tv Today in Washington CSPAN December 9, 2010 6:00am-9:00am EST
>> so i think it was a genuine enthusiasm by tom coburn and mike crapo, the idea scrubbing the deck, broadening the base, dramatically slowing the rates, and generating economic growth, that overtime would allow us to stave off future rate increases and maybe eventually cut taxes further. >> donald, is it your sense that we can sort of productively look at tax expenditures and address them in this same way? >> i think in general, yes. i think we need at some point to
draw distinctions come as rudy was saying, people have different reactions. this is one of these topics were depending on the audience and the mood of the speaker, you can characterize it in different ways. when i want to be a little more risky about i call them tax breaks. and i want to be risky i called him loopholes and special interest positions. when i want to be honest i refer to them as the mortgage interest deduction come and charitable deduction and the state and local tax deduction. [laughter] >> then there are a set of issues about some of these things do look like spending programs run through the tax code. that is something that we choose to implement to income tax system. things like the mortgage interest deduction. encouragement, intended as an encouragement. you go that looks enough like a
spending program to call it a tax expenditure. things like the favorable tax rates that we have under current law, capital gains and dividends, those are i think different kind. they are a deviation fully standard tax cut would look like. those are different because they're trying to address a problem in our tax system which could be the issue of a double taxation income that is earned by investing in corporations where its tax and comes back to investors. i don't want to open that whole debate. but those provisions are at least different in kind that you can argue they are there for tax policy, not necessarily a running, spending from tax code issue. >> since you brought up capital gains i can't resist an accident, it's fascinating these proposals treat capital gains and income as ordinary. it's gotten surprisingly little discussion. really, what you think about
that? >> well, first of all, in our simplified tax plan would have differential rates. from the past history i have been both philosophically and practically an advocate of progressive consumption taxation. i think philosophically it makes much sense going back to the 17th century, it was better to tax people on what the extract from the economy as measured by consumption, rather than by what they contribute as measured by income. but a practical problem is that it's very difficult to define capital income. you've got to define economic depreciation. you've got to deal with these peculiar things called capital gains that are only sort of involuntary tax. you decide when you realize of
them, and you don't realize them every here. so i think it's very difficult under an income tax system to decide what exactly the right tag should be for capital gains. it is, as people have pointed out, one of the things that allows warren buffett to pay a lower tax rate than his secretary. but basically i'm not sure there's any right way, but certainly taxing on ordinary income makes the whole system a lot more progressive than would be otherwise. >> bruce, is that why you didn't? >> we came to the conclusion, the same conclusion as reagan. the biggest advocate for treating capital gains as ordinary income on our commission was dave, the ceo of honeywell, whose view was bring down the top right, bring down the corporate rate, for capital gains at the same rate and you
and all kinds of funny business that goes on. inefficient, that leads to all sorts of distortions, and look on the capital gains rate has been -- its 15 a. it was 20 in the '90s. it was 28 under reagan. economy isn't doing necessarily that much better at 15 that it was doing at 20 or 28. so we felt that on balance if you have low top rates, lower corporate rates than it was find to treat capital gains at that rate. >> i would go without explanation. basically, i think the evidence, that when you have capital gains, at differential rates, the evidence is that you have a lot of resources flowing into
things that would attract the resources if they were taxed like everything else. it's nice work for tax lawyers, and they are fine people -- [laughter] >> but i don't think it's a useful thing to do. >> one are the other big differences i think i should say that reading these, i'm really struck by how much these proposals all have in common, but this being a panel we will focus on the areas where they are different. one of the real important differences is the presidenpresident commission actually decide to fix tax revenues as a percentage of gdp, 21% of gdp. i first want to ask bruce why you picked 21, why was it better than 20 or 23 or 22? and why you decided to fix a% of
gdp at all speak with the trajectory that we are on, by 2020, will be at about 24, 25% of spending in the absence of any action. and will be at 18 or 19 at revenue. it was pretty clear to us we needed to meet in the middle somewhere between those two lines, that we couldn't. we certainly couldn't afford to go to 25 come and go the favorite difficult to get to 18 and 18 or 19 and 19. and as i said earlier, we felt that spending was the place to start, that republicans made a compelling argument that in the past when the tax increases came along, it wasn't quite followed because the need for fiscal restraint was just around the corner and the additional revenue made it easier to keep
spending. so we wanted to put eight top lid on spending your we felt that getting revenue from 18 or 19, up to 21, would be a heroic achievement. it's as high as it's ever been throughout, since with a progressive tax code, about 18. we have crossed the 20 mark ones, and that was primarily because of a booming economy. so that was the most that we were comfortable taking out of the economy. we felt that was the best area for common ground, and it took a lot of work to get spending down in that neighborhood. unicom on our trendlines we couldn't get to a balanced budget until 2035, but we thought it was more important to have those lines, tried to converge at a relatively low
level because this challenge is not going to go away. it's not as though in 2035 we're going to be on easy street. there will be additional demands that come, and that if we sell into a high level now, we'll be in a world of hurt down the road. >> rudy, i remember there was something called penders law. at the tax much higher, our taxes that much higher than they do, that people would revolt. they wouldn't stand for it. has that changed? cavalry get to plateau of? >> i have no memory of penner's law. [laughter] >> probably a feature of old age. >> it is remarkable, historically, how constant the ratio of tax to gdp have been. they have very between 17 and 19%, except for a very few
aberrations for the last 50 years. and average somewhere between 18, 18.5%. i can't really explain why that has happened. i don't really think that's a you should think of it. you can think of a government at 21% of gdp that's terribly wasteful and inefficient, that the stupid things. or you can think of one that is very efficient and does things that we all like. but i think that's the way you should think about it. what do we all like, what do we want government to do and what can it do efficiently. and once you settle the expenditure side, then you have to decide how to pay for it, and you hope to pay for in the most efficient and equitable way possible. and, of course, we will argue about what words like efficient and equitable mean. but that's the way the debate should go, and if it falls out,
spending at 22% of gdp, so be it. or if it is 20%, so be it. but, unfortunately, we do tend to think of it in aggregate terms. and i really don't think that's very productive. >> doesn't make sense to you if we tried to fix -- the commission didn't do it, but try to fix tax revenues? >> no, it doesn't. just because i signed onto the president's plan doesn't mean i endorse all of it. and that 21% cap on revenue didn't seem to me either feasible. i don't know how you do it actually. there wasn't a mechanism. neither feasible nor desirable. it seems to me that we do need to have the kind of conservation that rudy a alluded to. as i read about the we are an
aging society with a taste for good medical care especially for older people. and that combination is going to draw our spending up over the next couple of decades, even if we are very successful in doing everything to make the health delivery system more efficient. so i think, you know, it's not the end of the world is spending goes up to 22, 23, which it does in the rivlin peace even after stringent cuts and restraint in the entitlement programs. i was struck in the election that everybody who talked about smaller government avoided talking about social security
and medicare, and even medicaid. and i just don't think they realize that if you go on doing those things, which everybody wants the government to do, it's going to cost more over the next couple of decades. >> .org donald, where'd you come down -- doesn't make sense to try to fix tax revenues to a percentage of gdp? >> no. we need to figure out initially what we want the government to do and we needed to get a result way to pay for it. if you take rejections as we have today, it looks like the asian cup ovulation and rising health care cost, there will be upward pressure, and that as we get further down the future, prices will be higher for some time. we ought to put together a plan that reflects that. there is no magic number. people ask us if there is a magic number. at what point does the economy fall off a cliff.
the reality is there are no magic numbers do everything is gray. everything, decisions are at the margin. than to drive home rudy's point, it's not just about the size, it's about how well the government is structured. are you getting value for your money. then appoint all of us made about tax expenditures, which unfortunately unfortunately, i am very, very guilty of this, but whenever i talk about the gadget i talk about we spend 20 odd percent, but because of tax expenditures those numbers are very squishy. even if you wanted to have a cap like that i think what you have to do is go back historically, look at the tax expenditures, figure out which ones you were spinning and have an adjusted measure to track the government over time. something i might do this but has not been done. >> i think there is a word about how the conversation is going, not only here but also in europe with the british with consolidation, and ireland and other various places.
wherever you look there's a great reluctance to talk about specific programs. we talk about freezing civil service pay. we talk about cutting the number of civil servants, et cetera, et cetera. but we don't really talk, except defense, we are very specific here, exactly what kind of weapon system should be cut and so forth. but in the nondefense area we don't really talk about all these, what all these things we are doing, what we're doing to civil servants will do to the actual program. >> .org mentioned this question so how we pay for. we decided what kind of government we want, how will we pay for. it is interesting that the commission came up with a slightly different approaches to doing this. the bipartisan commission, chose a value added tax. the national academy plan included a number of different
options including a consumption tax. the president's commission chose to stick with the income tax system as it is, although radically reformed but still basically an income tax framework. let me actually start with bruce and ask, do you consider a consumption tax, and why did you in the end choose not to use when? >> we look at it. we do have a modest energy tax, 15 cents a gallon gasoline tax. we look at consumption tax, we look at some intriguing plans including the grass plans which transforms income tax system, drops, gets rid of income tax under 100,000 add a consumption tax onto that. you know, the united states senate took a boat on a v.a.t., and failed 85-13. our vote was 18 and 13.
we didn't see much process that when the senate was 100 members they couldn't get, couldn't get there. and i think there was just an insurmountable, there were some supporters of consumption taxes on the commission, an insurmountable hurdle for a number of the members come including some democrats, that i think all of the republicans, about how to get there from here. that you know industry we are starting from scratch. the republicans said the only way to get us to support time with his if you go along with repeat the constitutional amendment that allows income tax. we didn't think we could get consensus on that either. [laughter] >> from the republican standpoint, a turning point in the commission's deliberations was that a tax working group
meeting when dawn was the star witness and a couple of commissioners acid on his opinion about what we should do, which wasn't the game plan. he was a prime for that question and other commissioners weren't primed for his answer. [laughter] >> he made the case for a consumption ask -- consumption tax and cost a bit bit of a stir. [laughter] >> and so, one of our co-chairs said we are not a god damn v.a.t. commission. and from that actually, that made -- [laughter] >> it's not the one you think. [laughter] >> for i think for the republicans who ended up supporting the plan, our plan, that was a seminal moment that actually, the purpose of this
exercise wasn't to be a camel's nose under the tent for some kind of new tax engine. that we're just try to figure out what was the best way with the broadest bipartisan consent to cut spending and raise some revenue. >> we came up with a different solution. why was that? >> well, the first place, didn't call it a v.a.t. [laughter] >> one of our most articulate members, a former republican governor, said if you call it a national sales tax, i'm for it. if you call it a v.a.t., i'm not. that sounds vaguely french. [laughter] >> in any case, the discussion that we had, was between consumption tax and energy tax. once we realized that we liked
our tax plan with sizzle, but it wasn't going to raise enough, so we're going to have to add another tax. so there are strong arguments for carbon tax, broad-based energy tax of some sort. we talked about that quite a lot. we talked about the arguments for broad-based consumption tax, which i think are major. personally, i would be in favor of shifting in an ideal world to a progressive consumption tax. but i haven't a clue as to how you get from here today. we do know that a sales tax to whether collected at the retail level are like a v.a.t. is a doable. every country does it accept us. so we ended up opting for the
debt reduction sales tax, and rejected the energy tax, not because a lot of us didn't like it, but because we did want to new taxes. that seemed a bridge too far. and the energy tax reason the level just doesn't raise enough money. >> we have learned she made a presentation to the president commission to create all this fuss. why did you tell them we should do a consumption tax? >> thanks for giving me the opportunity to clarify. [laughter] >> for the record, like alice i recommend a progressive consumption tax. but along the way i and roseanne altshuler, my predecessor here, and before that we did raise the idea of a v.a.t. as one possible option. and yes, as bruce described i would say without i think filing
for backward in a closed room that disputed reaction was from both sides of the aisle. by no means one or the other. it was as reflected in the vote in the senate i also can't when pressed to recommend what i prefer, i recommended something called an exit tax which is basically a way taking an income tax of turning into a progressive consumption tax. i was also strongly criticized without suggestion for reasons that have to do with international treaties which gets beyond my lane. what was your question? [laughter] >> so just to follow-up, my personal hierarchy, just so people know what, my hierarchy is if you're going to raise more revenue don't you start with the tax expenditures like we've all talked about. that are helpful to think you can do that raise more money and make the economy more work -- work more efficiently.
close to when when when collecting more money. infamy the nixon you do the energy taxes. the classic economists, tax things you don't like rather than things you do like. carbon tax, gasoline tax. and then kind of see where you are. see where you are on spending, see we are on revenues. if you are closer than you are done. if, in fact, when all is said and done spending will be significant-that, then the three letter acronym in france, jenna, crops up when you say okay, there's a reason that the rest of the world uses consumption taxes, and they make sense. but it only makes sense if you want to raise a significant chunk of revenue for them. you don't want to go to the nuisance of creating a v.a.t. or a v.a.t. of like thing and click on 1% of gdp. it's got to be big enough that it's worth the trouble. >> how do we get from here to there with a consumption tax.
rudy is one person who spent several years thinking about that and quite a lot of detail. based on your experience with the tax plan, can we get from here to there? is it worth the candle? >> well, that is a huge question. and becomes a more complicated question when, like we were working with two politicians i admire greatly, senator nunn and domenici. but they have their own idea to certain things they wanted to favor within the system, for reasons i never figured out in his consumption system that didn't tax capital income at all. they were strong and maintain some advantage. so when you add something like that to the system, it just complicates it to no end. we tried to use of the transition, but their attempt
the rules got hopelessly complicated. they became impossible to explain to anybody. so i think if you want to do it, you just have to do it. as much as the rivlin commission data, i think any easing of transition get you into a quagmire. >> let me take a break from asking questions and do you all a chance to ask a few. as usual, the ground rules we like your art, please introduce herself. wait for a mic. these make your questions and not just statements. right here. hold on just a second. >> my name is richelle friedman. i'm with the coalition of human needs. i am deeply concerned with the fiscal commission did in relationship to domestic discretionary spending which has been very, very small contributor to the situation
where we are in. i know the first round the commission said let's get back to '08, which is a deep cut by 15, but in the second round at the behest of republicans it was moved to 2013. at the rate we are going if we don't do the appropriations bills in this lame duck, there's going to be a push by republicans in congress to go to a late next year. i very much appreciate that mr. heflin has come out strongly think that domestic discretionary is deeply cut in the fiscal commission package. on the other hand, there seems to be little little push to do speak with her to talk about taxes and not spending. do you have a question? >> yes. it seems to be very, very little impetus on a side, particularly of house republicans to do anything that calls for a tax increase. so i want to know what people think as were talking about well, we're going to do this tax
reform and so forth. what's the likelihood of it really happening? because in the meantime the spending cuts are plowing forward, but i'm concerned that tax revenue will not be increased. >> i think that question was for me. [laughter] >> well look, we were incredibly hard by a bipartisan support we got four plans last week. and to have a plan that were embraced by dick durbin, a progressive champion, mike crapo and tom coburn, stalwart conservatives, along with kent conrad and judd gregg who are champions of the original concept, suggests to me that there is a lot more room to get things done than anyone could have possibly imagined. and why could such a broad spectrum of members come out for a plan with as much as this?
because they're generally concerned about the fate of the country if we don't act. i think that's going to be what forces us to take action here. i will take slight issue, roseanne, with your charactercharacterization of domestic spending cuts. it is true that we have tough -- a very tough discretionary path, but you have to look at the whole picture, what house republicans have proposed is deep cuts going back to 2008 levels entirely on nondefense discretionary spending. what we said was we need to be tough on spending but we need to be fair about it. so we set up firewalls require proportional cuts to defense programs, security programs, and domestic programs. if we don't do that it will put more pressure on the nondefense discretionary programs than anything else that we could possibly do. so those programs will come out a lot better off in our plan which has firewalls than they would in the conservative plan
that scarce defense and kept everything else. >> to follow up, you did have house republican members on the commission who did not support the co-chairs will. it was interesting, they said one of the reasons was really health care, not taxes. did you get a sense there was some give their own taxes? >> i think that, one of the frustrating things about the tax in my experience, i've been in washington for 25 years, the economic debate has all been about raising taxes. a threat that democrats would raise taxes. taxes have gone up by my count three times in that time. and in the bush read my lips deal, clinton added another bracket, 4 cents a gallon on gasoline. 4.3 cents a gallon. [laughter] >> and yet we spent 25 years debating the threat of higher
taxes. one of the reasons that i think that, what you like the number 21 or not, the notion of a cap on revenues is that it takes -- in the same way that a cap on discretionary spending takes away the debate about whether you will spend more or less, you could start debating on how you should spend what you've got better. we need to have that kind of debate on taxes. and the ways the republicans viewed our package when it was clear that it was a slippery slope, it was a 21 on the way to 30. it was just 21. a hold of there. transform their view of it. and so i think there's, you know, i think if republicans genuinely believe that democrats are willing to hold the spending down time and democrats genuinely believed that republicans were willing to have
a balanced budget that included revenue, i think we can get there. >> i think we can add a point here. that's been made before, but some very conservative people about this, to the extent you see give on the revenue side that goes back to this notion that so many of these special provisions are just expenditure programs by another name. and i think you will see the conservative side willing to give on that point. >> whether something actually happens in the next few months depends on several things, but first and foremost on presidential leadership, and where the president is gone and you'll see that, i hope, in his budget in his state of union. if he comes out strongly for tax reform of some sort, roughly in
this ballpark, then i think the chances are enormously increased. and many other thing is, i don't think the house republicans actually know what they're bottom line is at the moment. they are trying to figure out what being in the leadership means, and they are jockeying for position within the group, and reading too much into the post campaign pronouncements i think may not do you much. >> i want to come back to this political question, yes, ma'am. hang on for just a second. >> i wanted to return to the subject of tax reform and specifically how the agreement with congressional republicans and obama about the tax rates might affect making tax reform a top are ordered in the next congress.
>> a couple thoughts on that. as a member of one of the commissions and similar position, i think it's interesting one of the tweakers if you will, doing a payroll tax holiday that a portion of that showed up in the plant yesterday. it's kind of consistent with the view that things will be easier to pass and the less sweet things. for accomplishing sentimental tax reform, suppose that yesterday's proposal goes forward and all the very things get extended in their various forms, i think one potential benefit of that is what i would characterize as a bandwidth benefit. that those issues which frankly have taken up a amount of time in congress between the tax extenders on the corporate side, the expiring tax cuts, the estate tax, although long litany of things, that if they all get extended for two years great an opportunity i think and 2011 for the folks on the tax on commission to focus on something
else. maybe i'm a dreamer but i like to think that thinking about our long run debt problem in thinking about how broken our tax system is and how much it needs fundamental reform, that creates a window and 2011 what they can think hard about these issues. >> while we are at it, but he asked bruce and rudy about this. again, become your this experience some years ago, and obviously up legal system was not ready for political reform of any kind. we haven't done it in 25 years. do you get the sense that the mood has diminished and perhaps we are ready, or at least heading for ready? >> well, the first point is that tax reform is devilishly difficult. coming, and nobody a lot of losers and it always seems that the losers howl more loudly than the gainers how in support of these things. so i don't want to underestimate
the difficulty of this. but when you look at these a series commission reports, i think that one thing it has done is is reduce the political unpleasantness of reform, if i could put it that way. is still a very, very tough road to hoe, but i think all of these reports make clear that it's just very, very attractive if you compare it just to raising rates in the current system, or devising other ways to go, like a v.a.t. it's the way of raising revenues and financing a somewhat bigger expenditure level without the extreme inefficiencies and inequities of our current system. and i should make it attractive, both to conservatives and liberals.
whether it will or not is another issue. >> bruce, do you want to take a crack at this, especially consider what we saw overnight. gives us nearby which we go from that which is politics as usual, extreme, to something very different. >> i think the time is right for tax reform for a handful of reasons. first, you are right, the tax cut deal is the best evidence we could possibly see why we need tax reform, that he we are debating the future of the bush tax cuts long after either party really wants to be adding that debate. and i think the tax-cut plan ought to be contingent on, any shortcut tax plan ought to be contingent on deficit reduction, but whatever happens with his tax-cut plan we don't want to be in the same situation two years
from now that we were end over the past few weeks. we have an opportunity to strut the deck, to fundamentally overhaul the code, to change the debate in a way that is going to be genuinely positive for the economy for economic growth, and for individuals. this deal only goes through 2013 under our plan, under alice's plan. we assume the tax reform wouldn't kick in until 2013. so i think the opportunity is there, but i don't see any other way out of this box. we can't afford to extend all the bush tax cuts for the rest of the decade. that except to the same amount of deficit reduction allies and our plan -- alice and our plan.
that would add to the deficit. so i don't see it happening, and i think when you've got -- the other thing is that fiscal reckoning is coming. we have to do things differently as a country. we can't afford to throw good money after bad. and the most important reason for doing tax reform is if you're going to dedicate $1.1 trillion to some kind of use, you ought to think about where it's going. you ought to look closely at it to make sure that some fraction of it is actually going for the purposes you intended. so i think it is, that it would be a great issue for both parties to grab hold of. we had divided government, the only candidate you can have our over issues where both sides want to come to the table. this is one that has a lot to offer. >> and searching for the scenario, searching for the
roadmap. for how we get from where we are today to this tax reform. alice, do you have one? >> i don't have a roadmap but i think everything that my colleagues have said, there's going to have to be some action in the next congress, the forcing thing may be the debt ceiling. now, the debt ceiling is going to be upon us in march or april. you can't write a tax reform between now and then, but it might be the occasion or mutual commitment to do so. >> other questions? yes, sir. way in the back. >> i'm with forbes. as you know, the compromise announced last night took out work pay and replace it with the payroll tax cut, which is something at least two of the
panels should be considered unwanted from a standards perspective what you make of the trade off, and also how difficult is going to be to remove that payroll tax cut in a year if the plan goes through? >> in rough orders of magnitude based on the number's i've seen, if the payroll tax cut will be about -- engrossed dollars it's going to be bigger. the making work pay is all that more targeted than the lower and moderate income folks, kind of our keynesian view. you would suggest the making work pay, dollar for dollar has a little more bang for the buck. but the payroll tax is much, much bigger. i have to run the numbers but i expect an aggregate the payroll will provide more to the stimulus. bennett also, note it also has the effect of reducing somewhat like the marginal rate cut marginal tax rate on earnings
for anyone whose earnings are less than whatever it is, 106,000 at the moment. you going to get a little more of that as well. in the long run, the second question you asked is wait a minute, if this passes we will have added one more larger thing to the list of tax extenders that have to be addressed in 2012. and 2012 is not going to be a normal year. every four years we have a year like 2012. there will be this gigantic stack of things that are going to expire. and all i can say is yes, there will be a fascinating debate. [laughter] >> and i think my aspiration and hope consistent with other folks, hopefully a epiphany will strike and we will clean up our tax code in the intervening years. >> yes, ma'am. >> thank you.
the 2005 tax provision also address the mortgage interest deduction and want to tap it and now we've seen a whole housing collapse. what do you think is different now from 2005? and how do you feel that the changes to the mortgage interest deduction will play out? >> well, it is one of the most sacred of the sacred cows. i think the real question is whether it has much effect. if countries like canada that don't have one, and homeownership rates are similar, if not better. so it's really come is really a subsidy to the mortgage more than to the house. and so it's a question whether it just increases leverage without increasing real housing investment. but all of those things are probably irrelevant to the political base come and the most
important thing is a very large portion of the population gets it and enjoys it and it will be very difficult to deal with. i would like to get rid of it altogether, but as a compromise you see the proposals converted to a credit, and a limited to smaller mortgages and only one house and so forth. >> one thing that's happened since 2005 is we've had a huge demonstration that we know how to build high-end houses. too many mcmansions, and there are a lot of reasons for that, but one of them surely contributed factor was the fact that the mortgage interest deduction is so skewed towards upper income people. that's an economist argued but i think it's one more reason why we ought to rethink this one. >> the argument of course will be this is the wrong time.
>> is always the wrong time. >> you can't drive prices down even more, by get or adjusting the mortgage reduction. how do you respond to? >> that's the challenge. my sense in the conversation, on the one hand, some of the sheen has gone up in housing, and a lot of fishing has gone up in debt. so mortgage interest kind of brings those two together. to try to rollback the mortgage interest reduction we've seen in many historic but on the other hand the economy is weak and housing is weak and housing is important to the economic future. so how do you square that circle, and the answers you think about some ways that keep in mind the long run coal which will be to reduce world eliminate or ratchet back dramatically. and figure out someway to get of days into debt, grandfather some people, there are people in america who bought a house last week with a fresh new mortgage. it would be incredibly cruel to get rid of the mortgage interest
next week. do that with your eye on the prize. >> bruce, this is supposed to be another one of these third rails, yet a bunch of politiciapoliticians got together and said let's do something about it. >> we figured we are pretty well grounded. [laughter] >> i think, watching a tax form -- tax reform plan with the commissioners was what we did was we took them all away and we sent you can add whatever you want to back, but you have to raise rates, or reduce the amount of deficit reduction. and in that space, most of these expenditures really don't stand that much of a chance. they will survive in some form, but not the way it used to be. most of the ones we've talked about are skewed towards, skewed
toward the affluent. they are not well targeted. they were crafted to be the most efficient. and so when you take another look at and you end up doing what alice's bashing alice did, what we did. you limit the cost in the way you would any other program. because otherwise you are sacrificing the goals of deficit reduction or lower rates. i think there's an enormous transition to the new world that we had to get to, and i guess the sunny side of deficit reduction is if we can muddle our way along and be headed in the right direction for the next decade, we don't have to solve it all at once, but our commissioners took a look at the health explosion which was a huge ticket in health reform debate. and eventually the democrats and republicans agreed can we really don't need this over the long haul. we should phase out. so alice face it out over 10 years.
we face it out over 20 years. and i think most, many, many, many, of these expenditures just won't be able survive the scrutiny they will get now. >> i was actually impressed by the amount of tension it is got in a discussion, given as bruce said all the other third rails that a been brought up. i recall in a taxi from, reagan's tax reform plan he proposed limiting the state and local tax deduction and got a tremendous amount of pushback. i haven't heard anything about that. but you guys have done that in the fiscal commission in addition is got rid of the extension of state and local interest. someone, i was kind of wondering if you are surprised by the lack of reaction to that. and more broadly, has the
commission's thought generally about the impact of all of these proposals on the instrument that are responsible for 40% of our spending? >> we gave it a lot of thought to fiscal condition. first i should say that it is a real hero in this whole episode from a walk standpoint it is eric who sacrificed his thanksgiving and many other holidays to run the disillusioned analysis for our commission. and we are forever grateful to him for spectacular work. and to don for making him do it. [laughter] >> one thing that was clearly distinctive from this set of deficit reduction efforts, distinct from the ones in the '90s, is that it was never an option to choose to solve the
problem to the states. estates are going broke faster than the federal government, don't have any ability to borrow, aren't in a position to pick up the slack. so we never took seriously any cost shifting efforts. the state and local deduction come as you know better than i, is pretty much washes out what the alternative minimum tax. so same people if you're a limiting the alternative minimum tax than you are, you are largely limiting the need for state and local government. i think when tax reform happens it will be hotly debated. and as i said we had so many third rails in our plan that many of them just slipped under the radar. and we haven't gotten any death threats on that one yet. [laughter] >> on municipal bond interest
our first, i did get a call from a bond buyers think, am i reading this correctly? but i think it's a good example of something that congress might want to do, namely, support municipal borrowing. but you don't have to do it through the tax code. if they really want to do it, do it. put it in a subsidy. it's much more efficient. >> one last question in the ba back. >> this is with respect to the bipartisan policy center. does the payroll tax cut, i think it lasts for just when you, but by what mechanism is the social security trust fund made whole? >> out of general revenue. it increases the deficit, -- >> but it's immediately, it's replaced immediately. >> yes. i think so.
it was certainly replace. i don't know exactly -- i think immediate effect is that right, do you know? the payroll tax rate payment -- the payroll tax holiday, does he get immediately reimbursed out of general revenues to the -- >> yes, it is immediate. >> okay. yes. >> before going to each of the panel is, yes or no question. this is sort of off of what bruce, the schedule chris was talking about before. we are going to extend the bush tax cut for a couple more years. do you think that we would use as peter orszag and others have suggested the next few years to reform the tax code so that by 2013 we will be prepared for a new, brand-new spanking tax code? bruce. >> yes. [laughter] >> rudy? >> may be. [laughter] >> alys?
>> a discussion on competition among the food supply chains. will hear about the relationship between food producers and the small group of large firms that buy most of their products. the u.s. agricultural department and the justice department host this event. it's an hour and 35 minutes. >> good morning, everyone.ryon certainly want to welcome everybody to the usda, for theud fifth and final in a series ofos working help held joined by the usda and department of justice. to explore the appropriate roled for antitrust and regulatory enforcement in an american
agriculture. i want to welcome the panelists who i will introduce in a few wi minutes, and my good friend, the rnto attorney general who i will .ntroduce in just a second.ecod in my travels across the country thhave heard from citizens who are concerned about the future of american agriculture. in these workshops we beenbeen looking at a wide range ofes reg issues regarding competition in agriculture. today we look at the dynamics iy between each segment of food of market change, margins in the t livestock poultryli and dairy d industries, and issues in the retailing sector.tal the obama administration is committethd to being the most on and transparent in history. hish this is why we look forward to this dialogue regarding theardi agricultural marketplace. i want to welcome all of you too this workshop into this hearing. today we intend to focus on a number of issues. il we will explore and understandvt
how livestock and other agricultural commodities move through our system. the dynamics and challenges inms each segment of the food markett chain.we it would h help to explore margs to the livestock and poultry in industry. and lastlyd we will focus ononf potential implications of consolidation in our retailingtl sector. i want to say these workshops have been very beneficialnt to e and the usda and helping usus understand the issues that are h most concerned and deserve closa attention. i acknowledged that the issue of agriculture competition is extremely complex. e e the ever-changing nature of the se sector suggests the need to ask questions and shed light on issues that frankly have not seen much light in many years.e. president obama has provide a clear direction. the governmentti should be opend and transparent, which is what e these workshops are designed to do and be. we want to and we have had aavec public dialogue on these issuess we have held workshops acrossxor
rhe country took for the appropriate role of antitrust record were enforcement. we had a workshop on concentration and hog market issues in ankeny iowa.. in may we traveled to normal alabama to discuss poultry issued in june we discussed various issues in madison, wisconsin, to in august we export competition and livestoct competition in colorado. tav in my travels across the country a number of themes have emerged. producers want to have wereketig maintain marketing options. they they want transparency. they want accesst to market.ts,h doey have fewer buyers with him to do business, and theye struggle with the debt and face challenges accessing capital.y and lastly they just want to be treated fairly and with respect. most importantly of all theycara care abobout the future of agriculture and want it to succeed.hy we which is why we have seen suchha an overwhelming response at th
these workshops. i for one and optimistic aboutci the future of agriculture, and r think the best days are indeedto ahead.ne for this teo happen we said we need to ask the right questions, and not ignored warning signs. a there are warning signs that we consider.hou america's midsize cars are are surely profitable, and not profitable enough to sustain aat family. at the iowaa workshop, he said y heaid my concern is not for me, but for my gifts and grandkids. make sure they can pursue the erican american dream as my wife and i have. he compared what he saw driving through rural roads of iowa andj missouri in the 1960s to today. i saw home build pot shelters and lots of rolling hills. i saw barnes across iowa with 100 rete pads out front with 50 to 100 calves. i saw that remained at work witt
their speed trucks -- vida im trucks. today he sees very little humann activity around what was once a thriving economic model. we all realize that agriculture can bebe exactly like it was 40 years ago.o, but the the warning signs or shouldn'ter se ignored either. yer in the past four years in a has state has lost 800,000 farmers and ranchers. and our remaining farmers are aging. from 2002-2007, the average age age of of the farm increase from 55, t. 57 years. the numbere of farmers being 7r years or older increased by 75% over the same period while the number of operating under 25 byars of age decreased by 35% take more than half of our worlg counties based on the 2000 census lost population. today's workshop we will ask more questions.mo we will explore moreue into margins and why the retail
values producers are shifting away from them and what that all means. in 2009, a hog producer ac 24.5% of the retail value of a hog. it is over double this percentage, nearly 50%, in 1980. last year a 13.6% went to the packer and 61.9% went to the retailer. cattle producer gets 42.5% of the retail value in 2009, which the compared to 62% in 1980. last year 8.5% went to the packer, and 49% went to the rei. retailer. toy we w today we'll also ask export whaf effects if the retail consolidation has had on themark marketplace. across all marketing sectors.anr and there are warning signs to pay attention to their as well. .. store sales in 2009 compared to 34% in 2004, 20% in
1999, and 17% in 1994 to read and we know that concentration can be much higher in certain regions. there can usually be an explanation of some aspects of these complex issues, but we must also ask if everything is fine, why don't we see young people getting into agriculture, why are people leaving the rural counties? at usda we take the warning signs very seriously and have taken a number of steps the usda and department of justice have the established agricultural competition joint task force to explore new opportunities for harnessing expertise and improving enforcement of laws designed to protect cruisers. particularly usda and the department of justice set. the new department to handle complaints for unfair and deceptive practices in poultry and timely resolve cases.
something we feel will further facilitate concerns we heard at the alabama workshop. enforcement was mentioned many times in the workshops. in the past few years the president has increased the budget to improve enforcement of were unfair and deceptive practices in the marketplace and the department is hiring new attorneys and field investigators for various violations. the grand inspection propose a rule last summer about fairness when it comes to poultry. is provoked considerable interest and discussion and we have a public comment which we heard in the colorado work shot. we will begin in earnest and in good faith to process these comments and draft a rule we believe will be workable, feasible and common sense. in january we put into effect a final rule to the stablish fairness in poultry contracts to
ensure producers no longer have contracts arbitrarily cancelled without notice. this resolved the problem concerned poultry farmers for many years and was specifically mentioned in our alabama work shot. looking forward to the findings and recommendations of the advisory committee that i appointed to review the issue of no price volatility and dairy farmer profitability. issues very important to participants of a workshop in wisconsin. the report will be delivered next year. in the meantime we should $270 million of payment in the loss assistance program. and $930 million under the net income loss contract program while we acquired 1 fourteen million pounds of cheese. usda has worked hard to support agricultural producers of every size and type and helping american producers by promoting exports abroad. this year we will have a record year of exports and by
supporting domestic and local regional food systems we're working to help producers to access markets in rural communities for investment in rural broadband access. in promoting agricultural products in ways to renew communities across the country and helping farmers and landowners capitalize new income opportunities that reward them for taking care of the environment. we have been busy in addressing challenges the existing agriculture and recognize people want us to do more and some would like us to do less. we want to focus on what is doing right and these workshops will inform the work we do every day. it is our hope the dialogue will extend beyond this last workshop and continue our around the kitchen table and coffee shop and academic institutions across the country. government may not have all the solutions to these problems but together we can continue exploring ways to address the
challenges that exist. want to thank you for attending and thank the panelists for participating in this work shot. all the panelists who attended the workshops are owed a debt of gratitude and the want to thank the institutions across the country who were kind enough to uphold these workshops. now i would like to turn the podium over to the attorney-general eric holder for his comments and welcome him to the department of agriculture. you are welcome all time at usda. i am not sure but you may be the first attorney-general to come to the usda to discuss competition in this type of forum and not want to acknowledge the career our attorney general has. conservative public practice, u.s. attorney for the district of columbia as opposed to judge of the superior court for district of columbia and deputy attorney general. he has worked to investigate and prosecute at the state and
federal levels and invest in strong enforcement in the antitrust laws to advance the interest of justice on behalf of the american people. i want to say publicly to the attorney general on want to thank him and his staff for their commitment to these workshops and also your willingness to work with us to try to resolve outstanding civil rights claims. please join me in welcoming attorney-general eric holder. [applause] >> thank you. it is a pleasure to be here at the department of agriculture. i thank you all for joining us. i know many of you have traveled a great distance to be here today. probably you left a warmer
climate to come to washington and i thank you for that. and the perspective you are bringing from the mississippi delta and south dakota and connecticut, california and communities in between will be critical to today's discussion. i would like to figure out a way to get one of those hats. this is the last time -- i see these guys all the time with those hats and t-shirts. at an end of my remarks i would like to meet with you all. i am from new york. i don't have a hat like this 40 shirt. you represent many regions and areas of expertise and his position in the agriculture supply chain and you represent every sector. as we look at all sectors soviet agriculture industry including the retail sector i have no doubt that this workshop like the previous four will provide an important learning opportunity for all of us and before we get started i would like to thank tom vilsack and
his team for hosting us and their partnership been conducting this workshop series. i also want to recognize outstanding efforts of the attorney-general christine varney and the justice department, each workshop i have been impressed with making the vision of these conversations a reality. now we find ourselves at the final work shot is clear the contributions are paying off. a tremendous amount from farmers and producers and industry experts as well as experts. i have every expectation that this will benefit the agriculture industry for years to come. over the last nine months we have discussed everything as the secretary indicated from vertical integration to dairy prices to the implication of -- leading poultry industry
challenges. we had the chance to hear from hard-working farmers and producers and professionals, an end as elected officials. the impact these conversations had on the enforcement strategies we are in the process of developing, have been i think profound. we know that antitrust enforcement actions will not solve every problem. we know that but because of the insights you have provided when circumstances warrant legal intervention i believe we will be better prepared to take steps necessary to ensure a fair and competitive agricultural marketplace called for producers as well as -- what has been clear throughout this work subsidiaries use thousands of public comments we have received over the past year and there have been thousands, that america's farmers and producers work extremely hard and they
want to keep working hard and are not asking for a handout to. what they want is a level playing field. nothing more and nothing less. that means they want market transparency. they want market access and market fairness. in tom vilsack's reviewed and president obama's view that is what they deserve. appropriate enforcement is an essential component of our commitment to market fairness and robust a joint task force with the department of justice and focused on agriculture markets and industry issues. it resulted in a and simple and acceptable process for putting concern and complained, the process outlined on the department of justice website
and i urge all of you to hold the complaints you may have about unfair or deceptive practices. i want to be clear about something, what we opened this past year, will remain open. agriculture will address your concerns, to ensure fairness and america's farmers and agriculture industry. our two agencies with new levels of cooperation, with measurable progress. it reached a new level. we face discrimination by the
government, and a transformed relationship, and many americans who rely on fair and effective process. i am proud of this, recognize we still have skill with workshops, and cuts across all assets of the agriculture industry is. and it is not black or white. we receive their fair share and compose a serious threat to industries to ensure fair and competitive agriculture market places for consumers and producers alike. i really look forward to the and
informative conversation today and to further the discussion for weeks and months ahead. these marked an important and unprecedented chapter in public/private collaboration. this is the last workshop but not the final chapter. as conversations carried our enforcement efforts will need to be sharpened and will continue to be strengthened and i am confident our nation will remain a great place to do business. faq one together for your participation and commitment to the goals we share. justice, fairness and opportunity for all. [applause] >> the process we have followed in these workshops is to open the workshop, to the panel discussion and our want to take this opportunity to discussed
the panelists. before or do i want to acknowledge and second the comment of the attorney-general concerning christine varney. she has been passionate about these issues and at every workshop and fully engage in every workshop and working to better that communication. so thank you for being here. just to give you some background, she held leadership positions in the public and private sectors from 1998 to 2009. christine varney was a partner in washington d.c. where she served in a dual capacity as member of the antitrust practice group and head of the internet practice group. from 1994 to 1997 she was federal trade commissioner of the federal trade commission and was leading official on a wide variety of issues. prior to her circus and the federal trade commission she served as assistant to the
president and to the cabinet in the clinton administration. thank you for being here. now to the panelists and we thank each and every one of these individuals for taking time to be involved. i will do this in alphabetical order. ben burkett as a farmer in mississippi. his family has for 121 years. he now grows 16 varieties of vegetables and herbs from farmers' markets. and arm of the federation of southern cooperatives, and president of the national farm family coalition. next is barry carpenter, ceo of
the national meat association. and following a 37 year career at usc and. during his tenure, represented the meat industry on a ray of key issues from safety initiatives to immigration reform. he has been involved in export issues especially working with the usda to support negotiations including our free trade agreement. and erik lieberman is regulatory counsel for the food marketing institute. previously he served as majority regulatory counsel for the house small business committee. from 2004 to 2007 he was director of government affairs at the national grocers association. prior to that he served legislative assistants. sitting next to me on my left is vaughn meyer lee personally third-generation producer from north west and south dakota. managing purebred and this cattle operation diversified by dry land farming operation for his wife and son. the ranch was homesteaded in
1909 by his grandfather and livestock added in 1955. the commission have a second lieutenant in the army medical care was involved in local national organization including the son of tacoma stock growers and u.s. cattle association. next to him is dan vincent, chief executive officer for pacific coast producers founded in 1971. made up of 165 family farmers in this and walking and sacramento valleys liege he served for del monte foods as well as in corporate agricultural credit for bank of america. he is affiliated with the national council of farmer cooperatives and the eggs council of california and his board member for superior farms. sitting next to dan is christopher waldrop, director of
the food policy institute of the consumer federation of america. association of 300 nonprofit consumer organization that seeks to advance consumer interests through research, advocacy and he oversees the research analysis for all food policy activities at the institute. we have a broad cross-section. on the way this is going to operate i will open with a question and turn it over to tom vilsack -- general holder and we will go back and forth. to give the audience a sense of this week no consumer demand and i proposed this to all the panelists today -- we no consumer demand has changed over the years. in some cases consumers are spending a significant amount of their food dollar away from home in restaurants, purchasing liberal more prepared meal that supermarkets and the retail
value is concentrated to processing the retailing side. that may be a reflection of these changes. my question is tell us a little from your perspective how consumer demand impacts decisions on food marketing. for those of you that work or represent retail processing and distribution and walk as for how you ensure that demand is being met appropriately? let me start with ben and go >> thank you. i thank you for the opportunity to speak on behalf of the farmers. in my area consumers want to from. a noble farmer effort and to what we tend to do is stay in supermarket and farmers' market.
and the need of the consumer that local is the way to go. >> from the packing industry perspective our customers, retail and service companies, feed banks on consumer demand comes through them and come to us to develop this product. the message we hear loud and clear is some things haven't changed. consumers a subsist on quality products that has value. in addition to that there seems to be more and more awareness of making sure you get what you are looking for in your product. that is being dealt with through granted products. a recent study funded by -- over two thirds of the meat packages
were granted. bose brands carry a message and in the developed trust with the consumer. consumers are clearly looking for -- the product as they are when they say they are. our focus is to be able to fill those brands day in and day out with a quality product. to participate this morning. retailers meet demand for forecasting based on historical novels, past performance is a key indicator. some feel it is not daily demand. demand is met through the proper forecast and working with suppliers and factors considered in making decisions of the retail level include demographics of the market, time of month, folks spend more money earlier in the month and advertising, you look at how
consumers respond to advertising. maybe if peach -- feature on the front page of the flyer and you advertise. >> can you hear me out there? as the producer and representative producers, we know there's a 20% increase in the last decade of certified programs and branded programs and we realize that is what the consumer is looking for but overall i have to say the producers having trouble understanding what the consumer wants because if you look at our cattle prices we have been going through that ten to 12 years and these cycles, consumer demand increased and you have cattle numbers follow the increase and so on. these are not there anymore. in 1980 or the 1980s we went
through eight years of cattle numbers of dispersion and numbers lower and since 1996 we have been on a liquidation basis so i am not sure that producers know what they want to do or where they should be for several reasons. the age of the producers are getting up there. we do recognize 20% increase in product at the same time helped to follow out there as you study the liquidation basis. >> thank you for letting us be a part of this. line will echo a couple fox. the thing that really changed in the last ten years, what i have seen in terms of marketing, the
combination of price quality. delivering that value for the meet or center store for fruits and vegetables, we have seen the value trend move toward private brand which helped our company quite a bit which is what we do and that has been a major marketing trend. i also echo what eric said. the process we go through with our customers is we sat down and annual plan once a year. historical forecasts, put that together and work on a day-to-day week to week basis to go through the year. they are not contracts. we stay competitive throughout
the year. >> i represent consumers as opposed to working to produce for them. i wanted to highlight something ben said. consumers are becoming more interested in where this is coming from. it is echoed in the increase of local sustainable food but also consumers want more information period about their food. where comes from is one issue and they want to know that the food is nutritious and safe and want more information about what the ingredients are. consumers are looking for a lot more information about the food, settle in not less information. >> different parts of the agriculture industry are based on diverse challenges today which are likely to change as we move into the future.
with respect to competition, the agriculture industry by different perspectives, there is a fair and competitive market place. the question i have for everybody is what the differences will be in ten years. what do you think the major differences will be from where we are now and following that what is needed from your perspective from competitive agricultural community. differences in the next week in years will inshore competitive and open agricultural economy. >> the concentration of the marketplace as an impact on producers.
may be controlled the majority of marketing of fresh produce and vegetables. in the next ten years that needs to change. small farmers, cooperative and major players in the market and receive hire more margin of a process. in the current structure, the concentration in the industry, and major buyers. i don't know how you can say in the future it needs to be restructured and open up to different avenues than we have been going down for the last 15 or 20 years. there needs to be more than that
from top to bottom. >> follow up to that? >> consumer demand will drive part of that, and -- >> consumers are very aware of wanting to know where the food comes from. family farmers in the middle of those, which huge operation for those operations. and farmers assumed that tomato or something, i agree with. >> consumer demand and differences in the future, in the livestock industry they are going to have to go on those needs. when you look at where they are going, two thirds of the
marketplace, likely to continue to grow. those products were bringing everything from the state ability to the special program to organic. they will continue and probably grow and the marketplace will have demand. what that does for the industry is dictates the need for relationships. consumer to producer. in order to fill those orders, natural or organic or whatever they might be there needs to be from the sector, impact to the marketplace for the consistent steady supply of those products. consumers continued to demand not or only those options but also need to consistently -- need to happen to get that done,
really have to look at long-term relationships to be able to create value. producers are creating value in livestock. they have a mechanism for capturing that value as it moves through the market. we see success in this industry for all parties and that happens for the industry to continue. we have to see more and more communication up and down and more cooperation for the needs of the consumer. >> when we look into the future in the retail side we continue diversification of a market place. we have seen that already. it is amazing how market changed. 30 years ago folks had to buy groceries at a conventional
supermarket. there are retail channels where you can purchase -- we have natural supermarkets and supercenters. and natural food sources. so folks are going to more retail panels and this resulted in very intense competition. and in the future we will see continued diversification with more competition. in the 1940s the american family is and 19% of their income to those at home. today that is 5.5%. that raised quality of life and increased competition is helping american consumers and it will continue in the future. >> i agree with a lot of that.
what we see, an increase in a lot of demand for products. there is a group out there that want the all natural. we don't see the percentages going any one way. we have this group, i believe in the next ten years we will see the bottom of that but communication is all level coming down for the consumer to the producer we definitely need that but the main thing is communication from that standpoint to producers is we have to be there. it is a struggle to be there. at the rate we are losing 12 producers, and that is alarming. we are ready to work, ready to listen but we have to be there first. we have to have fairness in the market and we have got to have
parity for our product if we are going to be there. we look at the consumer price index, it wind up on all food byproducts. we as producers, fuel wind up 5.4%. gasoline went up 9.9%. it is a big item on farmers ranches. that is nine times over the increase in food. it is going to be trying to be there so we can produce those for the consumer. >> in the next week in years, looking back the last ten years the trend we saw with consolidation was discussed ten years ago.
top ten accounts on 9% of our revenue. we have two accounts that make up 90% of the business and we -- i actually see that consolidation and the new customers we're talking to leveling off. that characterized spreading out for new players and dollar stores like trader joe's and those kind of people. and consolidation was piqued and it will start factoring which is good for everybody. looking into the future, a lot of current issues important to consumers from food safety. it is a huge deal. we have sustainability from farm through the supply chain. ethical practices are becoming a big issue. those are going to continue.
>> a couple things for consumer demand in the next ten years will increase and consumers want to be healthy and nutritious diets manifest to increase and also increase demand of information. and driving for consumers with the the lives and households have two in comes and we want something quick and easy so that is going to continue. we are certainly not -- also as consumers become more educated over time. there is increased demand for a variety of food and having a true variety available, i want to caution us on making broad
statements. it may be true that consumers want access to groceries in retail outlets. if you look at low income consumers focusing on inner-city is they do not have the same access because of -- usda made efforts to change that so long time period where consumers in urban areas have not had access to healthy groups of vegetables and other groups simply because they don't have access to retail. >> let me add it is not -- [talking over each other] >> in rural communities where you may be 20 miles from the nearest grocery store. it is an issue that we're trying to address at usda. i want to touch on something
vaughn meyer said to give you a sense of this. if we went back to 1980 and asked how many corporate users there were in the country the answer would be 667,000. today there are 67,000. ninety% of core producers are out of business. we have the same question about cattle producers we have 1.6 million which were 975,000. in the dairy area we went back ten years and asked how many there were, there are about 60,000. to reinforce the concern about the fact that there is a reduced number. if you look at the people who produce the bulk of 80% of the food, 300,000 farmers and if you look at farmers generally about 2 -- 1% of the population and roughly 0.1% produce 80% of our
food. if you look at just making money in farming, just barely making it what you will find is 1.5 million of the 2.2 million farmers in this country are losing money work one of the best years we had a long while where farming comes up 31% those farmers in the middle will make $6,400. not enough to support families. that is part of the challenge. the folks producing the most will probably do pretty well financially this year but the bulk of folks who form may not. that raises the question. if you want to bite in please do. i am curious, in terms of the
relationships, are you seeing be more specific requirements being demanded from grocery stores? specifically is there a difference between the large operations, the walmarts and safeways and smaller independent abrasions in terms of -- >> the demands are specific and most places. the relationship between the packer and retailer of the food service, long-term relationship, it works with their customer to identify what the specific needs are. and develop products, the kinds of products they sell so fed it will maximize the value of the
product. what we see happening is communication of this relationship is stronger and stronger between the the process and food-service retailer. a critical part of that is you can satisfy those needs. many of those attributes being demanded by retail and food service with the livestock. for the packers to have a consistent supply of those products to meet those retailers, they have to have an arrangement with suppliers so that they get a consistent supply of the product. the size of the customer, there's not much variation. they have their needs to sell to the consumer and they target those. wind thing there is very complex
in the industry is they have different customers and long term customers. so it may not max another. what happens with the premium, may just be a commodity center and may not hit the volt. so this connection to the ultimate consumer is critical and the attributes they were willing to pay for and assist on was close to the process. it has to be at transparent process so the method can go quickly from the consumer to the livestock producer so they can target the needs of the market place. >> when you look at our members, some apologize like the programs
they use to meet the demands of their consumers. some of our bigger guys have branded programs. is not a priority for them. but a number of retailers have specifications and were made to breed consistently. and sustainability or something like trade side. and retailers pay premiums for these products and this has increased the quality that you are seeing in the store and a bigger competition on price helped stem the decades-long decline in consumption. meat consumption declines from 1979 to 1998 by 50%. these value-added programs to
some extent reinvigorated consumers in the meat case. quality is the number-1 factor which meet purchases at retail and some of these premium meat products are bringing more quality to the consumer generating demand. >> the demands are growing. >> definitely. those are definitely changed. they are asking us to add a lot of value to the equations for the retailer or food service distributor and ultimately consumer. the biggest one in the past ten years is managing the supply chain. before it was all picked up from the west coast. now we are pretty much two days to market. we have where how those that manage and expect us to manage those inventories. that is why the relationships are important because you're moving toward all the time keeping stock.
a lot of these initiatives we talk about sustainability and ethical practice so they are hot items. food safety is the biggest the and you can ask for. we plan for 45 separate audits. these are customer audits. not fda. and the initiative that we will see in the next couple of years are going to global food safety initiatives standards for food safety. i think we will see everybody there. >> question for you. you touched in your earlier one. consumer demands have changed. they operate under increasingly tight budgets. both parents work long hours. families need food that is quick and easy to prepare. that is the way my household
works. sometimes we have one person preparing the food. that would not be me. has your organization done any study or perspective on life style changes that impacted consumers and changed consumer demand? the option we see on store shelves dictates consumer choice. do you feel consumers have more or less than they did in the past? from that perspective, is it a good or bad state of affairs? do you think prices have stayed roughly the same over the years? have they increased or decreased? and if you think they have increased, what about those higher prices? have at it.
>> i will try to hit them one by one. i think the issue you bring up about two in, households. a lot of that has led to consumer demand for convenience for foods already prepared because they increase or consumers can take home, heat up and serve as quickly as possible. we have seen food companies and retailers operate two package foods you can go and get a chicken ready to go. those types of things. on the issue of choice, there is more choice than we had a decade ago but part of that -- in that one company with many different brands, consumers may be thinking there's a difference
between different types of food but they are owed by the same company, just different brands. consumers want more information about their food. they don't necessarily have that type of information to make informed decisions or understanding of what is going on. prices have gone up in the past decade. the key issue is how prices go up in relation to what farmers did. if they did additional money or let me start again, if supply goes down and prices though a prices go up very quickly and consumers have to pay that price. wind supply increases prices don't go down as quickly and sometimes they stay elevated for
a certain time. there are different reasons for that. and having to pay for it. when prices go up quickly, often doesn't go down as rapidly. that impact slow in coming consumers to a greater degree because they have federal income. >> i just want to address the statement that prices are going. that is not borne out by the facts. when you look at usda's date of the proportion of family income intend on food in general and food at home, has completely plummeted since the 1940s. in the turn-of-the-century we were paying 50% of our family in, and food. now 5.5% it is 19%. i wanted to make a comment on
that. thank you. >> a small percentage of income, does that mean the income that we have has increased in relation to the prices, where prices -- what is the available fought? >> that is the real cost to people. the real cost there is no question it has gone down tremendously and that is -- even today rance and spain claims 15% of income. indonesia 50%. it raises quality of life in our nation and is essential to consumers. >> i want to make sure there's clarity on this point. there is a difference between what we spend for food at home
and what we spend for food totally. >> we are spending more at restaurants. >> what is the percentage of what we spend on food and total? >> that has dropped. in the 1940s it was 20%. now today it is around 9%. for food at home at a supermarket, it was dropped even faster. >> is there a component of that with price fluctuations because prices of some commodities have gone up obviously. consumers tend to cut back when prices go up. i remember when milk would get
expensive, it wind up and so there must be something in the basket. some prices have gone up and down at the retail level. >> prices fluctuate at the retail level. you are looking in a year at on an annual basis, they are including the staples. consumers to i still going to buy milk and meat and produce. they have fluctuated but because competition is so intense in our industry and margins are pennies on the dollar the prices consumers are paying, true costs have declined consistently over the past decades. >> when prices go up they go quicker than they come down. >> that is a phenomenon throughout history. the decisions you have to make to lower prices take a larger
time than they did. we may have to get labor and production. you are taking a bigger risk. that is bottom-line. in the justice department, reasonably explain that phenomenon. >> the word relationship has been used here frequently in the short time we have been visiting. for the producers i am interested in your perception of that relationship and for the folks representing packers on the retail side. these relationships, is it more difficult for some one, and if you are -- you have a relationship to a retailer, how does another retailer engage in an opportunity if the
relationship is so strong and so long term? let's go down the line. >> the producer side takes years to build a relationship to become a defender of wholefoods, or safeway into that. so that on my side it takes a long time to develop that relationship. i tend to disagree that the reality in the supermarket is more. i think it is even less. it has just been repackaged. if you go to the supermarket, you have a pound -- if you look at the bags, eight oz. but if it will continue two years or 20 years down, more of
that retail dollar has to be returned to farms. end the supermarkets operate two pennies. i find that hard to believe. if we're going to increase what we have or hold on to the one we have, martians return to the farmer. and a number of farmers maintain the one we have. it is too low to continue to operate. >> we talk about relationships, that is informed for the industry. clearly, and you try to satisfy
the need of a customer has presence built up and product development, it is difficult--especially between the packer and the retailer but certainly the overriding factor is competition and also the desire to keep prices as manageable as possible. on the other end of the question, the producer is somewhat different. the producer of a product, i use an example, producing cattle to europe. that is a lifetime commitment of 24 months, commitment on that animal so you have a market. it is very unlikely the producer will get into that marketplace unless they know they have a commitment to be marketed in a marketplace that will have full
value. they really have to target the edges. in the case of lesser demand, something like a certain and this program with a large supply, has to be as firm because of a relationship that will supply this site and not supply the product i will get premium for. ultimately the consumer will pay for. an opportunity to pay those back and everybody attaches that value in the process. i think the relationship is critical. there are certainly opportunities given the size of the power right now. the demand for livestock that
feeds the supply side-they accept demand so the demand -- if the producer has a problem it puts the needs of the consumer and the service of that consumer, they all will command invite to the first place the demand certainly seems -- the supply of the programs. >> it is all about meeting consumer demand. retailers work with suppliers large and small. we are interested in any product that consumers want. with the smaller guys many resellers work with them with products that will meet consumer demand. we have a lot of resources that can help in terms of consumer behavior. even on safety standards, we will helped smaller -- some of
our members' work with smaller producers and suppliers to help them meet rigorous safety standards and their safe. there are lots of opportunities. >> if i understood your question you kind of related to retailer get in with the wholesaler, opportunity -- really connection i would have with that is through the certified angus beef. certified angus beef, we welcome new retailers all the time. they have to meet certain justifications and jump through hoops and we monitor them after they come on and make sure they're selling our products and advertising correctly. we have no problem. there's a waiting list for people to get on. we work with them and make
changes were possible. as the producer, there are producers out there, various programs like all natural and shooting for a curtain and they have been careful documenting all that but most they do it for a year or two and try to go somewhere else. premiums are not there. that is the main reason. they start with great hope and then find the cost of the workload like it doesn't work that way. in order to julian those programs a lot of them end up feedings through custom locks and signing contracts. those are open ended contracts and prices will be on the base,
cattle are harvested and usually on a diminishing scale. usually going down. i have had cattle three consecutive years where some of those wind through programs with the red angus association and some went along of the same type and the same genetic makeup were of a different breed and went through the cash price and the cash price differs between the one that wind through anywhere from $1 to $2.75 lower. they usually get discouraged because there is no firm price at the end of the rainbow. >> your question was on relationships. the one thing we bring as a supplier is our farmers have