There is a chapter in here on federal tax reform and many others also covering the tax treatment of healthcare and global tax competition. I want to introduce Chris Edwards was editor of Debbie Debbie debbie that downsizing. Org. Before joining cato he is a senior columnist on the congressional joint Economic Committee. Thank you for coming here i think some of you may have had to be involved in the president ial motorcade. Im going to provide a brief overview of tax reform janie foster. President trump and republicans are pursuing tax reform. The basic idea is to cut individual and business tax rates to close the loophole and to improve the treatment of savings and investments. What we need tax or from . It can spread Economic Growth which will raise Living Standards for everybody. It can simplify the code and tax reform can also increase fairness by creating more equal treatment between taxpayers. The other reason we need tax reform is because we have not had major tax reform since 1986. The world has dramatically changed of the last three decades. International investment has exploded, entrepreneurs and wealthy people have far more choice of where to invest in the Global Economy these days. We want people to stay in america so we need a competitive tax code to make that happen. If you look at Corporate Taxes last time i cut the Corporate Tax rate was in 1986. Before that, combined federal and state Corporate Tax rate was 50 . Thousand that the average of the other industrial countries at the time. Then we the tax rate in 86. That launched a global revolution in Corporate Tax cutting. Rates have plummeted. The average oecd Corporate Tax rate has been slashed in half since the mid 80s from 40 down to 24 today. We have the highest rate in the world at 40 when you include state taxes. Many of you heard that island has a 12 and a half Corporate Tax rate that it attracts business. Hong kong has a 16 , taiwan and singapore just 17 . If youre building a Semiconductor Plant would you put it in the United States and pay 40 or taiwan and pay 17 . Even some European Countries have remarkably low over tax rates. Portugal, which is to be a leftist country these days has a 21 Corporate Tax rate. Sweden, which is the socialist country that a lot of american liberals admire has a 22 Corporate Tax rate. Ryan will discuss the u. K. That has a rate of just 19 . What are we doing here . A 40 tax rate makes no sense. Looking at the individual income tax, rates have fallen around the world over the last couple of decades. In the mideighties the average top oecd individual rate was 64 . Back then our top individual rate was 55 . We had an advantage on that for a while. We cut our individual rate in 86 but other country started cutting as well. We kept our advantage in individual income tax breaks for most of the past three decades up until 2013. The deal that in a part of the bush tax cut put our individual rates up again and are right now with state taxes is about 46 . Thats above the oecd average of 44 . We are not a low income tax country anymore. We are high income tax country. This is a problem. I rates at the top end matter because they punish the most productive people in the u. S. Economy. Entrepreneurs and brain surgeons, venture capitalists and people like that are very responsive to tax breaks. Also a large amount of business income flows through in the tax system. High tax rate means less investment and less work effort by the moscow people in our economy. Thats the overview today. Im going to introduce our three speakers and turn the podium over to jd foster. His chief economist at the u. S. Chamber of commerce. Before that he was senior fellow at Heritage Foundation and before that, a chief economist at the omb. Also an advisor at the u. S. Treasury. In the 19 90s he was head of the tax foundation, he was a very good boss and i learned a lot from him at the time. He also worked on capitol hill for a number of members. He received his phd in economics from georgetown. Next, well hear from jason who is a senior fellow at arcata. He focuses on tax and business policy. He was Deputy Commissioner and at the Social Security administration. He was senior economist at the joint Economic Committee where i was a coworker with him. His been is the author of the hidden cost of federal tax policy which looks like that. Thats the next one overview of our topic. It is free on the internet. Finally, well hear from ryan. He researches Economic Issues including tax policy. Before joining cato, he was head of Public Policy at the institute of Economic Affairs in london. Also the head of Economic Research at the study of Public Policy studies in london. He has written extensively on Economic Issues in the u. K. Newspapers and holds a masters degree in economics from the university of cambridge. Thank you chris. Hello everybody. About two weeks we will be celebrating memorial day. You may find yourself at some point over the weekend watching a ballgame. Maybe a golf match, maybe nascar, whatever your preference. In the course of watching that program theres a high likelihood youll see a beer commercial. There is also a high likelihood youll see car commercials. Those car commercials will be along the lines of somebody driving up along the why the road, out on the open road and will be advertising this is a great memorial day sale, low Interest Rates on loans, big slashing of prices. Why do they do that . Because people respond to prices. Prices align what happens in our economy. They align supply and demand. People and businesses respond to prices which eat you will not see that any car commercial say in my car is just as good as the car and cost 5000 more. You are not going to see a lot of advertisement that higher prices than somebody else. The u. S. Economy has for a great many years been ever sizing to the world, come to the United States, we have the highest tax burden. We have been advertising for years that we have an extraordinarily punitive tax system. Weve also been imposing regulations over the past eight years that has been telling the world, come to the United States because were making it a lousy place to do business. That is changing at the moment. Were trying to get it to change in tax policy. In 1986, the last great Tax Reform Act, we learned in the reminded the rest of the world, how important low tax rates are. Shortly after the 1986 Tax Reform Act, we forgot. It stayed in place from that time until today. Meanwhile, the rest of the world learned a lesson and they kept applying it. Reducing rates over and over, one country after another. In fact, recently in france the new president ran as a centrist. Previously he was in the socialist government and distinguished himself by calling himself a probusiness socialist. I guess thats how you do find it essentialist. Its france, what can i tell you. France understood and the president understood they have to lower the rates. Its already below ours. 3033. 3 . He ran to reduce the rate to 25 . Even the french get the fact that you have to lower your tax rate to be competitive. Bill clinton gave a speech and noted that when he was president he signed a bill raising the tax rate a Corporate Income but he did so to make that rate competitive with the rest of the world. We have pulled the rate down and the rest of the world had not completed the process of reducing their rates. So he said it was okay to raise the rate, but now it is not. Now we have on competitive tax rates on business income and bill clinton, during the campaign said, we need to reduce these rates. Thats a good observation on his point. Thats from a business standpoint what tax reform is about. It is not a complicated exercise. Straightforward. First thing you have to do is get significantly reduction. I will not say how far down. Its like youre going to buy a car, how much of a discount do you want, how far can i bring the rates down. For all business entities, pastors as well as corporations. If you want the u. S. Economy to start advertising to the rest of the world, this is where you want to do business. It starts with getting the rate down. Then we need a competitive capital consumption system. For far too long weve had a system of taking account of when a business buys a piece of equipment. [inaudible] this is a term you should be hearing a lot forward. It splits it into a summary statistic the sum total of all the effects of tax policy affecting an investment and says how much do these race policies raise the price that you have to pay that is the earnings you have to have on that piece of capital. Lets say you have a basic level of earnings, you have to have to make investment worthwhile as a business. They start figuring out this tax is going to raise it and this will reset more and more. The sum total of those affects is the cost of capital. What we want to see happen in tax reform is the cost of capital brought down as far as we can. Reducing the tax rates and expensive are the two key elements of bringing down the cost of capital. The third piece that is core to tax reform is fixing the way we Tax International income. Twenty years ago or so, the industrialized world was mix. About half the countries in the world did what we did today. Adopting a worldwide tax system and the other half was territorial. Back when i was with chris subleased right International Conferences over talk about the need for territorial system and half of the countries we visited would say yes and the other half would say its crazy. And the thought in the United States was it was crazy. It turns out we were right. Almost everybody in the world has some very ration on a territorial system. One way to think about it is like a las vegas commercial. What happens in vegas stays in vegas. The income that is earned where its earned his tax returns and only there. That is all territorial means. The Company Earns income in france, germany, japan, or wherever, it could be subject to whatever taxes are imposed in that jurisdiction. We are not going to tax it again in the United States. Simple as that. The much simpler system. You could think of it in terms of for Corporate Income, getting an exclusion for dividends paid. So foreign subsidiary would be excluded from tax because it was tax over there. If you had text to it, you are making that u. S. Operation abroad less competitive because operations are integrated internationally, that is usm operation works with the foreign operation. If you make the four and less competitive you make the u. S. Less competitive. Thats why socialist countries in europe adopted the territorial system. All of them. They know they need to compete on a global scale, on the global scene. The only way to do that is to have a competitive tax system. Those are the three key components. Other things can be done a part of tax reform dealing with the estate tax and other elements. Those are important. The core elements of tax reform, significant rate reduction, expensing, and a territorial system. Right now we talk about tax form weather salute blueprint or president trumps proposal they tend to evolve around those three pieces. Thats a big part of the reason why we have a chance of getting this done quickly. Depending on how you want to look at the calendar i argue that Tax Reform Act was the culmination of an eight year exercise. It began with a rate reduction that lloyd benson champion got through and got people thinking about how to redesign the tax system. And thats when bill roth and others ran with it and got us first 81 tax cuts and in the 86 Tax Reform Act. It was a long process. Part of the reason it was a long process was because the 86 tax reform bill was the public in a piece of legislation. They tried to solve every single tax problem they could that they had identified. This was a comprehensive in the broadest sense of the term tax reform. If we go down that road right now, we have a great chance of getting tax reform done sometime in 2019 or 2020. If you want to get it done soon, weve identified the key elements we need to keep it a focus package. What are the two or four major things we need to do to get the economy to be stronger. That brings up the next subject of tax reform. Were talking about the great things were gonna do on there could be revenue races. They will involve tradeoffs and will have to balance and think about if we want this enough to be worth this tradeoff. You cannot get a 28 or 25, 20 corporate rate and comparable passthrough rate by closing loopholes. You get two or three Percentage Points by closing loopholes. You can have to do something that can be pretty painful. That is where the tradeoffs commit. If you do it correctly the tradeoffs will still leave the overall plan very much pro growth. That will be our focus at the chamber. Therell be a lot of fights over the details of the rate reduction and how expensive it is and is are applied and designed. A lot of the details. The fundamentals will be, what does this do for the economy. Comprehensive tax refor reform s about taking us from an economy thats going too slowly to one thats going to grow to its potential. Thats what its about. As long as the tax package looks like it will do that the u. S. Chamber will support a push for it. Where can be made better will be working for that. The bottom line is we will not get caught up in the fighting over the details of the pay force. The chamber and Business Community will focus on does this work for the economy, is a going to make it stronger . In effect, when we are teleconference of tax reform only going to be advertising to the World Running our commercials on memorial day baseball games to the world, come to the United States, best year, move here. Companies are not to be looking to move overseas. This is the place they are going to want to be. Will be advertising to the world if we do comprehensive tax reform right. This is where you will want to invest. For those that dont heed the warning, look out. They will be competing against the country. Businesses and workers armed with the tax code allows them to compete effectively and we will take on the world and have a Strong Economy going forward. Thank you. [applause] it afternoon. My name is jason. I want to thank Chris Edwards and peter and the Cato Institute for having me speak with you today. Thank you for coming out. To divvied this up, im gonna do individual and ryan will talk about the u. K. Experience to tell you what has happened and lessons learned. I want to start my time with some general points on tax reform. Provide you some Guiding Principles and thinking about tax reform. In the discuss how the house blueprint and trumps proposals measure up. I will also echo a few things that jd said because its very important. First, its important to notice that the United States tax code currently severely distorts market decisions and the allocation of resources. Its impeding both potential economy growth and tax revenue. Its in need of reform. I dont think we can do this later. We have to do this now. Having discussions now whether we can hit 3 growth per year. I remember years ago discuss if we could do for, where doing three. And now weve lost that ability. Were getting lower and lower because of the tax system. Second, economists generally prefer broad tax base with lower marginal rates. As the tax rates that drive the decision of the margin of what to do next. More work, saving, investment in plant labor and intellectual property. A broader base is more efficient because you not treating some different than others. They generally prefer Broader Tax Base but it should be traded off for other that could raise the cost of capital and onto most or all the benefits of lower marginal tax rate. For example, you dont want to tradeoff lower marginal rates of increasing the depreciation schedule. We have to think about the holistic. My personal take, jd brought this up, think we should focus on revenue neutrality on the corporate side. Rather we should focus on what is the right tax policy for Economic Growth. The Corporate Income tax is bringing about 300 billion a year. It is diminishing total of our total revenue over time. Its getting smaller with total revenue because corporations are moving overseas. We know to bring competitiveness and to bring america to jobs here we need a lower rate and tax system. I know revenue is going down because attack system. We have to reform the Corporate Tax. Focusing on what the right tax policy is brings me to my third point. The provisions that just around the edges like an Anti Base Erosion will only exacerbate the existing problems we have in the current Corporate Tax code. Theres an old saying amongst the tax economist, the road to tax complexities is a paved with good intentions. To be careful of the tradeoffs that we dont do more harm than good. We have exhausted Economic Research that proves the more you tax capital or labor, the less you get. If you want more labor and people to go to work and more capital, lower the rates. For efficiency we should tax income once and only once. Avoid double taxation. One possible tax option we should discuss more and you may have heard on the senate side from senator hatch is the idea of doing corporate integration with income tax. Only people take pay taxes i hear we toughen a corporate corporations are pain their fair share. Corporates are not people. Only owners and capitalists. A corporation not paying their fair share depending on the instance youre saying workers are paying their fair share. Or consumers are paying their fair share, or people who are [inaudible] stock not paying their fair share. Corporations are not people. They do not air the burden of tax. Thinking about the Guiding Principles, policy makers and enough light blind. What we want question or simplicity. The complexity of our tax system makes it difficult to comply with. It makes it easier to game the system. They should make it as simple and fair as possible. Simplicity is one. The next is equity. House and intended to benefit or penalize fairness is subject is president trumps plan both do that. It should be efficient. Because the tax code alters market decisions you can impede Economic Growth and lower the rate. You should also be predictable. The negative effects of current tax code not just what it does today but what made in the future. Uncertainty deters Economic Growth and investment. Businesses want to invest but are not sure about the tax bracket they have or the tax break will expire in 12 months. The hold off making investments until they get certainty. To sum up, theres my consensus about Economic Research about which policy is likely to fail. We want lower rates, broadbased loopholes, no double taxation, reduce bad incentives. Fortunately, on the individual said the tax payments offered by brady and trump followed many of these. Chairman bradys plan consolidates three tax break its. The lower top tax rate would go to 33 , there be a 0 tax rate because he doubles the standard reduction. Semper fi tax by creating a larger standard deduction in a larger child tax credit. The standard deduction becomes larger and it makes it more simple. Keep it improve the earned income tax credit and appeal the state tax. Trumps plan which is not as detailed gives us an idea of how its understood now. It may have changes. It would consolidate three brackets as well. Twelve, 25, 35. The higher tax rate go to 35 and 39. 6 now. We dont know what income bracket they would apply to. Chairman bradys plan we know the dollar bracket, we dont yet know that with president trumps plan. It would simplify tax by creating a larger standard deduction. It would double it to 24000 if you are married filing joint. Thats a significant deduction that would make tax filing simple. It would phase out most itemized deduction but keep contributions, Home Mortgage interest and the rest would go. It would repeal the state tax, top to capital gain rate at 20 . There could be some gaming going on therefore lower the past to 15 . If we do that i will incorporate myself as an escort to get wage income. [inaudible] [inaudible] we should lower both of them witwhich a jd mention. 15 for corporate may be 20 or 21 on the passthrough. Basically want to lower them both and they dont equalize. We have a once in a generation chance to do tax reform. We need to do this. The chamber is not going to focus on the need pick your details here and there, as long as the plan overall is good for growth. That support keep in mind. We discussed if we want to have revenue neutrality or deficit neutrality. Therefore willing to have tax cuts that lose revenue. For example if youre concerned about growth, growth comes from the corporate side of reform not the individual site. Generally its more political than growth oriented. Im willing to take a revenue hit on the corporate side. Its hard up here because everything looks like a package so you have to look at the details a local center. Might be wise to separate our discussion and say lower corporate rates, lets do that, lets not worry about paying for that this do that because its good for growth. An individual reforms and say what we want pay for and what does that mean on the individu individual. [inaudible] [inaudible] [inaudible] thank you for the organizers today, the cato team deserved credit for getting it here. Thank you for being here. As my accent implies in chriss alluded to a relatively fresh off the boat from the u. K. And im not to patronize you to for the increase ease of your tax code you might want to think about some of the lessons you may want think about the savings. High statutory and high Corporate Tax rates not only encourage businesses to locate elsewhere, also turns Investments Overseas and deterred those new investments to Companies Already operating here as a high statutory rate raises the average tax on profits and the effective marginal rate which is what jason just outline. So what is the u. K. Done . Since 2010 they have substantially reduce their headline Corporation Tax rate. Gone from 20 to 19 today with a plan to reduce to 17 by 2020. Thats part of a longerterm trend. The u. K. , as soon as 1980 had a rate of 52 . So the current 19 after seven years of rate cuts we have the fifth lowest tax rate in the oecd. And the lowest of the g7. Obviously considerate lower than your headline rate here. That is until the whole story of the reforms in the u. K. Which probably come in two parts. The first couple of years according the rate in order to make the reforms revenue neutral, the government broaden the base in a damaging way by reducing the generosity of depreciation allowances and offsetting the rate cut by raising the cost of capital in other ways. Actually the effective marginal rate on the new investment that broke even actually rose a little bit from 20 22 . Economically the statutory rate was being cut and this was incentivizing new investments. All of the things were cap the same. Encouraging companies to locate in the u. K. As well. The reform is not helping to stimulate that new incremental investment from Companies Already and u. K. The effective marginal tax rate has gone up. Since then, thankfully the government has focused on rate cutting and hasnt tried to assert the cost elsewhere. Overall the package has been a large Corporate Tax cut with only around one quarter of the static cost of the cut the less generous appreciation allowances to give the idea of the scale of that tax cut that one third of revenues from when the rate started to being cut. This is not a significant tax code. As i said, the result is uks among the lowest statutory rate. We still have relatively stingy depreciation allowances in comparison to other countries. A marginal rate is closer to the tax rate for falling. The long and short is that the marginal tax rate is now 17 . That is still more significantly than the u. S. 23 here. What this meant for revenue, in 2013 u. K. Government scored the whole package and they said with improved economic activity, faster Economic Growth come over 18 years they would recoup somewhere between 45 and 65 of the static cost of the cut. That might be higher here given your high statutory rate. We can discuss later. Early signs suggest the official forecast may have underestimated the effects of the cut on economic activity. Nominal receipts fell significantly in the u. K. After the financial crisis and through to about 2013. Since the time of the government has been purely cutting the rate and aggressively cut the rate to 20 within three years of 2013, they projected initially that by the sheer revenues would be about 38. 2 million pounds. The outcome has been 50 billion pounds. Thats despite revenues from other areas of the economy, offshore oil and gas falling dramatically. There has been some offsets in other areas and attempt to climb down on tax avoidance. Continue cuts to the headline rate do not appear to be leading to the following revenue that predicted it. Looking at the longer sweep of history that should not surprise us over the last 30 years the rate has fallen from 52 until 19 in the u. K. Revenues although cyclical range between 1. 7 and 3. 5 of gdp. Theyre currently around 2. 6 which is the same rate as seen in 1985 when the main rate of taxes 40 and the boom was well underway. The government appears to be somewhat successful in its aims to attract businesses to locate to the u. K. Mcdonalds, starbucks, snap and the Apparent Company of snapchat in a range of other companies have moved headquarters or significant parts of their nonus operations to the u. K. Over recent years. Its likely the government will continue to articulate that rational given the need for many open for Business Post brexit. With international coronation putting pressure on the superlow tax jurisdictions, i think these cases an opportunity to get more businesses to locate. One of the two key lessons for the u. S. . First i suggest is cutting the headline rate does not appear to have reduced revenues as much is expected. The second, the one that jason alluded to witches the base brought me to the extent you do to offset the revenues and the rate cut should be done for economic reasons, not just to achieve revenue neutrality. Corporate income taxes and damaging tax. The u. K. Expand shows that reducing depreciation allowances and making them less generous to allow the rate cuts can lead to tradeoffs between attracting companies to locate in the u. K. And stimulating investment for the first couple of years when we cut the rates we cut them in a way that we do not incentivize more investment. The u. K. Offers lessons on the savings to. While the focus has been on business taxation i agree with jason that it should be the priority. Theres been little discussion on the taxation of saving. Even though the house plan suggests creating universal savings account based on legislation. The u. K. Has very similar counts called individual savings account or they are incredibly popular. The bright idea of this savings account is this, Corporate Income tax tends to double tax savings. Therefore, most income tax codes try to exempt a saving from taxation returns so the tax system doesnt discriminate in favor of consumption over saving. Most income tax code tends to do this by exempting returns from retirement savings. Theres no economic reason the principle of why the tax code should favor certain savings for certain purposes than others. For that reason, both the u. K. And canada have set up more allpurpose savings account with a simple tax treatment. Contributions are made to these accounts and the u. K. Can limit 25000 per person. No income tax has been levied on income from the savings and investment more Capital Gains tax. They can access their account for any time for any purpose without penalty. Investors can transfer their money between Fund Managers easily. There are no lifetime limits on how much you can put in or earned taxfree. These are like supercharged roth iras. The main difference being theres no withdrawal fees or penalties. Basic economics would apply to us that the margin that would encourage people who were indifferent between consuming and saving would be more likely to favor putting that money into a savings account. These accounts are very popular especially for those who want to save but like the security of that liquidity that comes from no withdrawal pentel tease. 43 of the population hold these account. Compared with about 20 of adults who have iras here. 50 of those who on the account contributed to them last year. With a very high average contribution. These accounts appear to be very popular with people biased to low income. About 55 of all those account holders have incomes less than 25000 per year. Relative to their income lower earners hold more in their account than higher earners. The government has some unnecessary complexities and we could spend all day going into those. The government tries to make things more complicated than they need to be. Overall the tax reform has led to a tax system for the vast majority of people in mutual between the purpose of saving as well. Neutrality is a key principle we seek on tax reform. What about their effects on savings . Theres lots of of the things going on and you imagine there be displacement there might be an increase for the aggregate savings rate. Theyve also had a big impact to help alleviate the margins on poor people and people of modest incomes these are popular cost age groups this is why chris and i have wrote on why they should be introduced here too. It would be seeming to put tax income into the accounts which would grow taxfree. But you could have a more generous starting point from that you could make that 10000 you could use it as an opportunity to scrap a range you could introduce these as part of a broader tax euros have to be careful about taking lessons from other countries and purely focus on the rate and perhaps not look at what we did wrong in the past couple of years or look at the impact of isis and not look at the broad framework for the taxation including pensions. In these two areas even considering that and considering coming to the u. K. To the u. S. Showing things that could be accomplished and not do things as well. Thank you very much. [applause] thank you. Will open up to questions now to reiterate what they said at the last point, the idea of universal savings account there is legislation on that, we have a new report on that we think these accounts should be part of tax or furniture. [inaudible question] i agree, i like most of the presentation in i agree with almost everything you said until the very end when he started talking about revenue rates. There are three things i found lacking in the presentation so i want to make a point of it and asked for your response. One, any idea of the moral and philosophical philosophy behind the tax reform. Even conservatives and libertarians when they discuss this that the government has a claim and in many cases the first claim before those of us who go out and earned it. Second, and rearranging the chairs on the titanic, i think that sometimes the tax reform debate gets so caught up in neutrality of the swedes off the first one that it forgets what i think most people are concerned about when they want tax reform, which is simplify the system and secondly cut my darn taxes. I dont hear a lot of talk from the right of Center Community about actually making sure the tax burden on the American People is lower versus raising this because its an efficient. Lets keep this deduction instead of saying lets and the other point is the reason for that is it ignores the elephant in the room which is that the other half of the fiscal equation. I would respectfully suggest that if you want to tax reform that is revenue neutral or even in my case, revenue of the federal government that we Start Talking about tax reform and Tell Congress get serious about cutting spending. Thus is difficult to do. But it is a fact as doctor collis set a tax cut is good, but a tax without spending cuts is really a temporary tax cut because eventually in terms of the dead and post we are either going to pay it in terms of the inflation tax that the Federal Reserve monetizes the debt in order to help the government till with hi Interest Rate payms and other negative effect of the deficit. Thank you. I think you make a great point. When you have a tax reform that is a significant tax cut were running budget surpluses that would be an issue. Were running a budget deficit that today we must easily talk about in fractions of a trillion, over half a trillion that will all without any changes in spending. That makes it quite accurate what you say is if you have a major tax cut now without the spending cut your just promising future tax increases. The fact will face pressure because of those future deficits. We have to address it was spending cuts. Congress has been attempting with democrats and republican control for some decades now to cut spending. Its great to have that discussion, we have Social Security and Medicare Trust funds going broke and just over the budgetary horizons and ten years, technical expressionists will they be exhausted in the programs can function anymore. Yet Congress Seems a little reluctant to do anything about it at this point. We could in fact hold tax reform hostage to get in the spending cuts necessary for tax reform to be a massive tax cut. We could do that which case are projected day for passing of tax reform would be around 2015, im sorry 2025, 2035 or 2045. I would rather not wait that long. Taken what you said about getting our spending done and how much easier it would be in a comprehensive tax reform if we didnt have to pay for the right rate reduction, dont think thats where we are right now. If you can change the political calculus so we can change that discussion. Thats not where we are right now. With one exception only the philosophy to the philosophers. That exception is the concept of transparency. We have now is a system in many respects is extraordinarily nontransparent to people who are paying tax. You experiences every time he get a paycheck. Look at it and you see the Social Security tax being collected and you say thats a lot of tax. Guess what, its twice but they dont want you to know that. If you introduce legislation saying were going to have both halves of the payroll tax shop on a pace to you have a clear indication of who wants transparency and who likes hiding the ball. I raise that because thats it. Its not just Corporate Income tax, business tax. No business ever hated tax, they collect tax on somebody else and you will know who pays the tax, we dont know. We have estimates in the aggregate and shares the Corporate Income tax between capital and labor. That doesnt mean you dont know that you paid it. Everybody know that you paid business tax. Have no idea how much. If you have ever bought a stock you pay Corporate Income tax. Youll never know how much because the Corporate Income tax the reason its a perfect image of the government that we have does things very good for revenue collector and it collects a fair amount of money with relatively modest expense in doing so. A lot of expensive economic effects. What we like tax and business so much . Because nobody knows who paid the tax. Other questions . I would build on that transparency is a libertarian principle in norm. Youre right about spending and i think theyre pro libertarian stuff that you can do with the tax code. More growth is more freedom, more transparency is better government. Im richard. Im a veteran of 1986 within the parameters of existing deduction, the fact that the president s plan reasonably tax with deduction from Home Mortgage and the fact that none of these plans touched the deduction for employerprovided health care, can you comment on that . Ultimately this isnt an exercise done by a budget of tax economists. This is an exercise guided by tax economists to some small extent, ultimately as a political exercise. If you want the rate deductions you want to know where you can have pay force. The exclusion for employersponsored Health Insurance is an extremely Political Part of the tax code. Thats why its not be in touch. The Home MortgageHome Mortgage plan is not been touched in part because its politically powerful but its also not being touched because, unless you address the weight Interest Income is taxed as the correct solution. As long as you are going to tax Interest Income to the system you have to allow a deduction for that interest expense. Whether thats consumer interest, business, or Home Mortgage interest. We have in the blueprint proposal to reduce or eliminate the deduction for that interest at the business level. I talked about tradeoffs. You dont get a rate reduction is for us wed want to take it without doing some damage to tax theory in the base. The elimination of the deduction for the interest is not good tax theory. It may be necessary to give the rate reduction. Someone comes up with a different Revenue Source thats better maybe we dont need that one. Better being defined is less damaging to the economy into the political prospects. If you can come up with different thats great. Right now the interest is on the chopping block. It doesnt mean its good tax policy. We continue to tax Interest Income. If youll tax Interest Income you have to allow deduction. That establishes symmetry neutrality. We will continue to tax Interest Income for savings, maybe fewer for successful with chriss proposal for savings. But where a lot of Interest Income is subject to tax which means you need that. To Norman Richard hundred say politics is the art of the possible. My fears that we have not been doing a good enough job of laying out the moral case from where our current tax went wrong in the first place. Should be tax consumption not income. We should be talking that income is based on your property and you should own and of the government. We are not making the case about the distortions and Home Mortgage interest. If we allow deduction for that we should pay tax and interest from the bank for loaning them money. So were not talking about the morality of tax code in the distortion in the current quote. And to the idea about revenue neutrality which we talked about deficit neutrality which allows us to bring a spending cut. So instead of say we need pay force, and how to reform medicare, medicaid, Social Security, tough set some of the reductions in revenue coming in. We Start Talking about revenue neutrality not deficit neutrality we are in a trap where we allow one party to raise spending and we get caught. Now we have to keep the spending level up with revenue. We will always get second or third best tax reform. I understand will make compromises. Im okay with that. I wanted to was talking about the morality first and what were trying to get so its known and we know what were getting for the tradeoffs. My quick take is that i think a reasonable compromise would be capping the mortgage Interest Deduction at a dollar cap and capping the exclusion for employerprovided healthcare. I think thats a reasonable first step to take. Okay. I think we have exhausted the question. Thank you for coming. [applause] [inaudible] [inaudible]