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Places. From 2003 to 2005, before that, worked on the president s council in the early bush administration. He was director of the chief economists for john mccains president ial campaign in 2008. Maybe we will hear a different perspective, i am sure you will hear once more destinationbased cash flow tax is all about. Or anything else he wants to talk about. [applause] it is always a pleasure. I appreciate the chance to talk about this. Time at a disadvantage. I am going to repeat things you heard. I want to talk about the prospects for tax reform, there is a definite consensus, Us Corporation income tax of chains, status quo is untenable for the foreseeable future, we need to have tax reform, in an unusual situation in 2017. One thing to think about is to get that done. We have relatively limited data on tax reform, looking at empirical evidence and what it takes to get it done, we dont do this very often. If you think back to 1986 reform, it really began in the mid1970s with people like bill bradley and Dick Gephardt on the left and art laugher on the right arguing the Us Corporation income taxes, damaging the economy and the very prospect of average americans and the person on main street would benefit enormously from changing the way we did business and improving tax systems. And to sell that reached fruition with president reagan running for reelection promising to do tax reform with the political commitments, he won 49 states, and trumpian standards. The mandate to get this done. The actual process began with treasury putting out a volume, must have been named by the cbo folks, it was a hate crime as income tax, got modified quickly by the white house, became treasury too, capitol hill, died several deaths, got radically rewritten over here. In the senate, ultimately made it across the finish line. A decadelong process to produce tax reform in 86 which then unwound relatively quickly and one of the things to think about is not just what does it take to get tax reform. The other question is how do you keep it if you get to a system that is more efficient how do you keep it in place . Where are we in the 2017 effort . One of the things that is fair to say about the house blueprint is it is a bold, almost pure but not actually pure move toward a consumption tax and i would argue theres a different set of factors, this is not the bipartisan effort was i would Bradley Gephardt education exports. This is driven by republicans with little support from the other side of the aisle. It is also true that washington has become the largest floating tax policy seminar, happiest moment of my professional career for that. We havent had the vast Public Education that has led the average american to think we got to fix the income tax particularly the Corporation Income tax. We are a long way from that polling and focus groups eating up to the rollout of tax reform a while back to see what consumers of tax reform were thinking about it as it turns out, if you asked the day after tax filing on april 16th, tax reform was eighth on the list of unprompted priorities, not a lot of appetite for it. Focus groups there were two words you couldnt use discussing tax reform and those were tax and reform. It is a trick, you are going to raise my taxes, very little on the grounds faith in this process and what it will lead to. We are in a different place in 2017 for sure. Having said that, i think the same dynamic is important in 2017 that was true in 1986 and that is this comes down to white house leadership. Only the president can make the sale to the average american that this is what will make America Great again to conform better, and economic fortunes. And running for election, where the white house choose to support is the crucial decision i really think. Obviously we dont know at the moment. The house has been out talking about its movements for quite a while, not sure where the president or white house will come down on that but that is the key dynamic. The other thing that is a matter of judgment, i think it is true if the forces that dislike the house blueprint and adjustment provision in particular conspired to kill it in its infancy tax reform doesnt happen. It is imperative the house go forward with something. It constitution dictated has to start in the house, this is the house proposal, there is no backup plan, they ended up with the blueprint. They looked at what dave camp went through and had to dry something radically different. Throw away adherence to income tax and cash flow base, dedicate this to raising the pace of Economic Growth in the united dates and and start over is unrealistic. As a matter of process it may not be the house blueprint at the end of the day. The white house can shape it and the senate will have its role but it is going to start their. We are not going to get something, that is a fair concern about how things are going. I want to say a couple things about the political economy surrounding this discussion. A lot of the assertion and discussion about this, because border adjustment is not an end, it is a means to an end, talking tax reform figuring out the value of the dollar is crazy, tax reform is about the efficiency gains alan talked about analyzing the treatment of tangible and intangible investments, this is a means to an end. As means to an end go it is an important one. The provision that protects the integrity of the tax base in the proposal, the provision of stocks, incentive to locate production abroad and eliminates transfer price in games in a territorial system. It is not the only way to do that. We sybase erosion, minimum taxes, alternative ways to go at this that i would say as a matter of thinking of the real decision, it is not can i have the house plan without border adjustment, the real choice that faces the Business Community is can i have the house play with the border adjustment but house plan with some other way of protecting integrity of the tax base maybe you want option c and a choice between something that divides the Business Community, raises 1 trillion and something that is contentious and raises it is in better shape than a lot of people appreciate and thinking about economics underneath it claims should not be the dollar will appreciate by 25 or 33 or whatever it might be. What we know is that the house would change dramatically the real economy. It would affect the investment, the fundamentals, those impacts would take time and affect things like the Real Exchange rate, the current account. I have no idea the magnitude and pace that would happen. There is another thing called border adjustment which says other things being the same, interest rates, all sorts of things the dollar will be 20 higher because of the presence of this provision. That is a solid claim, you cant come to any other inclusion but that is not a claim that says i know what the dollar will be after reform. I have no clue and neither does any for or against the provision, misinterpreted badly is a prediction of the level of the dollar, it is really not. Lots of things influence the dollar. It is simply the economics of a differential. The other thing that is quite clear to me in the course of this debate is the Business Community when you sit and talk with some of them they want the economy to perform better. They want the pace of growth to be faster, they would like better opportunities to compete internationally but dont want to change the Business Model to get it. Those are utterly, there are changes in Business Models broadly defined, the house blueprint would move from a system that favors Domestic Production to a system that is neutral and in the grand reality of tax reform there will be winners and losers as there always will be and what we are just beginning to see is debate about winners and losers, focused on the border adjustment provision but there are a lot of things to fight about and the fights of just begun, i am surprised how little discussion it has gotten. I expect that is the next thing that will get a lot of attention and in the process go through the same debate because the 86 reform to die several neardeath on the way and hopefully this one will get over the finish line in some form and we will get a tax code that is less interfering in international competitiveness. The tax code that siemens the us with a single tax that has better incentives for investments, innovation and growth in the united states. Those are desirable outcomes, we should have less religious adherence to them. When i look at this this moment i think it is true that this is a chance to get a tax code we desperately need for the 21st century and allows the economy to perform better. Im always struck by the fact that from postwar to 2007 gdp per capita grew at an average rate fast enough that the standard of living doubled every 35 years and under current projections gdp per capita will grow slowly enough the state of living will double 75 years and the difference between the capacity of an individual to see the standard of living doubled versus a future where it takes two careers for that to happen is a real evaluation of what has always been the American Dream and the promise to the next generation. A stronger economy. This is the moment the direction could be changed in a substantial way. Getting the house moving forward, getting the white house to make a commitment to what it once and thus settle this to the American People is crucial and we will see how this plays out. I do want to say i think it is premature to take the comments out of the senate about the house plan as a deathknell for it. It strikes me as people can have their opinion but if you imagine the president embracing and saying this is it, i want this it is hard for me to imagine standing up and voting know when he says i would like to give you a tax cut but that senator wants to preserve the ability of these firms to make money on cheap foreign labor. The senate will be more malleable in the end then people are thinking because if the president gets on board pushing something the capacity to influence both house and senate is the key. We can talk about details of how to tax Financial Firms or whatever but the real issue is the political economy of getting this moving and seeing what the white house will support and this is an important year for everyone who cares about tax policy or the capacity to improve the economic health. Thank you for the chance to be here. [applause] change it doesnt matter. Just stay where you are. Okay, are we ready . We have a few minutes to take questions. As the moderator i take the liberty of asking the first question. This is a question that hasnt arisen all morning, we talk about details of how these plans work and border adjustments, gave a presentation of tax reform in new zealand a few weeks ago, presented among other things the distribution tables the Tax Policy Center did. How can americans accept reform like this . My question to you is in general, tax reform, how touching the concern is that. What can be done to achieve the goals, more beneficial to average americans . That is a really hard question, a couple Different Things about which and my take they didnt watch what we need to do is move to a territorial system and revenue neutral fashion. They decided it was overconstrained, and move over there and go to this thing and discuss for a long time going to tax reform, look at that thing and worry about the distribution and tax reform, and revenue neutrality, not raising the deficit. It is important to recognize i dont think there was a lot of explicit distribution. And the cash flow and border adjustment and all those things, on the individual side with the exception of compliance issues. And the carveouts they had mortgage interest, it would be possible to think on the individual side and the senate has a bigger impact. You cant solve all problems with tax reform so you better figure out what your problem is and our primary problem is inadequate trend growth, and that is harming the real wages, to improve that. To do that, the measured distribution of those tables. I am interested in the reality, we heard a lot of concerns about cash flow tax say it may not get through the house or beat up in the senate lose what are the variance . Theoretically, some sort of labor credit, wage credit, wto compliance or think of something more like a more traditional that, use the money at a lower rate to reduce Corporate Income tax. I ask that because it doesnt seem like border adjustment is going to get through. What would be the likely variance . Let me be clear how i think about it. Maybe it was john who worried about a tough road and get hung up. Basic dynamic that has tax reform for 30 years and winners and losers it is divisive. Members go home and beating them up on both sides over the weekend. And the white house saying they need to get this, the constituents say the president said we will do tax reform. That is the dynamic that is important. And it is too toxic. This is my approach to having a vat. This is the realistic one. I dont think theres a chance for another restart to get to the house and it looks very different and sticks to a Corporation Income tax cash flow or Something Like that. The house is locked in, they are going. The next question i want to remind the online argument, at the event, events urban. Org. Do you think the prospects for the blueprint would be better if they dropped the individual portions of the blueprint for destination based cash flow. And business. Will it have better or for worse chances . Promising tax cuts that is reneged small ball areas i dont think in the big picture, maybe i misread the evidence, cant underestimate the importance of the white house coverage of the hill and the Political Capital, on the individual side. Is it possible to get this done in 2017, any harm in that. It is possible, what is done in the senate. There is not enough floor time, that is why i worry about, it doesnt happen and a number of things the senate has to do, funding the government for 17, 18, confirming appointees, Border Security and infrastructure plan, increased military spending, the budget control act, there is the scarcest things, could very well not hit the august targets at the end game, i expect them to come back, i dont think it is a good idea to start running into 2018, tax reform has winners and losers, district or state, everyone will be cognizant of that. [inaudible question] dynamics if they do that with reconciliation which is most likely, that this would unravel in 10 years . Would that support pams idea of going halfway, getting the business processes set up, back to where we were . This is revenue neutral, they are very conscious of the potential for violations and the last thing they want, they want reform and that is an important issue, and the white house in the campaign in the proposal. The list, 15 versus 20, revenue neutral, knowing the white house is coming down is crucial. Earlier debate about this question of whether the dollar were just sufficiently. My question is the practical matter, if there is some element of uncertainty our house members willing to vote for Something Like this, not sure that this dollar adjustment will occur as it will proclaim. John buckley [inaudible] big cash reforms dont happen often for a reason. Basically undertaking a major policy risk because you think the return will be worth it but there is a risk, no doubt about it and that is true in this case. There will be risks on both sides. You focus on the dollar piece exporters adjust and so member by member, how they think about that. It is this kind of inherent risks, a problem. There are things that are becoming better understood by making people more comfortable. This is something we invented in some science lab. Is out there around the world and they have vibrant retail markets. It is true no one in the house is paying attention to the dollar but the dollars 25 higher, merging markets havent melted down, as they moved from thinking about this as a paper exercise, and economics exercise about getting what they want which is better performing they immerse themselves in these experiences. I believe the going in proposition is always 50 50 and that is true this year. You need to get other forces lined up to get it over and that is not happening. You mentioned the efforts before 1986 after many years of Public Education, you had a tag line that that you will get rid of tax shelters as a result. What is the peril to prepare the ground for this tax reform and what is the tagline or how can this be done without Public Education . It is a serious issue. I dont think there has been the same concerted effort from both sides. There has been a superb effort on the income tax, national components. And to substitute for that, that is a different dynamic. My reading of the elements, havent had comprehensive reform at all, come tax reform, we are in a world that they havent talked about and the public as many days. The preparing of the ground. Time for a few more questions. Can you talk about the Health Reform debate, the white house has to use up a lot of Political Capital on healthcare. How does that go . Next question . You can do the political arithmetic. Repeal and replace is the largest entitlement reform ever undertaken, taking an enormous amount of white house leadership. At the end of the day you have to pass something that is not going to make them happy, but a grudging we got to get this done and that is going to be tough. Tax reform is going to be comparable. Where does the white house put Political Capital. Couldnt decide that on the merits of tax reform, something we talked a lot about and pulled the plug on this, politically viable. My answer is no. We have to think hard about where they use the white house, i expect them to let repeal and replace, let the white house we will see. [inaudible question] which setting down and export promoting for ten your period, are you favorably inclined to you to change the us economy . Be change i dont know. I have a strong opinion about that strategy. That is committing the greatest sin staff in washington commit which is to check your principal into doing the right thing. That is a terrible thing. You should tell them the truth, what you think it will do and let them decide but tricking them into doing the right thing is always a mistake. I know exactly, the border adjustment piece, i dont know what will be the economy adjust to reform and havent actually seen that, seen a bill, know the transition will matter. In light of those things, the house and staff can make a judgment. Any other questions . What would the tagline be . Tax reform will make America Great again. Is that enough . Probably. Okay. Anything else you want to say to wrap up . I want to say i think this was a tremendous contribution to the discussion about tax reform. It has this is a high quality morning where the issues get laid out. We want to thank you for your contribution. [applause] [inaudible conversations] [inaudible conversations] also this weekend author and journalist soviet nelson reflects on the Founding Fathers calls on afterwards. Former president george w. Bush discusses his paintings of american veterans. National Book Foundation executive director offers her thoughts on books in the publishing world. And we visit san Jose California to talk with local authors and visit the citys literary sites. It all happened this weekend on book tv. Fortyeight hours of nonfiction authors and books. Television for serious readers. Now we kick off our book tv program with john tamny. He takes a critical look at the federal reserve. John tamny is with us today. He is a senior fellow at the foundation. An editor of rcl

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