount of parts and other goods. So when we 
put tariffs on their production, it hurts American businesses. 
So, I mean, you know, I am not familiar with the particular 
bill that is in front of Congress there. But you know, tariffs 
are not a good idea in general. Like taxes, they distort the 
economy.
    Mr. Mulvaney. Generally speaking, would these reductions on 
tariffs, on products that are available across the market, 
would you consider that to be corporate welfare?
    Mr. Edwards. No. Certainly not. You know, I am for closing 
tax loopholes. I am for closing--I am for getting rid of 
special deals on the tariff side. But I don't--special deals 
for particular industries on tax and spending and tariffs are 
distortionary. But it does strike me there is a difference 
between, you know, tax reductions and tariff reductions and 
spending.
    Mr. Mulvaney. And ultimately, the primary beneficiary of 
these lower tariffs is the consumer, is that right?
    Mr. Edwards. Oh, absolutely. Again, both consumers and 
American businesses that use those imported products.
    Mr. Mulvaney. Thank you, Mr. Edwards. I appreciate you 
being here.
    Governor, I don't have any questions for you. Thank you for 
coming. I appreciate your time.
    Mr. Waxman, I have one question for you. I have sat here 
for about the last hour and heard the auto bailouts mentioned 
several times. They were designed to somehow save the auto 
industry, save them from bankruptcy. Of course, you knew that 
Chrysler went bankrupt anyway, right?
    Mr. Waxman. I do know that there is a vibrant American 
auto----
    Mr. Mulvaney. Did Chrysler go bankrupt in April of 2009?
    Mr. Waxman. Yes, they did.
    Mr. Mulvaney. Did GM go bankrupt in June of 2009?
    Mr. Waxman. I don't know. I will refer to that to Mr. Ryan.
    Mr. Mulvaney. Did GM go bankrupt after the auto bailout?
    Mr. Waxman. I don't know.
    Mr. Mulvaney. They did. I can assure you they did. It was 
the second largest I think bankruptcy in the history in the 
country. I am a little surprised you hadn't heard about it. I 
have only got one question about it, which is that when they 
went bankrupt, Mr. Waxman--I will ask the question. I 
appreciate your answers.
    Chairman Ryan. Give him a chance to answer.
    Mr. Mulvaney. When Chrysler went bankrupt, it did so in an 
extraordinary bankruptcy proceeding that denied, for the first 
time in a long time, if not ever, secured bond holders of the 
rights to which they were entitled. One of those secured bond 
holders was the Indiana State Teachers Retirement Fund. Another 
was the Indiana State Police Pension Fund. Together, those two 
pension funds of public employees, teachers and policemen, lost 
several millions of dollars of their retirement money. And my 
question to you, as a supporter of the auto bailouts, what 
would you like to tell them?
    Mr. Waxman. Well, I am not an expert in this area. But I 
know when the airline industry goes into bankruptcy, they tell 
their workers, you can't continue the pay that you have already 
negotiated from us. This is a way to break the unions and to 
take away benefits from them. People get hurt. And when 
businesses go bankrupt, the stockholders get hurt, the bond 
holders get hurt, but in this country, the CEOs all come out on 
top.
    Mr. Mulvaney. Mr. Waxman, do you understand the difference 
between a secured bond holder and a stockholder?
    Mr. Waxman. I do.
    Mr. Mulvaney. So what would you like to tell the secured 
bond holders, who were entitled to certain protections under 
ordinary bankruptcy law, who didn't get them in these 
particular circumstances? And specifically, I am speaking of 
the retired teachers and retired policemen of the State of 
Indiana.
    Mr. Waxman. Tell me what you would like to tell the 
unemployed auto workers and the industries in the Midwest that 
are dependent on them if we let the auto industry go down the 
tubes.
    Mr. Mulvaney. And I will ask you again, Mr. Waxman, do you 
understand the legal difference between a secured bond holder 
and an employee, a secure bond holder and a supplier, or a 
secured bond holder and an ordinary stock holder?
    Mr. Waxman. I don't want anybody to get hurt. But the fact 
is that people do get hurt when we have a mismanagement of the 
economy so that we have banks taking huge risks with other 
people's money on securities that don't make sense, and then 
slice them and dice them and sell them abroad, and the whole 
bubble fell. And government should have been there to stop that 
from happening, and government wasn't there.
    Mr. Mulvaney. And instead, what government was there to do, 
Mr. Chairman, was to steal money from retired teachers and 
policemen in order to give it to unions. With that, I yield 
back the balance of my time.
    Chairman Ryan. Thank you. All time is yielded. As you can 
tell, Washington is as friendly and kind as it ever was before.
    Henry Waxman, Congressman Waxman, thanks for coming, 
spending your morning with us.
    Chris Edwards, you have come and testified a number of 
times. I appreciate your insights.
    And Governor Bush, it is not all this bad. When these 
microphones are turned off, some of us actually do kind of get 
along with one another. So I just want to thank you for taking 
the time out of your busy schedule to come and share your 
insights with us. Thank you very much. This hearing is 
adjourned.
    [Whereupon, at 11:47 a.m., the committee was adjourned.]