Transcripts For CSPAN2 Joint Economic Committee On Tax Reform 20171027

Hassett linkous insights today on the forces and constraints that are holding back private investment, labor forcedi participation and important, wages go up to get a clear picture of how the right policies can help the economy recover its full potential. The contrasting with the aging of the population, the slowing of the population growth and technological changes that altering the methods of production in america. With selfimposed constraints of also altered the way the economy performs and not in a good way. I certainly we can do something about that here in the United States congress. Id like to divert your attention to the craft showing how the Congressional Budget Office lowered its assessment of the economys output potential every year since 2007 through 2016. These 16. These are not projectionsns of actual gdp my juice but a potential the economys output capacity normally a fairly stable concept. Back in 2007 the cbo estimated the u. S. Output potential for 2016 would be over 12 higher than it actually ist now. What happened . The aging of the population was predictable, not anticipated was the use Business Investment would be down from a prerecession raise and at theow rate at which americas persistent in the labor force would be dropping so markedly. Despite the low Unemployment Rate, the labors markets health has not been fully restored. Indeed, the labor force but suspicion rate people of prime working age remain substantially below where it was prior to the recession. I believe the Economic Policy including appear to act when a consumer improving their Business Climate is largely to blame. Id like to show you two graphs illustrate the changes u. S. Firms face on the international playing field. The first chart shows how 34 countries changed their Corporate Tax rate since 2000. All of p these countries save chile which had the lowest rate initially reduced their corporate rates to make the economic, economies more competitive while the United States rate remained the same. The next chart shows that 27 countries east Product Market regulations 19982013 based on oecd index. All these countries save chile reduce the taxes and reduced their regulations. This paints quite a startling picture and explains why u. S. Corporations have been moving offshore. Other countries have purposely improved International Competitiveness of their business sector on the United States has taken for granted competitive of its businesses. As a result we now have an economy that is not fully engage its resources in entrepreneurial spirit. At jvc hearing earlier this year on the dramatic decline of you is a for missions in this country since the last recession. Recession. From 20082014 more businesses actually closed and opened. At jvc hearing showed up to the middle attacks could can be to starting a new business in terms of both its provisions and its sheer complexity. As the challenges we face are more daunting as result, the National Debt is a bigger problem with a slowgrowing economy. That is why we so urgently need both tax and regulatory reform. We must restore a more highly functioning market economy that offers hope and opportunity to investors, entrepreneursth and workers, the removes the artificial constraints on a faster Economic Growth model. I cant think of a better witness to explain to us just how tax of brightness would perform can lift the economy and Living Standards across our n country. Chairman hassett, we appreciate your appearance before the committee today, look for to hearing your views and i will now yield to our Ranking Member carper senator peters, for his statement today. Thank you, chairman. Thank you chairman. For someone to thank chairman hassett are being with us at the committee today. Looking forward to having a substantive discussion on the state of the economy and some prescription for the future. But also want to thank chairman tiberi for your presiding over this hearing and also want to wish you well in your future endeavors. Im sorry to hear the news. We are certainly going to miss you here in congress, but we also know youre going to enjoy new challenges, and most important apple a a bit more te to acquaint yourself with family which is always a wonderful thing. Thank you. I also think this is a very timely hearing given the ongoing push by the majority and the white house to enact tax legislation on an aggressive timeline. But before we get into specifics of tax policy id like to take a step back and take a broader look at the current state of our economy and thecs economic outlk for thehe coming years as well s the coming decades. The administration is not side withti my lighting some positive economic statistics. Unemployment remains low in the stock market continues to climb but i think we all know theres more to an economy that just raw monthly job numbers for the daily dow jones average. We are still seeing persistent, frustrating stagnation on wages. Americans are overwhelmingly still not seeing the growth in wages that normally accompany economic recoveries. Not only to stagnant wages have an immediate negative impact on the daytoday lives of american families, theres also contributing to another troubling Economic Trend and thats growing Retirement Savings crisis. Argument americans simply dont have the resources for a secure retirement, and as americans are living longer with less secure assets forin retirement like definedbenefit plans, i believe this will have a serious consequence our entire economy. When it comes to class american families, the state of the economy is mixed in for policymakers i i believe the at of the trends we must address to ensure health and competitiveness for the American Economy in the decades to come and see the type of growth necessary. First i believe it is of the utmost importance that congress reject the idea that deferring over some eliminating investment in basic science and research has no consequences. It does. It has significant negative consequences. A lack of commitment to Funding Research that will lead to the next generation of Great American breakthroughs so well have a devastating impact on our economy. Iin can promise you our competitors including china will not simply stand still and see the competitive advantage in innovation. Second, we must reverse an alarming trend of declining new business formation. New businesses are the driver of our economy and are responsible for most new job creation in the uniteded states. Alarmingly where not seeing the numbers a new businesses needed to increase the shared prosperity across the economic especially in the urbanrural divide. New business formations across president ial administrations in both parties have fallen by half since the late 1970s and win whn you business are not prepared increasingly concentrated in just a few metropolitan areas like los angeles and new york. And finally i believe the critical question policymakers must be asking about the future of the economy is how are you going to prepare our workforce for an increasingly autonomous world driven by advances in Artificial Intelligence and Machine Learning . This is why were facing together i think as a nation some stagnant wages, massive Retirement Savings gap, a retreat from investment in innovation, decreasing business formation except for a few major metropolitan areas, and fundamental shift towards automation thatsh could dwarf te Industrial Revolution in global impact. These are problems we can Work Together to solve and a bipartisan basis, and he thinknk we must do this on a bipartisan basis. Im concerned that were going to be spending the coming weeks and months debating just a big a Corporate Tax cut to multinational conglomerates should receive and other policies that clearly benefit that very few and most wealthy individuals while raising taxes for middleclass americans. Despite our differences i look forward to a series conversation to and hope we can find Common Ground on how to meaningfully support American Workers and their families. So thank you, chairman hassett, for being here today. Thank you, mr. Peters. Senator peters, thank you for your kind words that were now turning to our distinguished guest, dr. Hassett, welcome. I apologize that we have ways and means republican meeting going on on tax reform upstairs so a few of the members are up there and i will be departing before the hearing is over, unfortunately, to join them. But were so excited to have you today. The senate also as a boat i think at 10 30 so sorry for the interruption as well. But introduce dr. Hassett, chairman of the president s council of economic advisers are part of this he worked as a scholar with a the American Enterprise institute also served as Economic Advisor to george w. Bush, john mccain and mitt romney, president ial campaigns. Trap i was also a senior economist at the board of governors of the Federal Reserve and associate professor lumbee university. He earned his doctorate in economics from university of pennsylvania. Chairman, you are now recognized for testimony. Ninety, chairman tiberi and what an honor just to be back before the committee with the word honorable before my name which is truly inappropriate, but gosh, im soop thankful for the support of the senators in my confirmation and its great to be back before you think the joint Economic Committee has a proud tradition focusing on the problems facing america and the solutions that we can agree to on a bipartisan basis and its in that spirit that i appear before you today. Discuss the status of a number of sectors. I will emphasize some areas that need attention as well as recommended policy changes that will improve our citizens economic wellbeing. It you read the 46 employment act that created the council, thats my somber responsibility, is to analyze the economy see , whats going on and provide the president and congress with objective advice about what we ought to do about it when we are probably sure. The economy is believed and growing at a solid pace with low unemployment and low inflation. Financial markets appear to recognize the likelihood of continued growth with low with major stock prices inspected inflation remaining low. That said the Trump Administration is not satisfied with business as usual, nor with the pace of real output and mcgrowth during the past several years. As a result we put forward a program designedded to boost the rate of read gdp growth and aim happy to report the economy is doing well so far in 2017. Real gdp growth in the first twoarted averaged 2. 1 and Consumer Spending grew 2. 6 . Business investment grew at a 7 annual rate during the first half of 2017. A notable acceleration from a flat pace during the preceding two years. Thats very important because after translating the pattern of investment into the flow of Capital Services its apparent that capital deepen, the fro hoff Capital Services made essentially no contribution to the growth of Labor Productivity in recent years and contrast to post if you look at the contribution to productivity growth it became negative for the First Time Since the Second World War. This administration thinks tax policy could play a role in reviving reviving reviving the contribution to the growth of wages. Before die thats lets look at other sectors, real residenceal investment grew, and core cbi inflations, including food and energy praises is 1. 7 for the 12 months through september. Looking back the it appears the potential gdp is growing at 2 annual rate or program even less. And real wage growth in america has stagnated. Over the past eight years the real Median Household Income rose by an average of. 6 per year. The corporate profits and Worker Compensation brogue down in the 1980s before in the recent policies had a chance to interrupt that a that deter youre rate relationship between the wages of American Workers and u. S. Corporate profits reflect thursday state of international tacoma tax competition in the world. Cutting Corporate Tax rates to cut capital book. The key feet fewer of the joint proposal is to proposed reduction of statutory federal corporation that tax rate forgot 35 to 20 . This conclusion that the corporation that tax falleds on workers driven by empire tall empireal the covariation between real wage growth and statutory Corporate Tax raise between the most taxed and least taxed countries, in figure one, and is indicative of the large rid tour. Of course simple time series correlations dont tell the whole story but theres literature that shows that High Corporation that tax donees there have wage growth and low Corporate Tax donees there have high rate of growth. In 2012 to 102017 the ten lowest tax rates has tax rates 13. 9 percentage itselfs lower than the ten highest countries countries ande same scale as the reduction in the United States. The average rate in low tax copies i highser. Thus economy has made great progress during the past years in reducing reducing the joblest the rate of productivity great hasline slow. Its time for all of news bipartisan way to boost the rate of growth and wage growth in particular. As i discussed the administrations plan for tax reform will have an Important Role in improving the rate of productivity growth in combination with the plan to stabilize the Regulatory Environment and we rook forward to working with you, the members of the committee to help reach the goals. Ill be happy to respond to questions. Thank you. As i mentioned in my testimony and showing in the graph over the past decade the cbo has continually downgrade an estimate of what the economy is capable of producing, our output potential. Is it possible in your opinion that the obama era policies of higher taxes and heavier regulation actually cosntrained our economic potential and how can we changed that . I think on the regulation it is certainly possible. I think your chart captured what happen, its know actions its our inaction and so what happened is the rest to the world cut Corporate Taxes and that made their countries much more attractive for the location of multinational plants than our country and we saw the activity move overseas in responsible 0 to that one met trick to think about how big this effect is, theres a National Bureau of Economic Research paper that came out in the spring that look at just the u. S. Molted thank you nationals this, transferred profits broad by paying too much for the products they buy from, say, the irish plants and this study estimated that 52 of our trade deficit right now is coming about because of this transfer pricing. Were paying too much for stuff from our foreign subs and moves that much jack different offshore and 52 of the trade deficit is attributable to. You have written and spoken on the challenges of the uneven economic recovery, a topic we have explored in this committee, topic that senator peters mentioned as well. Indeed a wide array of research makes clear this recovery has been the most geographically concentrated on record, leaving far too many communities, like in ohio, and michigan, for example, behind, communities and the people who live the those communities behind. As you know ive introduced legislation to provide a new Market Driven way of getting private capital off the sidelines and into our communities to foster new business and create jobs called the investing in opportunity act, which is has broad bipartisan support and bicammerral support. To questions. First, can you briefly describe the dimensions and consequences of this trend that is occurring wind our economy of increasingly consent straighted job growth in places like los angeles and new york, and secondly, can you speak to the administrations commitment to ensuring tax reform ensures the challenge head on of incorporating ideas like the investing opportunity act. Thank you, chairman. The geographic inequality has been a focus of my Academic Work many years and really the reason why im an economist. Grew up in a town, greenfield, massachusetts, where the grownfield tap and die closed and across the way there was a big paper mill that was the main employer there and that closed, too. My dad and i, when guy home, my dad still lives there and we walk next to the abandoned factories and theyre so torn falling apart that the video game fallout used it as a location for video shooting for post apocalyptic america. So this is something i care desperately about and why my academic career has focused on geographic inequality, including in states like ohio and michigan where there are def stressed communities where the plants closed and the jobs have not come back. I think that tax reform in general will definitely encourage loot of plant location back into the u. S. Because right now, again, if you locate in ireland youre paying almost no tax. If you locate in the u. S. Youre paying the highest tax of the developed world and should Pay Attention to where the plant goods. If the plans were at all located in places like that have very low Unemployment Rates they wont necessarily be helping those distressed communities. The administration doesnt have an official position yet. Its not something ive discussed with the president , on your specific proposal, but i can tell you the geographic inequality is something that everybody is paying close attention to. Senator peters, youre recognized for five minutes. Thank you, mr. Chairman. Mr. Hasset, you have certainly been engaged in a pretty high profile debate over the impact of the administrations tax proposal, and what it ill will have on wage ford working americans. I think theres certainly an awful lot of to a lot to dive into regarding that argument, but to be brief ive somewhat skeptical of the numbers you put out and im in good country, the majority of the economists are skeptical of the numbers from the administration and many working families in back home in michigan are skeptical about that. For them, i dont think many michiganders are holding their breath to see if their bosses boss boss tax quoted trickles down to them so see either in increased growing or in wake increase. Instead they want to know how this tax proposal will impact them, and impact their pocketbook. They have to worry about everyday challenges like every family about buying a car and praying for daycare and providing for a secure retirement. So i think we need the administration to be a little bit more direct as to the consequences of the tax plan that is before us, specifically as it is tailored to individuals so folks know exactly what this means for them. Estimates if have seen show that some middle class familiar cries see an 800 increase in this tax plan because it is focused at the folks at the top of the income scale and large corporations, and theyll actually be paying for it in the form of higher taxes. So, i think we need to make sure that the American Public and families know what that is. Given the fact that the Median Income for families in michigan is a little over 52,000, an 800 tax increase is a big deal for those families and we need to have full disclosure in the plan. So, i understand you may find some disagreement with some of these estimates that are being put out by various economists and other types of think tanks, but could you give the committee today an estimate of the tax savings that a working family will get as a result of the tax plan that has been proposed . Yes. Thank you, senator. I know the first part of your question has been good to the tax savings discussion that so d. So sorry to interrupt. You move closer to the microfind. Thank you. I think that let talk about what we agree about. In cea report we found that theres been a disconnect between the welfare of corporations and the welfare of workers. That corporate profits are soaring but wages are not and thats very unusual in u. S. History. We agree that disconnect happened. Think we ailes degree that were the highest Corporate Tax rate in the developed world. Thats a simple fact. And so then the other thing i think we agree about, because its a fact, is that there are capital deepening contribution to productivity growth in the u. S. Is the lowest level since world war ii. I think if behooves, its our somber responsibility to think about what is driving these factors . I think that the best explanation for those pat americans the data is that the corporate rates around the world have again down a lot and encouraged u. S. Multinational thursday locate plants there instead of here and thats why we see everything we do. I know if labor demand goes up in the u. S. , wedges go up and theres a dispute how much but i dont think theres anyone that thinks its zero. As for the estimate of the tax effect, as you know, the administration is committed to a process that hopefully can be bipartisan, where this committees are working out where the brackets go and the president has mentioned were open to a higher top rate if thats what it takes to get broad support for the tax plan and i think this process is designed to create a bipartisan agreement about tax reform and certainly everyones hope that we head there, and so if i were to say, well, this family will get this tax cut i would step in front of that process because where the breaks are negotiated in the ways and Means Committee upstairs and the finance committee at this moment. Youre going to be a very important part of the process. Youre the principal adviser to the administration as to where this poly si should be and impact of growth itch want to pursue that a little bit. With say that, we do agree on the disconnect between corporate profits and wage levels for most workers in those companies. In fact corporate profits are at an alltime high so its not that corporations are hurt but we have seen certain individual have benefited. We know ceos at the corporations have done very well. In fact, i think ceo pay has grown about 90 times faster than the typical worker since 1978. So, the folks at the very top are reaping all of the reward that growth, it is not impacting everyday americans, and we have a tax code now a tax proposal that will say those folks reaping all the benefits need to pay less taxes i. I dont thing the average worker thinks. That. They need that kind of relief. As we are talking about the particulars of an individual family, i want to know we have heard President Trump say that middle class families will not see a tax increase. Is that the position of the administration and willoo you use that influence that you have with the president and the president s stand by those comments to the ways and Means Committee here that is saying middling income taxpayers will not see a tax increase . The president is adamant on that point. Its nonnegotiable can. No going to be a middle class tax hike and as for the corporate profit point i know were running late but this is very important and i hope i can respond to that, too. Because its a very important point. Right now u. S. Multinational profits are as you said at an alltime high, and executive compensation is skyrocketing. The last i checked i could follow up on this executive compensation in the u. S. Has higher than dividends go figure. And but the disconnect from wages is not because theres been a fundamental change in market power in the u. S. The disconnect in wages occurs because the profits arent in the u. S. The profits are over there, and so right now we have the highest tax on earth but those companies arent paying it because theyre locating their revenue in ireland, and so if we make our country more attractive for location of plants, then its not that were giving a big tax cut to companies not paying, its just theyre not paying the tax because their locating activity over there and the profits that are sky high in the u. S. Are driving up wages in places like ireland. If i may just briefly, i want to make sure im clear about taxes for middle income families. The number is have seen, particularly with the elimination of state and local deductions for state and local taxes there have been a number of studies that show that with that deduction elimination, a lot of middle class families will see an increase, 12 to 267 of families in michigan claim that state and local deduction expats all over the country some studies say the average increase for folks could be up to 1,800 a year because of the loss of that deduction and i think youll see a number of those figures so given what you said i hope youll understand when those of us are pushing back on a proposal that may be put before that, that will raise raise that and we cant support these increases on middle class families and will push back aggressively on the proposal. Thats understandable. When the complete plan is available i look forward to work through the numbers with you and your staff. Thank you. Doctor, were grateful to have you here and congratulations on your confirmation. Look forward to working closely with you. In your new role over at cea. We are in the middle of significant debate, debate that has been made clear even so far this morning in our discussion. Want to pick up on something that senator peters was discussing having to do with Corporate Tax rate. At 35 , we have the highest Corporate Tax rate in the developed world, and there are problem width that, problem its think are acknowledged by most republicans and most democrats. But sometimes i dont think we look into it quite enough. Sometime wes tend to look at the Corporate Tax as being something that is paid a burden borne solely by wealthy corporate fat cats. The like whom could be detectedded with the Monopoly Game piece or like mr. Peanut with the monocle and the double breasted view. When you look closely at who exactly pays Corporate Taxes the picture is different. Taxes effectively, both capital and labor, both the investors dividends and wages of the workerrers. Economizes differ agree a little bit on how this breaks down, but its commonly in other words that lost worker wages make up between a quarter and a half of Corporate Tax revenue. Some put the figure higher than that. And so perhaps a quarter to a half, maybe more, borne by worked. On top of that you have everything that people buy. Every good, every service in the economy, is made more expensive by a tax like that. And theres also diminished wages, unemployment and underemployment that can sometimes stem from that. So in the end, i tend to view this 35 Corporate Tax as having some very nasty regresssive effects, meaning its least desirable qualities, include the fact that it is borne disproportionately by americas poor and middle class. This is why in january i penned an oned in the federalist that proposed eliminating the Corporate Tax and shifting that particular tax burden on to investors instead of workers by taxing Capital Gains and dividends at ordinary income rates instead of having the Corporate Tax. Under this type of strategy, workers would be liberated from their share of the Corporate Tax burden. In america would without a doubt become the most popular place in the world to do business. So, doctor, id love to get your comments here and any thoughts you might have on that idea. Thank you, vicechairman lee. I think that, again, wage growing is low, Profit Growth is high, the profits are over there. We have the highest rate and we see that countries around the world that are run by governments that dont have the commitment to the american system that every member of both parties Near Congress has, cutting their corporate rates. President macron ran in france on reducing the corporate rate to 25 and the french rate was already below ours as that election began. The greek government, who translates their party title into the coalition of the far left, they have a lower Corporate Tax rate than us. This is not about right wing parties throwing money at rich corporations. Its about economically literal governments understanding that if we want wages to be higher, we have to give workers capital to work with. And that if you look at the u. S. Right now, again, the contribution to productivity growth from capital deepening is lower that aint been since the Second World War and have a crisis in our country and its something that everybody on this committee needs to Work Together to solve. This idea of zeroing out the Corporate Tax altogether and replacing it with a tax on dividends and Capital Gains would put it on par with the taxes we impose on income. What do you think of that idea specifically . Im focused like a laser right now as an advicer to the president on the proposal that are there. Your idea is something that is quite anothing goes to something that other countries have done. A few countries eliminate it all together but many hear integrated the Corporate Tax with the if depend and Capital Gains tax and charging tax once at one level nut be a progressive manner. A retiree who is getting a dividend and using the dividend pay utility bills you dont want to tax the heck out of it bit of a rich person is getting a dividend you do. Those motivated other countrieses to do that but for me im focused on the current proposal. Another issue relate today this one that deal width the burden of overregulation, i keep two stacks of my documents in my office, one stack is a few inches tall, few thousand pages long last year 3,000 pages long, the laws passed by congress. The other stack is 13 feet tall. Last year it was 96,000 pages long and its last years federal register, the annual cumulative indexes of federal revelations as theyre released and later finalized. Those regulations cost the American Economy about 2 trillion a year. This is up from just 300 billion a year 20 years ago when i first started tracking the problem. Its increased roughly sevenfold. Its the product really of congressional delegation of power. Congress not wanting to make law itself and stand accountable for the different linebrewing decision that go along with seth Public Policy and yet its costing the economy 2 trillion a year and those are borne by americas poor and middle class. In your opinion, do you think an idea of, like the regulatory budgeting act or the rains act that requires congressional approval of major regulations would have a desirable impact on gdp and again fits for americas poor and middle class . Thank you, senator. In terms of the specific proposal is would have to touch base with me colleague at the white house. Not something i have discussioned with them and wouldnt wish to signal an official White House Position im not familiar with. The topis important to the house. One reason why sendment is so much higher theres been a lot of palpable deregulation so far this year, but also almost a halt of costly new regulations. One thing that we had cea have been study is the impact on firms of new regulations and its quite striking. If you run a business thatey u. S. Government has new regulation, you have the figure out what to do. Hire a lawyer, decide whether you have to put new things in bury plant and its an urgent problem. The regulation from three years ago has costs, too because it distorted your previous behavior. The new regulations are incredibly cost limit one think tank in town estimated because we slowed new regulation we reduced the amount of man hours spent might with in thing relates by more than 6 million man hours and that gives you an idea of the kind of effects of prudent regulatoriy reform and also very mindful, as a final thing, how important many regulation are like clean air and clean water and were not talking about wiping away all regulations but exposing the wins the exist and new ones to careful cost benefit analysis. Thank you very much. My time has expired. Thank you, mr. Chairman. Thank you, doctor, and congratulations on your appointment. You bring tremendous expertise and good judgment to this important job so its great to have you in this seat. Just staying on the Corporate Tax question for a moment, it seems to me that across the last decade or two, a very large percentage of businesses, particularly large businesses, have moved from an incorporated status to a passthrough status, large by because of how the private Equity Industry that broken and in every kind of private he can with backed they move to an llc status and dont pay Corporate Tax and their leverage expected deduct the interest. Theres no evidence or data that ive seen to indicate that wages have grown any faster in those companies where theres no Corporate Tax, than in incorporated businesses in this country. So, does that to some extent mitigate this argument that the Corporate Tax rate is the reason that wages havent grown in this country . Because in fact a growing and large percentage of the business in this country in fact dont pay tax because of what i just discussed. Their wages have not grown any faster based on any analysis thats been done than wages in C Corporations which pay the tax. Thank you for the question. Always a very interesting one and im not sure theres a literature on that question yet. If there is ill find and it send you a note about it. Its a great question. Ill have to speculate if that effect there is which i wont dispute or concede because i have to study the numbers more. The u. S. Labor market is a place where firms show up and compete for workers ideally, and that its the wages set by total labor demand in the country, if we have a big chunk of the firms in the country that locating jobs overseas that reduce overall demand but in the end if hasset incorporateed and comstock is competing for delaney we have to pay you the same wage. Their corporate rate is 23 or 24 . If you mean the taxes divided by total revenue, yes, the average rate, i think the last i check for mumty multinationals is here. Is that more consistent with the competitors as oppose ted the state rate which is the highest. If the revenue is low with our high tax rate because people locate activity offshore, it doesnt mean we have a low tax rate. Deferring if yes. I loved how you talked about focusing on thursday we agree on. We tend to focus on thing wes dont agree on two things theres broad agreement on, and i think you have opinionsen these topics. The first is tying infrastructure with tax reform which i worked on extensively and i think you know around International Tax reform. It seems to me its a missed opportunity not to do infrastructure as part of tax reform because its the only way to pay for infrastructure and everyone seems to agree we need more investment in infrastructure. Then the second question is, a carbon tax which would obviously generate an enormous amount of revenues which would be use for broad based tax deduction, individual, Small Businesses, C Corporations, we maybe rather tax pollution as posed to profits. Can you comment on the wisdom of having infrastructure as part of tax reform and perhaps a carbon tax as part of tax reform . Sure. The first im an economist and if i look back at the times worked on president ial campaigns and advised people, they tended to lose so i dont give political advice because its not more a matter of smart tax policy. Yes. Infrastructure is really important, tax reform is really important. Whether they go together is something you folks their the experts in. The second question carbon tax. I have written about carbon tax which may motivate the question mitchell job as cea chair is to provide an objective proposals of analysis and if someone proposed that i would be cite anything own work. What is your directional opinion on a carbon tax, whether a carbon tax that is revenues would be effectively dividendded back to the american people, either directly or threw tax cuts. How would that affect economic growing, putting aside what view is this perhaps most important benefit which is to reduce greenhouse gasses. How would you view that as an economy related to Economic Growth. Not speaking on Administration Policy theres an economist at the resources for the future at the university of maryland named rob williams, who has done a very careful modeling job of looking at carbon taxes taxes and how ty affect the overall economy. Depending on which tax race you. You can get big negative ticket 0 no so big positive effect is. You can get positives to negatives. Thats what it says. Thank you. I recognize myself for five minutes good to be with you. Welcome you here to this committee and to your new position here. I want to follow up a little bit on the growing rates and as we look at growing in what were doing in taxes and how that relates to our International Competition and the potential for growing in economies, when you look at india and the growing middle class there and the potential we have to benefit from that, whether its trade or other also in the growing competition. What are the best policies in terms of getting our growth rate up . When you do to other countries, theyre having 8 or 9 . When i look at the potential, i am in virginia with a lot of Technology Sector in my district, and i often hear about their just sort of waiting, whether they can invest here or somewhere else, should guy shy go to india or some other country or invest here. What policies can we put in place that will unleash both grow here and then interact with the growing economy around the world . I think there three components to Economic Growth to grow output you need to grow input and can have more labor input becauseover more workers or the workers more talents and you hack move capital because were attractive location, or they can get better because of technological change. When you look around the world and see countries growing at 9 or or 20 possessor, that happens because theyre starting out from place where theyre not at the technological frontier and can couple exist practicing because theres going to do it half as well as a major developed country. At the problem for us being the class of the world in terms of technological frontier, or very close, is that the sort of innovation part of growth is a lot harder because we cant just copy what somebody else is doing. We have to innovate and discover something that no one knew existed. There are things we can correct with policy and we can affect labor supply and capital supply, and i think that the tax reform that has been negotiated with the white house and congress is designed optimally to help both, on the individual side by reducing marginal tax rates and encourage higher labor supply, and on the corporate side by making the u. S. A place where plants want to locate again be we should increase Capital Formation as well. With the work force development, know thats an issue that will be dealing with also subsequent to tax reform. How can be best invest in our workers and grow . Because with the information economy, with this expanding economy, and middle class around the world, our workers, if wore going continue to lead, need to be the most talented and we need to continually invest elm we talk about lifelong education. What policies can we put in place to develop constantly upgrade our employees so that their wages are growing substantially and we dont have the stagnation we have now. Well, sure. One key factor is human Capital Formation and educating our workers and helping them keep up with the rapid technological changes in society, and there are number of initiatives that are being studied and enacted now by secretary devos and the rest of the team on the Education Team to help workers keep up. I think one of the things, looking back our policy failures collectively as a nation, is that we have not necessarily done a good job of that. If you look at the people who received training because they lost their job because of trade, for example, then that training doesnt always look like its been that helpful and so its something that we need to study carefully and improve upon. In terms of having look at all these Training Programs we have across numerous agencies, kind of consolidating them, having them directed towards the work shortages. In virginia we have lots of cyber jobs open and you can we have programs ill give a plug for capital one has done some great outreach with communities where kids arent necessarily going to college but theyll get them in and theyve gone out and recruited kids, and lower income areas but with real potential, bring them for for a sixmonth to a year program and theyre having huge success getting them into the cyber pipeline and eni if they want to go back to Business School or college, they now have a job and will get tuition assistance. So as were looking at the Training Programs and also maybe tax policy, how we can ebb Courage Companies to invest in their workers like that and match the education efforts to the jobs that are open and that were deficient in filling. Certainly an important objective. Thank you, thank you. I will now yield to my colleague for enough minutes. Thank you, and congratulations on your appointment. Thank you. Wonderful to have you here today. Now, in the words of a famous and immortal new yorker yogi berra, this hearing and topics sounds like deja vu. This country has heard again good again about how huge tax cut ford the most fortunate will pay for themselves and that the benefits will somehow trickle down to benefit working families. And again and again that has not been the case. Just last april, this committee had hearing where we debated the virtues of trickle down economics and featured the inventor of laffer curb, and dr. Jerren bernstein, the chief economist to former Vice President , joe biden. He made a number of the same claims being made here today about the benefits of giant tax cuts and after the hearing, he published a number of articles that pointed out that is not what happened. And id like its not likely to happen again, would say, based on the past performance so without objection, would like to submit copies of these articles into the record. No objection. Now, according to your prepared testimony, you estimate that the administrations proposed tax cut to the Corporate Tax rate would increase the level of average Household Income in the United States by at least 4,000 annually after the effect have taken place thats on page four of your testimony. I must say that sound absolutely wonderful but it sounds a little bit to me like you can lute weight but dont have to go on a diet or dont have to exercise. This neuer New York Times point it out that ha 2012 Treasury Department study found that less than a fifth of the Corporate Tax falls only workers. So its not this trickle down to them. And a Congress Research report said the effect tact quds fell on high income americans and not average workers. Id like to place into the record the two reports also. Without 0,. Thank you. Now, fact check. Org, you may have soon the report they did on your numbers. They also took a look at the underlying math and found that there were roughly 125 million households in the u. S. Last year, and an average increase of 4,000 for each of these households would equal more than 503 billion annually but according to the u. S. Treasury, the total amount that u. S. Collected in Corporate Taxes in fiscal year 2017 was just 297 billion. So, even if you somehow transferred all the money previously collected in Corporate Taxes directly to american households, youd still be about 200 billion short, and that doesnt add up to me. So to support the administrations proposal, you further testified today and you give the example in your testimony that between 2012 and 2016, the ten lowest Corporate Tax done trophies the oecd had a Corporate Tax rate 13. 9 Percentage Points lower than the ten highest Corporate Tax countries, about the same scale as the reduction currently under consideration in the United States. But you dont list those countries. But i assume that they must include low tax countries like switzerland and latvia and id like for the record for you to submit who those countries are. I look at latvia and its a great country, and they have emerged in a noble fashion from communism and soviet oppression, but last year, the gdp of latvia was 27. 68 billion, and that is not quite as good as vermont. And vermont, they came in at number 50 in gdp among our states, so are you seriously suggesting that the u. S. , country with human huge complex economy and a gdp last year of over 18 trillion, can and should model its tax policy after that of an Eastern European country still emerging from the yoke of communism . Switzerland also has a very low tax rate with a gdp that is less than that of one of our great state us, vermont . And if i can use latvia as a model we should also use the tragic example, would say, of kansas, as a cautionary tale, tale about the economic chaos that happened if your brand of trickle down economics is put into place. Kansas is not a pretty picture. You comment on the ten compared to the ten highest and to me it done make a normal or accurate comparison and the numbers that were really refuted by fact check. Com on the 4,000 benefit. One of the items that mr. Senator peters mentioned is the concern that many of us have that outside organizations and analysis are saying that 80 of the tax cut goes to the most fortunate, which is not the stated claim or purpose or goal of the administration. In its current form, numbers dont lie, and the numbers are coming in in a way that does not benefit the working man and woman in our country. Thank you very much. Its always a pleasure to appear before you always a pleasure to see you. Congratulations. Ill respond to two directly. The first point about lat via. Theres a very large literature that looks as Corporate Tax rates happening and how wages respond and in order to estimate that effect you need variation in tax rates so theres variation over time within countries, and variation across countries, theres excuse me, but when you make a presentation, if you could give us the ten countries that youre looking at. I will do that. Will follow up and send them itch cant think of them bruce it changes each year because people are cutting tacks but this evidence has been found in people who look across u. S. States. You mentioned vermont and theres a paper, Federal Reserve paper that looks at when states change Corporate Taxes what happens to wages theres papers that look at canada, across canadian provinces, germany, and so the chart was meant to summarize what is basically a result that appears over and over in the literature in an easy to digest form. The fact check. Org point, which has been emphasized also publicly by a few economists, is really something of a classic economic blunder. The fact is that if right now we have a Corporate Tax system that encourages firms to locate activity in ireland in order to avoid u. S. Tax, and they do that by creating jobs in ireland instead of here, then were barely getting any revenue because the moved the now ire ireland. Theyre not paying that tax. And so to look at the change in revenue and the change in wages and to say thats a meaningful ratio is something that has been disproven by careful analysis by john cochran at the university of chicago, and two others and the fact check. Org numbers are just not correct. Thank you. Well, if youd send me the reports that you mentioned and i will send you the Treasury Department report and the Congressional Research service. Ive read both of those. That refute that. So, as we go forward in this debate, its important that we get our numbers straight and i would like to see the numbers you projected with the foreign countries, and this is important. Id like to she the moy brought back to american and invest evidence in our economy and infrastructure. I agree with you on that. This is a work in progress. We do need to simply identify our tax code. But we certainly need to do it in a way that is fair to working men and women. I do not believe the current form that is before us is going to its going to be debated and changed as we go forward does that. Thank you so much for your service, and i guess i yield to senator lee. Thank you. Center klobuchar. Thank you very much and thank you for being here, and i would share the concern about the current proposal. I want to start out with something i know you have done work in rural economic area, and im still seeing a lot of challenges just up on the Canadian Border witch representative peterson. We talked about the current estate tax proposal and only helps two people in his district. Last year we saw large layoffs due to steel dumping, people are now just getting back to work, we have a shortage of Work Force Housing so we have that going on in our rural areas. We actually have housing issues because we have some successful companies. We have job openings but not enough trained workers and i know you have been asked about this. You have written about the challenges facing our rural communities, what policies or program does you think should implement to help . Thank you, senator, and thank you for your support in my nomination to my confirmation. Im very grateful for that and humbled. Think that the geographic inequality around the country is very palpable in many different ways. There are places that are booming at the state level, for example right now, colorado has about half a unemployed worker per job listing and i of if your si say firms the number one problem is they cant find workers and then there are maybe parts of your state and every state that have exactly the opposite circumstance where the Unemployment Rate is way north of 10 and has been for more than a decade and doesnt seem like its budging even though the economy is doing great. I think that i, as an economist, am hopeful the Corporate Tax reform that is currently being considered could do quite a bit to help that because with a tight labor market and lots of parts of the country, then if youre a firm and you want to locate a plant here instead of ireland you have to find a place with a lot of, workers. If you locate there you can fill up the plant. The big picture is the bestest thing we can do. We talked bad proposal that is put forward which he white house has no current position on how to address geographic inequality with a proposal that mr. Tiberi is a co chair cosponsor of. You mentioned that tax in other countries locating overseas and one of the biggest goals here is to have jobs in america, and i just talking before i came over here with tax experts about the difference 0 someone that would like to bring money back from the overseas between a global minimum taxiedy where you have the average among countries versus the Previous Administration had proposed a territorial taxied where you would have a minimum tax per country as opposed to having the idea and what would the action do can you talk about the difference then we two proposals . Not talking about specific rates. Im talking about the mechanics and the effect on companies incentives to keep jobs in america. Now that this issues some that is being studied carefully by the committees. I has studied, including president obama things we should move towards a territorial system. The frustrating theres degrees territoriality and worldwide, and i look forward to seeing what the committee has come up with specifically on this issue and i think its a very important one for understanding the International Tax implications the Corporate Tax. I think we have to lit the committees decide where theyre going to. Last question is just on the Economic Opportunities that we could have with immigration reform. Grover norquist when i was rank thing Committee Gave a fullthroated his fullthroated support for immigration comprehensive reform with the basis we could bring down the debt and there have been cbo studies on that and we could bring in more talent and create more jobs, and i think that the 2013 figure back then would reduce the deficit by 1 158 billion over ten years. 25 of our u. S. Nobel lawyer laureate were born in other countries, and can you tell me where you are on this . Sure. Think that as an economize, we talked earlier in the hearing about how if you want more output you need more input and one input is labor, and in any economy, immigration is an important source of labor, and also that we have borders that need to be protected. Im not an expert on Border Security but theres bipartisan agreement that we had bill liking this out of the senate that did both things. Passed the senate that had significant forwarding for the border and also allow this kind of Legal Immigration im talking about. Id be happy to discuss that specifically with you. Very good. Im time is of the essence here. We have been waiting a decade. Could i add im very grateful my irish ancestors came here and im sure they werent allowed here because they had computer degrees. Exactly. Good point. Same with mine, came as a chef. Or chefs assistant, not a chef. Thank you. Thank you. Congressman. Thank you, senator. Mr. Chairman, reports out of the recent fourth round of the nafta renegotiations have not been possess particulars particularly reporting the actions in auto and mexican cities and certain u. S. Proposals and the successful conclusion was always going to be difficult. Now we seem to to be further away from the goal unanimous ever before. Is those regoingses dont produce an outcome that is acceptable to the administration or congress, would the economy be better off i the u. S. Pulled out of and a and a half to na rather than the status quo. Im not involved in the negotiations and i think that the president s position on trade is that our trade deals can be made better and i think that as an economist i can say its been an economist wrote a free trade deal situation, we got free trade. If you look at the free trade deals they take months and months to negotiate and have thousands of pages. Dont think one can dispute the observation we can make the deals berter better and im hopeful to see where the negotiatinglee and hope the trade deals can be made better. Im glad to her. Implicit in your remarks youre a free trader. Im an economist. You can put those together. You have written about the stock market and based on public statements bit senior administration, including your treasury secretary, described government as a market to market business. Many Market Participants believe this administration views higher stock praises as validation of economic policies but stock prices go up and down. What are the risk,s in your view of guiding policy based on the whims of the exwitness market equity markets. Dont think theyre anyone that it know of in the white house that is guiding policy based on what happened yesterday in the stock market. Think that our economic proposals are based on sound economic reasoning and objective analysis. Think youre right that the market goes up and down, and the market has again up a lot lately and i think that there are probably if i were going to write down an economic model, couple of reasons why, most important would be that theres an anticipated tax reform and if the corporate statutory tax rate to drop as significantly as is proposed, that would certainly have positive impact on the market and so exactly how big that effect is and what the probability is that the market is factored in of the tax reform is unclear to me. Theres not a good estimate of that. I think that one can be quite confident that if tax re form failed, that would be a beg negative for the market. Mr. Chairman, several fed president s noted that cutting tacks at this point in the Business Cycle would be highly procyclical, said, quote, my concern is you would crete a bump in Gross Domestic Product that would be short term and then decline down to trend growth but you would be more leveraged than when you started. San francisco fed president John Williams said unless targeted to raise productivity and underlying potential indisplaying possible recession. So, why is now the time for adding stimulus, especially you have been concerned in the past about inflation risks. Were those concerned unfounded in the past . I would sayre those concerns if the tax proposal right now were a demand stimulus put the proposal to stimulate supply and they higher Labor Productivity and youre making even the workerrers already employed more productive because they have bert machines to work with. That doesnt create a kind of keynesian demand inflation spiral but rather the increase in capital supply puts downward pressure or at the margin begin the positive gdp growth because youre increasing supply. We already have corporate profits at an utime high now. Theres more capital on the sidelines than theres ever been. Why do we think that changing the Corporate Tax structure is going to put more of that money to work . The money is on seedlines and on the sidelines kind of across the ocean and the fact is that the corporate money isnt turning into factories in the u. S. Because we have the highest Corporate Tax on earth. Its notrocket its not rocket science. The u. S. Could be an attractive location for insee. If 20 of the carps play no tax and the 35 is the actual rite and the actual rate is closer to 14 woman we be better off finding a way to get it much lower, 2025, whatever the tarring rate is, by eliminating the preferences and the exceptions that allow 25 to pay nothing . They pay nothing mostly because they have located the now ireland or some other country offshore and it avoids the u. S. Tax and so thats precisely the link that were trying to the offshoring model were trying to sever with this proposal. Mr. Chairman, thank you. Yield back. Thank you. Mr. Has set, 2009 ask you generally speaking what you believe the bright spots are in our economy. We talk a lot understand by and with goodnessty about some of the thing that scare us and worry but im curious to know as an economist what you think are the bright spot but what surprised you about our economy of the last few years. I think there are number of bright spots and starting to see it in the data, that with gdp growth going up north of 3 , well get another release this week, probably be hurricane affected but a little below 2 would be my guess. But the expectation of the professional staff is that were currently looking at a second half of the year that on average will be north of 3 growing so an average three quarters in a row and i think going from the new normal of 1. 9 to 3 . That bright spot, which is really a nice headline for americas workers, is mostly attributable to a surge in Capital Formation that i think is there because of increased optimism about deregulation and lower taxes. So i think that right now its incumbenten us to see the bright spot and make sure it stays bright by delivering on the expectations the policies we promised but especially on taxes have not been delivereddity. Think the firmed are optimistic because they expect to us succeed. Thank you. Thats good insight. As youre aware, some of the tax reform proposal we have been looking at have included a discussion of separate rate for pass are through entities. The idea is there are sprawl rule that go along with the separate passthrough rate that would be there to thwart tunisic manipulative tax avoidance. What in your opinion would those rules look like and how would this work . Yeah. We absolutely believe that the corporate rate reduction to 20 requires some kind of commence rat rate reduction for past through businesses and recognize that grails around that 25 rate need to be good because lebron james is going to be getting the 25 because he is a Small Business and i love maybe the greatest basketball player of alltime but should pay at the top marginal tax rate because its labor incomes. You see how hard he works on the court. Im not a lawyer. Hear the lawyers talk about the guardrail things and i know theres a lot of optimism. Panel outcome is before i can do an Economic Analysis of it. Thank you. Thank you. I think this morning we did hear a lot of the same critiques that a lot of the same critiques that weve heard in the past from 1980s, for the past 30 years, you know, the disparaging remarks that you heard today. We really in a different economy now, this information economy, and the International Economy that we have. As you pointed out numerous times people can leave and go to ireland and find a a talent pol there that allows them, microsoft or light of our Tech Companies to go there. Thats what were competing with. What kind of new thinking maybe gets past some of the same partisan language that has kind of been renewed . At i thought we all sort of agrd our corporate rate was two i but now were kind of scene that reversion on the partisan front to the same old tired critiques. What kind of new thinking can we do with this new economy so that we can get past some of those partisan divides . Just following up on some of the bright spots, but also that we cant really thrive and have three, 4 growth if we stick with i think theyre so much the members of this committee agree about, the fact theres a disconnect between wages. The fact without the highests statutory rate, whole bunch of companies that will pay, the fact wage growth has been completely unacceptable. And its really the responsibility of the membersn f congress to think about why those patterns exist in the data and come up with something well do about it. I understand partisanship is part of what t we do. Its here in washington. Its inevitable but ive notot seen an alternative theory for the set of facts that is anyway moving for me. I just honestly hope the responsible will have for americas workers, the people who are working harder every day and not getting more money can help us Work Together on this bipartisan taxef of four. I think its designed to be the same kind of process we had in 86. We had a big positive for the economy and im still hopeful that can be achieved if people start to focus on the actual analysis. So why have wages been going so slow even the profits have not . Whats the story . I dont think theres a good alternative. Larry lindsey had an article well talk about the difference between 3. 1 or 3. 2 growth in the 2. 1 that weve had from 201116, the average of 2. 1. What is difference between 2. 1 and. 1 and a 3. 1 to the economy and to longterm things like Social Security and our entitlement . These are going to be slightly incorrect but their useful rules of thumb because they around numbers and easy to remember. If we get an extra percent of gdp growth, thats about 1 million jobs. About 1000 per household. So if we can come up with a tax planan that adds pick your favorite number, three or 4 over ten t years, then you multiply this out. Its a lo off money, a lot of jobs. So thats how i think about. As we were talking earlier, if we also have that skill upgrade you really talking about wage growth of a lot more than 1080 go from being somebody who maybe loses your call job, although those are very high income, 80, 90, 100,000, butf you move into some of these engineering,bs, construction, a lot of things that also have very high pay, we need to be supporting through the tax structures, through the business process, supporting that relocation and that reassignment of jobs and labor, too. You would be talked about a lot more than 1000 increase when you get them into that higher information economy, right . Youre exactly right. Its something we t talked a lot about at the white house. The president even tweet about people needing to visit to havig hard time putting a job in the labor markets. We are here today to examine the right. Thank you. Really appreciate the opportunity to visit this morning. Mr. Hassett, we thank you for coming and you insight it has been very helpful. We are grateful also for the service you provide to the country, the administration. Should members wishte to submit question for the record, the hearing record willrs remain opn for five Business Days here and with that we will be adjourned. Thank you. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] Supreme Court Justice Ruth Bader ginsburg will be making remarks on social justice at 4 p. M. Eastern over on cspan. You can watch live online at cspan. Org or using the free cspan radio app. Tomorrow hillary clinton, amazon ceo jeff mesas, and Billie Jeanne king will attend a Human Rights Campaign annual dinner washington, d. C. Live coverage begins at 7 p. M. Eastern and again you can also watch online or listen live with the radio app. This weekend on booktv on cspan2, 70 Anniversary Party in washington, d. C. Sunday at 8 p. M. Eastern nbc news correspondent katy tur reflects on the 2016 president ial election in her book unbelievable,y fror seat to the crazies campaign in american history. Its no secret politicians dont like reporters generally. Nixon had a fraught relationship with his press corps. There are legendary stories about ron ziegler, his press person on getting into it with reporters. What was unusual about this was the very public nature of it, the way that he would go after reporters, myself included from the stage of rallies and have the crowd, encouraged the crowd to essentially turn on us and through us. At 19 eastern on after words journalist and former host that cbs face the nation Bob Schieffer on the impact of changing technology on journalism in his book overload. The first thing we have to keep doing is doing what were doing, and that is trying to sort out the truth from the false, thats an overwhelming job now. Its a bigger responsibility than weve ever had because we are dealing with so much more information. We now have access to more information than any people in the history of the world. But we are running a little short on curators right now. Were getting so much information that we really cant process it. For more of this weekend schedule go to booktv. Org. Bernie sanders in puerto rico to see hurricane damage and talk to residents. Puerto rico governor welcomed the senator and said they discussed the islands urgent needs in the wake of maria and our requests. Senator sanders tweeted this picture writing he is there to talk to found a local government representatives about the destruction they are dealing with. Congress has approved a package for 36 billion in disaster aid which is been sent to the president. Includes hurricane relief. Next, a house hearing on Public Health preparedness for Hurricane Season which comes after three major hurricanes devastated parts of texas, florida, puerto rico and the u. S. Virgin islands. The commission of the fda testified about serious concerns he has regarding puerto rico since its a major hub for drug manufacturers whose facilities have been severely damaged. This is about two and half hours