Transcripts For CSPAN3 Joint Economic Committee On Tax Reform 20171026

Public service by americas xabl Television Companies and is brought to you by your cable or satellite provider. Today the house passed a budget ruz aleutian. Yesterday, a a white house official talked before the joint Economic Committee about the perspective on the need for tax reform to boost job creation creation and Economic Growth. The most informative hearing on how we can accelerate growth in the United States. What is holding back Economic Growth in america has been of central interest to this committee from the onset of my term as chairman. Our hearings have produced informational insights. On the forces and con trants holding back private investment, Labor Force Participation and just as important as anything else, wages. We hope to get a clearer picture of how the right policies could help the economy recover its full potential. Economies dealing with a age ainlging of a. Lation, the slowing of growth and changes altering the methods of production in america. They have also altered the way the economy performs and not in a good way. Id like to divert your attention to the graph showing how the Congressional Budget Office lowered every year since 2007 through 2016. The output, normally a fairly stable concept. In 2007, the cbo estimates u. S. Output poshl for 2016 to be over 12 higher than it is now. What happened . The ageing was predict bable. Not anticipated was the u. S. Business investment would be down. Despite the rate, the labors markets health has not been fully restored. Indeed, the prime working age remains below where it was prior to the recession. I believe the failure to act when other countries were improving their Business Climate was largely to blame. Id like to show you two graphs. The first chart shows how 34 countries changed their Corporate Tax rate since 2000. All these countries save chile reduced their corporate rates to make their economies more competitive while the United States rate remained the same. The next chart showed how 27 countries eased Product Market regular laces from 1998 to 2013 based on oecd index. All these countries save chilly reduced their taxes and reduced the regular laces. This paints a startling picture and explains why the u. S. Corporations have been moving offshore. Over countries have improved their International Competitiveness of their business sector while the United States has take ben for granted. A hearing earlier this year on declining Economic Opportunity revealed a dramatic decline. From 2008 to 2014, more businesses actually closed than opened. In terms of both its provisions and sheer complexity. As the challenges we face are more daunting as a result, the National Debt is a bigger problem with a slow growing economy. That is why we so urgently need both tax and Regulatory Reform. We must restore a more highly functioning market economy that offering hope and opportunity to investors, to entrepreneurs and workers and that removes the artificial constraints on a faster Economic Growth model. One area is taxation. I cant think of a better witness to explain to us just how taxes and Regulatory Reform can lift the economy and Living Standards across our country. We appreciate your appearance before the committee today. Look forward to hearing your views an i will now yield to our ranking member, senator peters, for his statement today. First i want to thank chairman h haset. Looking forward to having a substantive discussion on the committee. Also chairman teaberry. I was sorry to hear the thus, we are going to miss you here in congress, but we know youre going to enjoy new challenges and most importantly, have a little bit more time to quaint yourself to the family. Which is always a wonderful thing. Mr. Chairman, i also think this is a a very timely hearing. Given the push to enact tax legislation on an aggressive timeline. Before we get into specifics of tax policy, id like to take a look at the state of our economy and Economic Outlook for the coming years and decades. The administration has not shied away. Unemployment remains low and tok market continues to climb. Theres more to an economy than just raw, monthly job number or the daily dow jones average. For working michigan family, we are still seeing persistent, frustrating stagnation on wages. Americans are not seeing the growth that normally accompany economic recoverierecoveries. Not only do they have an impact on the daytoday lives of american family,st the contributing to another troubling Economic Trend and thats a growing Retirement Savings crisis. Too Many Americans dont have the resources and as americans are living longer like defined benefit plans, i believe this will have a serious consequence for our economy. When it comes to middle class american families, the state of the economy is mixed. And for policymaker, i believe there are other trends we must address to ensure health and come pettiveness. First, i believe it is of the utmost importance that congress reject the idea that deferring for some, eliminating investment in basic science and research has no consequences. It does. And lack of commitment to funning research will have a devastating impact on our economy. I can promise you our competitors including china will not simply stand and see the competitive advantage in innovation. Second, we must reverse an alarming trend of o declining new business formation. New businesses are the driver of our economy and our responsible for most new job creation in the United States. We are not seeing the number of new businesses needed and especially in the urban rural divide. New business formations across the president ial administrations in both parties has fallen by half since the late 1970s. And when new businesses are created, theyre concentrated in just a few metropolitian areas like los angeles and new york. And the critical question is how are we going to prepare our workforce for an autonomous world driven by advances in Artificial Intelligence and machine learning. This is why we are facing together some stagnant wages. Massive Retirement Savings gap, a retreat from investment and innovation, except for a new major metropolitian areas and fundamental shift towards automation that could dwarf the Industrial Revolution in global impact. These are problems we can Work Together to solve and i think we must do this on a bipartisan basis. Unfortunately, im concerned we are going to be spending the coming weeks and months debating how big a Corporate Tax cut should ref and other policies that help the most wealthy individuals while raising taxes for middle class americans. Despite our differences, i look forward to a serious conversation and hope we can find Common Ground on how to support American Workers and their families. So thank you for being here today. Thank you, mr. Peters for your kind words, we are now turning to our distinguished guest, dr. H as sasset. I apologize we have a republican meeting going on upstairs so a few members are up there and ill be departing before the meeting is over unfortunately to join them, but we are so excited to have you today. The senate also has a vote at 10 30 so sorry for that i interruption as well. He is the chairman of the president s counsel for economic advisers. He was also a senior economist with the board of governors of the Federal Reserve and associate professor at columbia university. He earned his doctorate from the university of pennsylvania. Its an honor to have you today. You are now recognized for your testimony. Thank you and what han honor it is to be back with the word honorable before my name, which seems really inappropriate. But gosh, im so thankful for the support of senator lee and peters and my confirmation on the senate and its great b to be back. I think they have a proud tradition of and a solutions we can agree to and its in the spirit that i appear before you tod today. Ill discuss the status of a number of sectors. Ill emphasize some areas that need attention that will improve our citizens economic well being. If you read the act that created the counsel of economic advisers, thats my somber reasonability, to analyze the committee, see whats going on and to provide the congress with what we ought to do about it. Economy buoy ed by expeck tases right now and growing at pace with low unemployment and low inflation. Financial markets appear to recognize the like lihood of continued growth with low inflation with the major stock prices up substantially over the past year and with expected inflation from the Market Securities remaining pretty low. That said, the President Trump administration is not sats fied with business as usual and Income Growth during the past several years. Im happy to report that economy is doing well in 2017. Business investment grew at a 7 rate during the first half of 2017 and thats notable acceleration from a flat pace during the proceeding two years. Thats very important because after translating this pattern of investment into flow of capital service, its apparent that capital deepening, the flow of Capital Services per hour works has made no contribution to the growth of Labor Productivity in recent years. In contrast to post world war ii average of. 8 percentage point per year f. You look at the capital deepening over the last two year, it became negative for the First Time Since the second world war. This administration thinks that tax policy could play a role and through that channel to the growth of real wages. Before i do that, lets look at a few other sectors. Investment grew at a slow rate in the first half of 2017 t. Low and steady rate of core inflation is notable. Appears to be growing at a 2 rate as the chairmans chart indicates and real wage growth in america has stagnated. Over the past eight years, the income rose by. 6 per year. And that relationship between the wages of American Workers and u. S. Corporate profits reflects the state of International Tax competition more than anything else. Countries around the world have respond today capital by cutting their corporate rates to attract capital back. A key proposal is from 35 to 20 . This conclusion importantly on worker ss is driven by patterns that are viz bable not to mention a number of follow up studies that have appeared during the past ten days. The code violation between the most tax and least tax countries over recent years is in figure one, which might go up over there. Simple correlations dont tell the whole story, but theres a biggs literature between 2012 and 2016, the ten lowest coun y countries of the eccd had 13. 9 Percentage Points lower than the ten highest. Thats about the same scale as the reduction under consideration here in the United States. The average real wage growth has been higher as it would have been by the academic literature. The rate of growth and therefore real wage growth has been slow. Its time for us to turn our attention to building a plan for boothing the rain of growth in the long run. As ive discussed, tax reform will have a role in improving the rate of growth to ablize the regular regulatory committee. Ill be happy now to respond to any questions. Thank you. As ive mentioned, the cbo has continually downgraded its estimate of what the economy is capable of producing, our output potential. Is it possible that higher taxes and heavier regulation constr n constrained our economic potential and how could we change that . On the regulation, its possible. I think your chart really captured what happened in recent years, which is that its not our actions on tax policy that harmed us. Our inactions. So what happened is the rest of the world cut their Corporate Taxes and that made their countries much more attractive for the location of multinational plants in our country and we saw the activity move overseas in response to that. One metric to think about how big this is, theres a paper that came out in the spring that looked at just u. S. Multinationals, they transferred abroad to the foreign plants, this study estimated that 52 of our deficit is because were paying too much from our foreign subs. 52 of our trade deficit is attributable to it. So that means lore demand for workers and lower demand for wages as well. Thank you. You have written and spoken in rekrebt years on the challenges of the uneven economic recovery. I talked with, weve explored in this committee, a topic that senator peters mentioned as well. Research makes clear this has been the most geographically concentrated on record leaving too many communities in ohio and michigan for example. Behind and the people who live in those communities behind. Ive introduced legislation to provide a new Market Driven way of getting private capital off the sidelines and into our communities starting to foster new business and create jobs called the investing in opportunity act. Bicameral support as senator tim scott is the lead sponsor in the senate. Can you describe this trend thats occurring in our economy of concentrated job growth in places like los angeles and new york. And can you speak to the commitment ensuring the challenge head on of incorporating ideas like investing in the community act. Geographic inequality has been the focus for many years. I mentioned in my confirmation hearing, i grew up in a town where the greenfield tap and dye closed and across the way, there was a big paper mill that was a main employer that there and that closed, too. My dad and i when id go home, he still lives in greenfield, still walk next to the abandon factories. Theyre right next to the connecticut river. Its a beautiful walk. The video game, fallout, used it as a location for video shooting for post apock lip tick america. Thats why my academic career has focused on geographic inequality. The jobs havent come back. I think tax reform in general will encourage a lot of plant location back into the u. S. Because right now again, if you locate in ireland, youre paying element no tax. If youre loekt in the u. S. , youre paying the heiighest taxn the developed world. If the plants were to all locate in the places like that have low Unemployment Rates right now, they wont necessarily be helping those distressed communities. Now, the administration doesnt have an official position yet. Its not something ive discuss ed with the president on your specific proposal, but the geographic is something everybodys playing close attention to. Senator peters, youre recognized for five minutes. Thank you. You have been engaged on the administrations tax proposal and what it will have on wages for working americans. I think theres a lot of, a lot to dive into regarding that argument. But b to be brief and skeptical of the numbers you have put out, i think im in company thinking theyre skeptical from the administration. I believe many works families back home in michigan are also very skeptical about that. For them, i dont think many michigananders are holding their breath to see if their bosss bos tax cut trickles down to them. To see either in increased growth or wage increase. Instead, they want to know how this tax proposal is going to impact them. Their pocketbook. They have to worry about buying a car, paying for day care and providing for a secure environment. We need them to be more direct as to the consequences of the tax plan before us. Specifically as it is tailored to individuals, so folks know what this means for them. Certainly, some estimates i have seen have shown that some middle class families could see an 800 increase in this tax plan because it is focused primarily on the folks at the top of the scale. In the form of higher taxes. I think we need to make sure the American Public and families know what that is. Given the fact that the Median Income for families in michigan the a little over 52,000. An 800 tax increase is a big deal for those families and we need to have full disclosure in this plan going forward. 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 this committee an estimate of the tax savings that a working family will get as a result of the tax plan that has been proposed . Thank you, nart. Senator. The nirs part to the tax savings decision. Move a little closer. Thank you. Yes. Lets talk b about what we agree about. In the cea report, we found theres been a disconnect between the welfare of corporations and the welfare of o workers. The corporate profits are soaring, but wages are not. Thats unusual in u. S. History. I think we agree happened. I think we also agree that were the highest placed Corporate Tax of the u. S. World. Thats a simple fact. So then the other thing that i think we agri about because its a fact is that the capital deepening contribution to product growth in the u. S. Has gone to the lowest level its been since world war ii. So i think it behooves all of us, its a really somber responsibility to think about what is driving these factors. I think the best explanation for those patterns in the data is that the corporate rates around the world have gone done a lot. That theyve encouraged u. S. Multinationals and thats why we see everything we do. Theres a dispute about how much, but i dont think theres anyone that thinks that its zero. The administration is committeded to a process that hopefully can be bipart son. Where committees are working out where the wrack ets go and the president has even mentioneded were open to a higher top rate. Its everyones hope we head there. And if i were to say this family is going to get this tax cut, i would step in front of this process because its being negotiate d upstairs right this moment. Youre going to be a very important part of that process. Youre the principle adviser to the administration as to where this policy should be and how its going impact growth. So i want to pursue that just a little bit. But before that, we do agree on the disconnect between corporate profits and wage levels for most workers in those companies. Corporate profits are at a high, so its not that corporations are hurt iing now, but we have seen certain individuals have benefitted. Certainly, first and foremost, we know ceos of those corporations have done very well. I think ceo has grown b about 90 times faster than the typical worker since 1978. So the folks at the top are reaps all of the rewards of that growth. It is not impacting every day americans. And we have a tax code now, proposal, those folks need to pay less taxes. I dont think the average worker thinks thats the case. As we are talking about the particulars of a family, weve heard President Trump say middle. Clay families will not see a tax increase. Is that the position of the administration . Will use that influence you have with the president and the president stand by those comments to the ways and Means Committee that a say middle income taxpayers will not see a tax increase . The president is adamant on that point. Its the one thing for thim hymn thats nongauche i cant believe. And as fsor the corporate profi point, but this is important and i would hope that i could respond to that, too. Because its a very important point. That right now, u. S. Multinational profits are as you said, at an all time high and executive compensation is skyrocketing. The last i checked, i could follow up, the executive compensation is higher than d dividen dividends. But the disconnect from wages is not because theres been a fundamental change in market power here in the u. S. It occurs because the profits arent in the u. S. Theyre over there. 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 getting a big tax cut to companies that are not paying. Its just that theyre not paying the tax. The profits that are sigh skye high in the u. S. Are driving up wages in places like ireland. Well and if i may, just brief fly, i want to make sure im clear about taxes for middle income families because some of numbers that i have seen particularly with the elimination for example of state and local deductions for state and local taxes, there have been a number of studies that show with that deduction elimination, a lot of middle class families are going to see an increase. About 12 or 26 of families in michigan claim the state and local deduction and its all over the country. Some studies have said the average increase could be up to 1800 a year because of the loss of that deduction. 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, were going to say we cant support that and well hope well be align wd the president that we cant support these increases on middle class families and well push back aggressively. Thats understandable and when the complete plan is available, i look forward to, working through those numbers with you and your staff. Thank you. Were grateful to have you year 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 a significant debate. A debate thats been made clear even so for this morning in our discussion. I want to pick up on something that senator peters was discussing because i think its an important point. Having to do with our Corporate Tax rate. At 35 , we have the highest Corporate Tax rate in the developed world and there are problems with that, problems that i think are acknowledged by most republicans and most democrats. But sometimes, i dont think we look into it quite enough. Sometimes, we tend to look at the Corporate Tax as being something that is paid a burden born solely by wealthy corporate fat cats. The likes of whom could be depicted with a Monopoly Game piece or like mr. Peanut with the monocal and double breasted suit, but when you take a really close look at exactly who pays Corporate Taxes, the picture is a little bdifferent. Taxes effectively, both capital and labor, both the investors dividends and wangs of the workers. Economists disagree a little bit on how this breaks down. But its commonly understood that lost worker wages make up between one quarter and onehalf of Corporate Tax revenue. Some put the figure higher than that. Perhaps a quarter to a f half, maybe more. On top of that, youve got 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 regressive effects, meaning its least describable qualities include the that it is borne disproportionately by the poor and middle class. Proposed eliminating the Corporate Tax altogether and shifting the particular tax burden onto 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 could be liberated from their share of the Corporate Tax burden and america would, without a doubt, become the most popular place in the world to do business. So dr. Hassett, id love to get your comments, any thoughts you might have on that idea. Thank you, vice chairman lee. I think that, again, wage growth is low, Profit Growth is high, the profits are over there. Weve got the highest rate. And we see that countries around the world that are run by governments that, you know, that dont have the commitment to the american system that every member of both parties here and 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. If you look at the u. S. Right now, again, the contribution to productivity growth from capital deepening is lower than its been since the second world war. We have a crisis in our country. And we need to Work Together on this committee to solve it. This idea of zeroing out the Corporate Tax and replacing it with tax on dividends and Capital Gains on par with taxes we impose on income, what do you think of that idea specifically . Im focused like a laser right now as an adviser to the president on the proposals that are there. Your idea is something thats analogous to something that a lot of others have done. A few countries have eliminated it all together. But many have integrated the Corporate Tax with the dividend and the Capital Gains tax so that theyre basically charging tax once at one level, but in a progressive manner. If you throw it at the individual side, if theres a retiree whos getting a dividend and using the dividend to pay the utility bill, you dont want to tax the heck out of that. But if theres a rich for me im focused on the current proposal. Theres another issue that deals with the burden of overregulation. I keep two stacks of documents in my office here in washington, one stack is a few inches tall. Its a few thousands pages long. I think for last year it was 3,000 pages long the laws passed by Congress Last year. The other stack is 13 feet tall. It was about 96,000 pages long, last years federal registry of annual cumulative indexes of federal regulations as theyre released and later finalized. Those regulations end up costing 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 this problem. Its increased seven fold. Its the product of congressional delegation of power. Congress not wanting to make law itself and stand accountable for the difficult line drawing decisions that go along with setting Public Policy and having someone else do it. And yet its costing the economy 2 trillion a year. And i believe those effects are borne by americas poor and middle class. In your opinion do you think an idea like the regulatory budgeting idea ive proposed or the reigns act which would require congressional approval of major regulations would have a desirable impact on gdp and benefits for americas poor and middle class . Thank you, senator. In terms of the specific proposals, i would have to touch base with my colleagues at the white house. Its not something ive discussed with them. I wouldnt wish to signal official White House Position that im not currently informed about. Certainly the topics you mention are incredibly important to the white house. I think that one reason why sentiment in the u. S. Is so much higher right now is that theres been a lot of palpable deregulation so far this year. But also almost a halt of costly new regulations. The cea has been studying the impacts on firms of new regulations. Its quite striking. If all the sudden you run a business that the u. S. Government has a new regulation, then you have to figure out what to do. Youve got to hire lawyers. Youve got to decide whether youve got to put new things into your plant. Its an urgent problem. The regulation from two years ago has cost too, the new regulations are incredibly costly. One think tank in town has estimated because weve slowed new regulations weve reduced the amount of man hours spent complying with new regulations this year by more than 6 million man hours. I think that that gives you an idea of the kind of effect of prudent Regulatory Reform. Were also very mindful, just as a final thing, how important many regulations are, like clean air and clean water and so on. Were not talking about wiping away all regulations, just exposing the ones that exist and the new ones we might think of for benefit analysis. Thank you very much. It seems my time is expired. Mr. Delaney. Thank you, mr. Chairman. Thank you, dr. Hassett and congratulations on your appointment. You bring tremendous expertise and good judgment to this important job. Its great to have you in the seat. 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 passthrough status, largely because of how the private Equity Industry has grown, and every kind of private equity backtransaction those Companies Move to llc status, and many pay little tax because theyre lenveraged and can deduction the interest. Theres no data ive seen that indicate wages have grown faster in those companies where theres no Corporate Tax than incorporated businesses in this country. 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 businesses in this country, in fact, dont pay tax because of what i just discussed, and their wages have not grown any faster, based on any analysis thats been done, than wages in c corporations, which actually pay this tax . Thank you for the question, mr. Delaney, as always, its an interesting one. Im not sure if theres literature on that question. If i find it, ill let you know. Ill have to speculate about if that effect is there, which i wont dispute or concede because i have to study the numbers a little bit more why that might be. Dont forget the u. S. Labor market is a place where firms show up and compete for workers, ideally. The wage is set by total labor demand in the country. If we have a big chunk of the firms in the country that are locating the jobs overseas, then that reduces overall demand. In the end if hassett incorporated and comstock incorporated is competing for delaney, were going to have to pay you at same wage. The average corporate rate is 20 to 25 . Taxes divided by total revenues, the average rate, i think the last i checked for multinationals, it was a good deal lower than that. Got it. Is that more consistent with our competitors as opposed to our stated rate, which is the highest . If the revenue is low with our high tax rate because people locate activity offshore, that it doesnt mean weve got a low tax rate. Right, means theyre just deferring it. I loved how you talked about focusing on things we can agree on, becausesesesese we need to of that here. Two things i think theres broad agreement on, i think you have opinions on these topics, the first is tieing infrastructure with tax reform. Ive worked on this extensively around International Tax reform. It seems to me its a missed opportunity not to do infrastructure as part of tax reform because its really the only way to pay for infrastructure and everyone seems to agree we need more investment infrastructure. The second is a carbon tax, which would generate an enormous amount of revenues which could be used for broad base tax reduction, under the category of wed rather maybe tax pollution as opposed to income and 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 you know, im an economist. If i look back at the times ive worked on president ial campaigns and advised people, they tended to lose. I dont give political advice. More of a matter of smart tax policy. Infrastructure is really important. Tax reform is really important. Whether they go together is something you folks are the experts in. Okay. And the second question . Carbon tax. Ive written extensively about the carbon tax, as you know, which may motivate the question. Yes. My job as cea is analysis of proposals. If someone were to propose that, i would be citing my own work. What is your directional opinion on carbon tax, whether a carbon tax whose revenues would be effectively dividended back to the american people, either directly or through other tax cuts, how would that effect Economic Growth, putting aside what i view as perhaps most important benefit which is to reduce Greenhouse Gases . How would you view that as an economist relating to Economic Growth . Sure, not speaking on administration policy, but as an economist who does literature. Theres an economist the resources for the future at the university of maryland, rob williams, done a careful modeling job looking at carbon taxes and how they affect the overall economy. Depending on which tax rates you reduce with the carbon tax, you get big negative effects on the economy or not so big small positive effects. You can get positive to negatives in the devil of god is in the details. In his holding thats what it says. Thank you. Dr. Hassett. Ill now recognize myself for five minutes. Thank you, mr. Hassett. Good to be with you. Thank you. Welcome you here to this committee and to your new position here. I wanted to follow up a little bit on sort of on the growth rates as we look at growth in what were doing in taxes and how that relates to our international competition. And the potential for growth in economies, when you look at, you know, india and, you know, the growing middle class there, and the potential we have to benefit from that, whether its trade or other but also in the growing competition that were going to have. What are the best policies you think in terms of getting our growth rate up . When you go to other countries and hear theyre having 8 or 9 , when i look at a lot of the potential im in virginia with a lot of technology, sector in my district. And i often hear from them about theyre just sort of waiting, whether they can invest here or invest somewhere else. Should i go to india . Should i go to, you know, some other country or should i invest here . What policies can we put in place that will unleash it to both grow here, but then interact with the growing economy around the world . You know, i think that there are three components to Economic Growth, to grow output you need to grow inputs and you can have more labor input because you have more workers or because the workers are more talented. You could have more capital because attract location of capital or both of them can get better because of technological change. When you look around the world and countries are growing at 9 or even 15 , very often that happens because theyre starting out from a place where theyre not at the technological frontier so they can copy existing practice. Theyre going to do it half as well as a major developed country. The problem for us being like really the class of the world in terms of technological frontier, or very close to it, the innovation part of growth is a lot harder. We cant just copy what somebody else is doing. We have to actually innovate and discover something that no one ever knew existed. Educational background also there are things we could correct with policy and we can effect labor supply and capital supply. I think 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 that will encourage higher labor supply and on the corporate side by making the u. S. A place where plants want to locate again, we should increase Capital Formation as well. Are there ways we can as with the workforce development, thats an issue well be dealing with also subsequent to tax reform. How can we best invest in our workers and grow . Because with the information economy, with this expanding economy, middle class around the world, our workers, if were going to continue to lead, need to be the most talented. And we need to continually invest. We always talk about lifelong education. What policies can we then put in place to develop constantly upgrade our employees so that their wages are growing substantially and we dont have this stagnation that 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. You know, there are a 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 that one of the things looking back at our policy failures collectively as a nation over the last few years is weve not necessarily done a good job of that. If you look at the people whove received training because they lost their job because of trade, for example, that training doesnt always look like its been that helpful. Its something we need to study very carefully and improve upon. Maybe in terms of having, you know, look at all these Training Programs that we have across numerous agencies, kind of consolidating them, really having them directed towards maybe the work shortages. I know we have in virginia we have lots of cyberjobs 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 in lower income areas, but with real potential, bringing them in for a sixmonth to a year program and having huge success getting them into that cyberpipeline. If they want to go back to business school, go to college, they now have a job where they also will get Tuition Assistance and things like that. So how so maybe as were looking at these Training Programs, but also maybe tax policy, how we can encourage 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. Great, thank you, thank you. And i will now yield to my colleague mrs. Ma low knee for five minutes. Thank you. Thank you and congratulations on your appointment. Thank you, congresswoman. Its wonderful to have you here today. In the words of a famous and immort immortal new yorker yogi bera, this hearing and topic sound like de ja vu. This country has heard again and again how huge tax cuts for the most fortunate will pay for themselves and that the benefits will somehow trickle down to benefit working families. And again, again that has not been the case. Just last april this committee had a hearing where we debated the virtues of trickle down exhibition and featured the inventor of the laffer curve, arthur laffer, and the chief economist to former vice president. Giant tax cuts benefits. And after the hearing, he published a number of articles that pointed out that that is not what happened. And id like and its not likely to happen again, i would say, based on the past performance. So without objection i would like to submit copies of these articles into the record. 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 effects have taken place. Thats on page 4 of your testimony. Correct. Well, i must say that that sounds absolutely wonderful, but it sounds a little bit to me like you can lose all this weight but you dont have to exercise and you dont have to go on a diet. And past performance doesnt show that. The New York Times pointed out in one of their articles that a 2012 Treasury Department study found that less than a fifth of the Corporate Tax falls on workers. So its not this trickle down to them. And a Congressional Research report last month concluded that the effects of Corporate Taxes fell largely on high income americans, not average workers. So id like to, without objection, to place into the record these two reports also. Without objection . Thank you. Now, factcheck. Org, you may have seen 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. 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 countries of 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 swi switserland and latvia. Its a great country, latvia, 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. , a country with huge, complex, dynamic 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 yolk of communism . Actually switzerland has a low tax rate. What gdp less than vermont . If i can use latvia as a medal, we can use the tragic example of kansas, a tale about the economic chaos that happened if your brand of trickle down economics is put into place. Kansas is not a pretty picture. So your comment really on the ten compared to the ten highest and to me it doesnt make a normal or accurate comparison. And the numbers that were really refuted by faxcheck. 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. But 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, ms. Maloney. Its a pleasure to see you. Ill respond to two directly. Latvia, there is large literature that looks at how Corporate Tax rates respond, variation in the tax rates, variation over time within countries, studies that look at that. Variation across countries. Excuse me, a second, but when you make a presentation, if you could give us the ten countries that youre looking at. I will do that. I will follow up and send them. I cant think of them off the top of my head, in part because it changes each year because people are cutting their taxes. This evidence has been found at people who look across u. S. States. You mentioned vermont. Theres a Federal Reserve paper that looks at when states change their 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. I think it served that purpose. I think that the factcheck. 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 their 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 at all from the Corporate Tax here because they moved the money to ireland. I think weve kind of agreed u. S. Multinationals arent paying that tax. To look at the change in revenue and the change in wages, to say that thats a meaningful ratio is something thats been disproven by careful analysis by john cochran at the university of chicago, Casey Mulligan at the university of chicago, and greg the factcheck. Org numbers are not correct. Thank you. Well, if youd send me the reports that you mention. I sure will. I will send you the Treasury Department report and the Congressional Research service. Ive read both of those, congresswoman. That refute that. So as we go forward in this debate its important we get our numbers straight. And i would like to see the numbers that you projected with the foreign countries. This is important. Id like to see the money brought back to america and invested in our economy and our infrastructure. I agree with you on that. This is a work in progress. We do need to simplify our tax code. But we certainly need to do it in a way that is fair to working men and women. And i do not believe that the current form thats before us, of course its going to be debated and changed as we go forward, as you pointed out, does that. Thank you so much for your service. Thank you. I guess i yield to senator lee. Right . Thank you very much, and thank you for being here. I would share the representatives concern about the current proposal. I want to start out with something i know youve done work in rural economic area. And im still seeing a lot of challenges. I was just up on the Canadian Border with representative peterson. We obviously talked about the current estate tax proposal. It only helps two people in his district. But last year we saw large layoffs on the iron range due to steel dumping. Weem are now just geting back to work. We have a shortage of workforce housing. We have that going on in rural areas, we have housing issues because we have some successful companies. And we have job operation, but not enough trained workers. I know youve been asked about this. Youve written dt challenges facing our rural communities. What policies or programs do you think we should implement to help . Thank you, senator, and thank you for your support in my nomination to my confirmation. Im grateful for that and humbled by it. I think that the geographic inequality around our country right now is palpable in many different ways. That there are places that are booming. At the state level, for example, colorado has about half unemployed worker per job listing. If you survey firms, the biggest number one problem they have is they cant find the workers for the job openings they have. There are many 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 as, ass an economit can with a tight labor market in lots of parts of the country, then if youre a firm and you want to locate a plant here instead of ireland, youve got to find a place where there are a lot of workers. If you locate there, youll be able to fill up the plant. So i think the big picture effect is the biggest thing we can do. Earlier we talked with chairman tiberi about a proposal hes put forward with the white house has no current position on, how to address geographic inequality more specifically what b proposal mr. Tiberi is a cochair of, or a co sponsor of it, excuse me. Ideas we need to explore. You mention the tax located overseas, certainly one of the biggest goals we have is to have jobs in america. I was just talking before i came over here with some tax experts about the difference as someone would like to bring the money back from overseas, between a global minimum tax idea where you have the average among countries versus the Previous Administration had proposed a territorial tax idea where you would have a minimum tax per country as opposed to having this average and what would the average do . Could you talk about the difference between those two proposals . Im not talking about specific rates. Im talking about the mechanics of how they would work and the effect that could have on companies incentives to keep jobs in america. I know that this issue is something thats currently being studied carefully by the committees. I think that everybody involved the study, including president obama, thinks that we should move towards a territorial system. The sort of frustrating part for people who do taxes, there isnt a territorial system worldwide, but there is degrees worldwide. I look forward to seeing what the committees come up with specifically on this issue. And i think its a very important one for understanding the International Tax implications of the Corporate Tax. But i think we have to let the committees decide where theyre going to go on that. Okay, last question i have is just on the Economic Opportunities that we could have with immigration reform. And nor quest, came in and gave a full throated support for immigration, comprehensive reform, basis that we could bring down the debt. Many cbo studies on that. And also that we could actually bring in more talent and create more jobs. And i think the 2013 figure back then it would reduce the deficit by 158 billion over ten years, 685 billion over the following include the following decade, 25 of our u. S. Laureates were born in other countries, 75 of fortune 500 companies are headed up by immigrants. Tell me where you are on this. Sure. As an economist we talked earlier in the hearing how if you need more output, you need more input. One of the inputs is labor. For sure, in any economy, immigration is an important source of labor. Also we have borders so they need to be protected. Im not an expert on border security, but i think its also that theres bipartisan agreement that we should we had a bill like this out of the senate that did both things. Excuse me . We had a bill that passed the senate that had significant funding for order at the border but also allowed this kind of Legal Immigration im talking about. Id be happy to discuss that specifically with you. Time is of the essence here. Weve been waiting a decade. I could add that im very grateful that my irish ancestors came here. Im pretty sure they werent allowed here because they had computer degrees. Exactly, good point. Same with mine, came as a chef or a 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 positive, regarding reactions in auto and new mexico city to certain u. S. Proposals. The successful conclusion of the negotiations was always going to be difficult. And now we seem to be further away than that goal than ever before. If those renegotiations dont produce an outcome thats acceptable to the administration or to congress, would the economy be better off if the u. S. Pulled out of nafta, or rather than the status quo . Thank you for the question. You know, i am not involved in the negotiations. And, you know, i think that the president s position on trade is that our trade deals can be made better. I think that, you know, as an economist i could say that if an economist wrote a free trade deal, one sentence, weve got free trade. If you look at the free trade deals they take months and months to negotiate and theyve got thousands and thousands of pages. I dont think that one can dispute the observation we can make those deals better. I think that, you know, im hopeful to see where the negotiations lead and hope that the trade deals can be made better. Im glad to hear implicit in your remarks is that you are very much a free trader. Im an economist. Okay. Put those together. Youve written in the past about the stock market. Based on public statements by senior administration, including our treasurer secretary who described government as market to market business. Many believe this administration views higher stock prices as validation of economic policies, as you know stock prices go up and down. What are the risks in your view of guiding policy based upon the whims of the equity markets . I dont think theres anyone i know of in the white house thats guiding policy based on what happened yesterday in the stock market. I think our economic proposals are based on sound economic reasoning and objective analysis. I think youre right that the market goes up and down, and the market has gone up a lot lately, i think that there are probably if i were going to write down an economic model, particularly a couple reasons why. The most important would be that theres anticipated tax reform. If the corporate statutory and Corporate Tax rate were to drop as significantly as this is proposed, then that would certainly have a positive impact on the market. Exactly how big that effect is and what the probability is that the markets factored in of the tax reform is unclear to me. Theres not a good estimate of that. But i think that one could be quite confident that if the tax reform were to fail that that would be a big negative for the market. Mr. Chairman, several president s have recently noted that cutting taxes at this point in the Business Cycle would be highly procyclical. Robert capital said shortterm, trend growth except that when you decline back down you would be more leveraged than when you started. San francisco fed president John Williams said unless targeted to raid productivity and under lying potential, a tax cut could feed unsustainable growth that could ultimately be done by asset price bubbles, inflation and possible recession. So why is now the time for added stimulus . Especially i know youve been concerned in the past about inflation risks and fiscal risks in the past. Were those concerns unfounded in the past . Why are we being so pro cyclical right now . I would share those concerns if the tax proposal right now were a demand stimulus. But the tax proposal is to stimulate supply. If we stimulate supply there is more capital, higher Labor Productivity and youre making the workers already employed more productive because they have better machines to work with. That doesnt create a kind of demand inflation spiral at all, but rather the increase in capital supply puts downward pressure, or at the margin keep given the positive gdp growth because youre increasing supply. We have corporate profits alltime high, more capital sitting on the sidelines than theres ever been. Why do we think changing the Corporate Tax structure is going to put more of that money to work . The money is on the sidelines, on the sidelines across the ocean. The fact is that the corporate money isnt turning into factories here in the u. S. Because we have the highest Corporate Tax on earth. Its not rocket science. If we were to reduce the Corporate Tax rate, companies would come back and the money would back off the sidelines, the u. S. Again would be an attractive location for investment. If 25 of those corporations paid no taxes and the 35 is the statutory rate and actual rate is closer to 14 , wouldnt we be better off finding a way to get it much lower, 20, 22, 25, whatever the target rate is, by eliminating the preferences and the exceptions and allow 25 to pay nothing . Theyve paid therefore it avoids the u. S. Tax. Thats precisely the link the offshoring medal were trying to sever with this proposal. Mr. Chairman, thank you. I yield back. Thank you. Mr. Hassett, i wanted to ask you generally speaking what you believe the bright spots are in our economy. We talk a lot, understandably, and with good necessity, about some of the things that scare us that worry us. Im curious to know, as an economist, not only what you think are the bright spots, but also what has surprised you about our economy over the last few years . Sure, i think there are a number of bright spots. Im really starting to see it in the data with gdp growth going up north of 3 . Well get another release this week, it will probably be hurricane affected, but below 2 would be my guess. The expectation of the professional staff at the cea is were currently looking at a second half of the year that on average will be north of 3 growth. That would be on average three quarters in a row. I think going from the sort of new normal of 1. 9 to 3 , that 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 uncup bent un cup bent on us to see the bright spot and make sure it stays bright, by delivering on policies we promise. Firms are optimistic. They expect were going to succeed. Thank you. Thats good insight. As youre aware some of the tax reform proposals weve been looking at have included a discussion of separate rate for passthrough entities, the idea is that there would be separate rules that would go along with the separate passthrough rate that would be there to thwart op or tunistic manipulative tax. What, in your opinion, would those rules look like. How would this work . We absolutely believe that the corporate rate reduction to 20 requires some kind of commensurate rate reduction for passthrough businesses, americas small businesses, but also recognize that the guardrails around that 25 rate need to be very good because otherwise lebron james is going to be getting the 25 because hes a small business. I love him, may be the greatest basks ball player of all time, but he should play the top marginal tax rate. Its labor income. Im not a lawyer. I hear the lawyers talk about the guardrail things. I know theres a lot of optimism that this can be truconstructed a prudent way. I have to wait and see what the final outcome before i can do an Economic Analysis of it. Thank you. Representative comstock. Thank you. You know, i think this morning we did hear a lot of the same critiques that weve heard in the past from 1980s, really for the past 30 years, trickled, you know, always dis paraging remarks youve heard today, we are really in a different economy, the International Economy we have, and as youve pointed out numerous times. If people can leave and go to ireland and find a talent pool there that allows them microsoft or a lot of 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. I thought we had all agreed our corporate rate was too high. Were seeing 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 and if you could just following up on bright spots, but also that we cant really thrive and have 3 or 4 growth if we stick with old models. Theres so much that members of this committee agree about, the fact that theres disconnect between profits and wages, the fact weve got the highest statutory rate on earth, but theres a whole bunch of companies that dont pay it. The fact that wage growth has been completely unacceptable and that its really the responsibility of the members of the congress to think about why those patterns exist in the data and to come up with something were going to do about it. I understand that partisanship is part of what we do here in washington. Its inevitable. But ive not seen an alternative theory for this set of facts that is in any way moving for me. I just honestly hope that the responsibility that we all have for americas workers, for the people that are working harder every day and not getting more money can help us Work Together on this bipartisan tax reform. I think its designed to be the same kind of process we had in 86 where a great tax reform passed that was a big positive for the economy. And im still hopeful that that can be achieved if people will start to focus on the actual analysis. So why have wages been growing so slowly even though profits have not . Whats your story for that if its not the one were talking about . I dont think theres a good alternative. And Larry Lindsey had an article talking about the difference between 3. 1 or 3. 2 growth and the 2. 1 that weve had from 2011 to 16, that average of 2. 1. What is the different between a 2. 1 and a 3. 1 to the economy and to, you know, longterm things like Social Security and our entitlements . These are going to be slightly incorrect, theyre round numbers and easy to remember. If we get an extra percent of gdp growth, a million jobs, a thousand dollars per household. Take a tax plan, pick your favorite number, 3 or 4 over ten years, then you multiply those out. Its a lot of money and a lot of jobs. Thats how i think about it. Then as we were talking earlier, if we also have that skill upgrades, youre really talking about wage growth of a lot more than a thousand, if you go from being somebody who maybe loses your coal job, although those are very high income. You make 80, 90, 100,000 in coal country. If you move into some of these technology jobs, engineering, construction, a lot of these things that also have very high pay, we need to be supporting and through the tax structures, through the business process, supporting that relocation and that reassignment of jobs and labor too. So that would youd be talking about a lot more than 1,000 increase when you get them into that higher information economy. Right . Youre exactly right. Its something weve talked a lot about in the white house. The president even tweeted about people needing to move if theyre having a hard time finding a job to labor markets that are hot. Great. Well, thank you, really appreciate the opportunity to visit this morning. Thank you. Mr. Hassett, we thank you for coming. Thank you for having me. Your insight today has been very helpful. We are grateful also for the service you provide to the country and the administration. Should members wish to submit questions for the record, the hearing record will remain open for five business days. And with that well be adjourned. Thank you. In 1979 cspan was created as a public service. It is brought to you today by your cable or satellite provider. Up next on cspan 3, a Panel Discussion on cybersecurity, the George Washington University Center for cyber and Homeland Security hosted a policy conference in