Good afternoon everybody would i want to welcome you all today i am peter russo, director of affairs at the cato institute. I want to thank you for coming. You are an old briefing of major tax reform in 2017. Before we begin if youre watching via cspan for live stream and would like to join the conversation would love to hear from you. Please to comments and questions to us and our panel at cato events. We released a new policy handbook. They were available as you came in. If you like additional copies please contact me after the program. I will be happy to hook you up. Meanwhile you can go to cato. Org and theres a chapter here and federal tax reform and many others also covering the treatment of healthcare and as well as the importance of global tax competition. With that i introduced chris edwards. He is a top expert on federal tax and budget issues. Before joining us he was on the joint Economic Committee and he was a coauthor of global tax revolution. [applause] thank you. Thank you peter for coming here. I think some of you might have had to avoid the president ial motorcade there on independence avenue. It was a bit of a nuisance but you are all here so that is good. I want to provide a brief overview of tax reform introduced the three speaker say. Jd foster, Jason Fichtner and check for the basic idea is to cut individual and business tax rates to close loopholes and improve the treatment of the investment. So why do we need tax reform . It can spur more Economic Growth, raises Living Standards for everybody. Tax reform can simplify the code and it can also increase fairness by creating more equal treatment between taxpayers. The other reason we need tax reform as we have not had a major tax reform since way back in 1986. The world has dramatically changed over the last three decades. International investments have exploded. Entrepreneurs and wealthy people and businesses have far more choices where to invest in the global economy. We want businesses to locate here in america so we need a competitive tax code to make that happen. If you look at Corporate Taxes the last time we cut the Corporate Tax rate was back in 1986. Before that the combined federal and state Corporate Tax rate was about 50 percent. Which was above the average of the other countries at the time. Then we Corporate Tax rate in 86 but that launched sort of a global revolution in Corporate Tax cuttings. Rates have plummeted. The average oec Corporate Tax rate has been slashed in half since the mid80s from 48 percent. The highest taxes in the world. Many heard that ivan has a 12 and a half percent Corporate Tax rate. That attracted a lot of investments. But hong kong has a 15 percent Corporate Tax rate. Taiwan and singapore 17 percent. If your building a Semiconductor Plant for example would you put in the United States and pay 40 percent or would you put in taiwan and pay 17 percent . Even some European Countries have remarkably low Corporate Tax rates. Portugal which is to be a real this is has 21 percent Corporate Tax rate. Sweden which is the supposedly socialist country that a lot of american liberals admire has a 22 percent Corporate Tax rate. Ryan will discuss that the uk has dropped its Corporate Tax rate to 19 percent today. What are we doing here Jason Fichtner our 40 percent tax rate makes absolutely no sense. Looking at the individual income tax and again rates are falling around the world over the last couple of decades. Back in the mid80s the average top oecd individual rate was 64 percent. Back then our top individual rate was 65 percent. So we had an advantage on that for a while. We cut our individual rate back and shes sick. But other country started cutting as well. But we kept our advantage in individual tax rates for most of the last three decades up until 2013. The deal that ended part of the bush tax cuts pushed our top individual rate back up again. And our rate now with state taxes about 46 percent which is above the oecd average of 44 percent. So we are not a low income tax country anymore. We are a high income tax country. This is a problem. High rates of the top and really matter. Does it punish the most productive people in the us economy. Entrepreneurs and Brain Surgeons and venture capitalists, people like that are very responsive to tax rates. Also, a large amount of business income flows through the top brackets. So high tax rates mean less investment and less work effort by the most skilled people in our economy. So that is the overview today and i am going to introduce our three speakers and turn the podium over to jd first. Jd foster is chief economist at the us chamber of commerce. Before that, jd was a senior fellow at the Heritage Foundation and before that chief economist at the omb and advisor at the u. S. Treasury. In 1990s he was head of the Tax Foundation where he was my boss. Jd was a very good lesson i learned a lot from him at the time. Jd also work on capitol hill for a number of members. He received his phd in economics from georgetown. Next after jd we will hear from Jason Fichtner. He is a senior fellow at and i would add george mason university. He focuses on tax policy. He was Deputy Commissioner and chief economist at the Social Security administration. Also senior economist at the joint Economic Committee where i was a coworker with him. He has a phd in Public Policy from Virginia Tech and the author of the hidden cost of federal tax which looks like that. Which is an excellent overview of the topic today and actually free on the internet. So that is a pretty good bargain. Finally we will hear from ryan born he researches all kinds of Economic Issues including tax policy. Before joining cato he was head of Public Policy at the institute of Public Affairs in london and also head of Economic Research at the center for policy studies in london. Ryan has written extensively on Economic Issues in the uk newspapers and holds a masters degree in economics from the university of cambridge. I will hand over the podium not to jd. Thank you chris. Hello everybody. In about two weeks, we will be subbing memorial day. You may find yourself at some point over the weekend watching the ballgame. If you like a golf match or maybe nascar. In the course of the program there is a likelihood you will see a commercial that also he was probably see car commercials. Those would be along the lines of someone driving on a winding road. We get to do that a lot in dc. Out in the open road and they will be advertising this is the great memorial day sale, low Interest Rates on loans, slashing prices. Why do they do that . Why advertise that way . Because people respond to prices. Prices align what happens in our economy, it aligns supply and demand. People and businesses respond to prices which you will not see in all likelihood, all car commercials or any others saying my car is just as good as that guys car and it costs 5000 more. Youre not going to see a lot of advertisements advertising that people have higher prices than someone else. It might seem kind of obvious but the us economy has now for a great many years been advertising to the world come to the us, we have the highest tax burden. Not in total tax burden but in terms of rates as chris was just discarded. We been advertising for years that we have an extraordinarily punitive tax system. We also have been imposing a lot of regulations over the last eight years on the economy that also has been telling the world come to the us because were making it a lousy place to do business as we can. While that obviously is changing at the moment. Were trying to get it change in tax policy. In 1986 the last great Tax Reform Act we learned and then reminded the rest of the world how important low tax rates really are. And shortly after the Tax Reform Act we forgot. And it stayed in place pretty much for that. Until today. Meanwhile the rest of the world learned a lesson and they were reducing rates over and over. One country after another. In fact, recently in france Emmanuel Macron was elected as president. Here is that he was in the socialist government distinguishing himself by calling himself a probusiness socialist. I get it that is how you define a centrist in france. France understood that they needed to lower the rates. There top rate and Corporate Income is already below ours. 33. 33 percent pure he ran as a french socialist now centrist to reduce the rate to 25 percent. It is amazing even the french get the fact that you have got to lower your tax rates to be competitive. In a recent president ial election bill clinton gave a speech and noted that yes, when he was president he signed a bill raising the tax rate on Corporate Income but he did so to make that rate competitive with the rest of the world. We pulled our rate down the world had 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 uncompetitive tax rates on business income and bill clinton during the campaign sent, we need to reduce these rates. I think that is a pretty good observation on his point. That is really from a business standpoint. What tax reform is all about. It is not a complicated exercise. It is pretty straightforward. The first thing you have to do, we have to get significant rate reduction. I will not say how far down. Sort of like youre going to buy a car. How much of a discount do you want . Much can i get . How far can i bring the rates down to that is the issue. Not just for corporations but all business entities. If you want the is economy to start advertising the rest of the world this is where you want to do business. It starts with getting the rate down. We need a more competitive capital consumption system, depreciation system. To adopt we have for far too long had a system of taking account when a business buys a piece of equipment how you charge it off over time. And the effect of that has been along with high tax rates to produce highly elevated what is called k is the cherished hear a lot of going forward. And really all it does is puts into one summary statistic the subtotal of all of the effective tax policies affecting the investment. As is how much the various policies raise the price that you have to pay. That is the earnings that 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. Then you start figuring out okay, this tax will raise this. This tax will raise this more. The subtotal of those effects is the cost in capital. What we want to see happening in tax reform is the cost of capital to be brought down as far as we can. Reducing tax rates and expensing the two giannas of bringing down the cost of capital. The third piece is fixing the way Tax International income. 20 years ago or so, the industrialized world was pretty mixed. About half of the countries in the world did what we do today. Adopting a worldwide tax system and then and a half adopted a territorial. When i was with chris, we use Different International conferences and will talk about the need for territorial system. Half of the countries we visited with a yes and the others would say thats crazy. And in the us it was thats crazy. It turns out we were right. Most everybody in the world now has some variation on a territorial system. One way to think about it is it is kind of like a las vegas commercial. What happens in vegas stays in vegas. The income that is earned where it is earned, is taxed where it is earned and only there. That is what territorial means. Companies and income in france and germany and japan or china wherever they earn it, it can be subject to whatever taxes are imposed in that jurisdiction. We are not going to test it again in the United States. It is as simple as that. A much simpler system. I think of it in terms of for Corporate Income, getting an exclusion for dividends paid. For it will exclude income from tax. Because it was taxed over there. And if you add text to it, youre making that us operation abroad less competitive and because operations are integrated internationally, it is the is operation where it is closely working with foreign operation. Make the foreign operation less competitive than you make the us operation less competitive. That is the reason why he was socialist countries in europe adopted this. Because they need to compete on a global scale and the only way to do that is to have a competitive tax system. Those are the three key components. There other things that can be done dealing with the estate tax and other elements. Those are all important. The core elements of tax reform significant rate reduction, expensing and a territorial system. Right now if you notice only talk about tax reform whether it is a blueprint or the president s proposals, they tend to revolve around those three pieces. And that is a big part of the reason we have a chance of getting this done fairly quickly. Depending on how you want to look at the calendar, i argue that the 1986 Tax Reform Act is the culmination of an eight year exercise. It actually began with the Capital Gains tax rate reduction and a democratic senator from texas champion and got through and got started thinking about how to redesign the tax system. That is what others ran with that got us the 81 tax cuts and an 86 Tax Reform Act. It was a long process. And part of the reason for such a long process is that the reform bill was an incredibly complicated piece of legislation. Because they try to solve every single tax problem that they could that they had identified. Dealing with limited partnerships or pensions or what have you. This was a comprehensive in the broadest sense of the term, tax reform. If we go down that road right now we have still a great chance of getting tax reform done probably sometime in 2019 or 2020. If you want to get it done soon, which is what we need to do, weve identified key elements. We need to keep it a very focused package. What we need to do to make it stronger and that you are three major things we need to deal with. And that present the next subject of tax reform or tax reform is going to talk about rate reduction and expensing and the great things we do for the economy. But we need to put the big boy pants on to do this. Theyre going to be some big ones with tradeoffs. Off the balance and really think about we want this enough to be worth this tradeoff. Because you cant get a 20 or 25 or 15 percent corporate rate by closing loopholes. Get 200 percent for closing loopholes. You get two or three percent for closing loopholes. If you do this correctly tradeoffs will still leave the overall plan very much progrowth. That will be our focus of the chamber. There will be a lot of fights over the details of the rate reduction. Over how expensing instructor, transition roles how they are applied and designed. 11 details. But the fundamentals will be what is is going to do for the economy . Car brands of tax reform is ultimately about taking the economy that has been growing too slowly to one that is going to grow up to his potential and raise its potential in the short run and longrun. That is what is about. As long as this package looks like you will do that, the us chamber will be supporting and pushing for it. Where it can be made better we will work. But ultimately the bottom line is we will not get caught up in the fractious fighting over the details. The chamber and the Business Community ultimately will focus on does this work for the economy . Is a going to make it stronger . Momentum with comprehensive tax reform are going to be advertising to the world, running commercials on memorial day baseball games to the whole world come to the United States, investor, move your Previous Companies are going to be looking to move overseas. They will be looking to move back. Foreign companies will be looking to move back. This is a place they will want to be. We will be advertising to the world of the tax reform, this is where you want to invest, the sooner you want to be. Come here. For those that dont heed that warning, look out. As they will be competing against the country. Businesses and workers that are armed within the text for that allow them to compete very effectively and we will take on the world and have a very Strong Economy going forward. Thank you very much. [applause] good afternoon. My name is Jason Fichtner with thank you for coming out. Basically we divvy this up. Jq is doing corporate, and then were going to talk about the uk experience and what lessons we can learn. But i want to start my time with some general points on tax reform. Provide you with some Guiding Principles when thinking about tax reform. Then discuss how the house blueprint and president trumps proposals measure up. Im also going to echo a few things that jd said because it is very important and they had on. First, it really is important to note is that the United States tax code currently severely distorts decisions and allocation of resources. It is currently paying both potential Economic Growth and potential tax revenue. It is in need of reform. Dont think we can do this later. We have to do this now. We are having discussions right now whether we can hit three percent. I remember a few years ago they said we can do for. We were doing three. Were getting lower and lower in impeding what because a bad tax system for second time economists generally, and i say general because it is the tax rates that drive the decision margin of what to do next. More work, more saving, more investment and plant labor, equipment or intellectual property. A broader base is more efficient because youre not treating and creating bias. Again, as a border tax base but baseboard and should not be tradeoff or other provisions and invading the attempt to achieve revenue neutrality that would raise the cost of capital. And under most or all of the benefits of the lower marginal cost. For example you dont want marginal rates were increasing the length of depreciation schedules. That would undo that. Also this my personal take. Jd brought this up at that we should not basically focus on revenue neutrality. Especially on the corporate side. But rather we should focus on what is the right tax policy for transfer the Corporate Income taxes bring in 300 billion a year. It is diminishing the total revenue over time. The reason it is getting smaller and smaller in total revenues because corporations, plano to bring competitive and jobs here is to bring america, you need a lower rate and better taxes. I dont want to get into study first dynamics. I know revenues are going down. For it to go back up we need to reform Corporate Taxes. Focusing on what the right thing is is my third point. Like a patent Innovation Box or antibase immersion and profits, we are only going to exacerbate the problems we have in the current Corporate Tax plan. Theres an old saying. The road to tax is paved with good intentions. To be careful of all of these basic partners and tradeoffs that we dont do more harm than good. Weve exhausted the research that proves the money tax capital or labor less you get. So if you want more labor and you want more people to work you are capital, lower the rates. More efficiency with tax income, we should avoid double taxation. One sort of possible tax we should be discussing what you might have heard the senate side from senator hatch, the idea of doing corporate integration with individual income tax. Only people pay taxes. I hear this way too often corporations are not paying their fair share. Corporations are not people. Only people can play taxes. Consumers, owners of capital, or workers. If youre staying a corporation is not paying their fair share betting on the insincere saying workers arent paying their fair share. Or consumers are not paying their fair share. The people that own stocks pension holders included are not paying their fair share. Corporations are not people. They dont bear the burden of the tax. Only will people do. Thinking about these Guiding Principles house makers, we start tonight deciding principles. What do we want . Simplicity. The complex structure makes it hard to do it. They should make it simple and transparent as possible so it can increase compliance and reduce compliance cost. So next point is equity or equitable. How does intend to benefit or penalize individuals . These policies result in a measurable unintended consequences. Fairness is subjective. But tax fairness would at least reduce the number provisions in the tax for one group. The president plan does that. It should be efficient. Because the tax court also markets decisions in areas like saving investment and job creation. And to do basic partners to lower the recognition also be predictable. In fact are not just wanted to say but what made you in the future. Certainly they determined that growth. If you put its tax extenders money businesses want to invest if they are not sure tax bracket they have with the tax break is going to expire in 12 months . So they hold off making an investment until they have certainty. There is broad consensus about the research of which policies are solid. Which policies are most likely to fail. We want lower rates, a broadbased, close loopholes, no double taxation and reduce bad incentives. Fortunately on the individual side tax bands offered by chairman brady and the president follow many of these principles. Chairman bradys plan consolidates data three tax brackets. Live seven right now. The lower tax rate will go to 33 percent. It would be a zero percent tax and double standard deduction. This simplified by a larger standard deduction a larger child independent tax credit. They would reduce the need for some people to even file inductions because the standard deduction becomes more larger. He becomes more simple. Keep but improve the earned income tax credit and the president s plan is not as detailed as the house blueprint but gives us an idea on how it is currently understood right now. It may have some changes. Theyll consolidate down to three brackets as well. 12, 25 and 35. Lois for the highest tax rate over to 35. We do not know yet what the income bracket it would apply to. So with chairman bradys family know that it will be the top Capital Gains rate and Dividend Rate would go down to 20 . Get rid of the obamacare tax. Theres one potential issue, it would fall the 15 . There could be some gaming going on if we lower the past before s corp to 50 . If we do that im going to incorporate myself and no longer get wage income from a teaching job at georgetown. I will become an independent contractor and avoid payroll tax and get a knights 15 rate it would lead to equalize the past the rate. We should lower both but we could allow for differential. Typical 15 for corporate, maybe 221 on 21 on the passthrough, 20 corporate but basically if you want to lower them both, they dont have to be equalized. We have a once in a generation chance to do tax reform. We really need to do this. Jd made a good point to point out the chamber when i focus in some ways on nitpicky or Little Details here or there on revenue neutrality as long as the plan is always good for growth. Thats important to keep in mind. We have discussed whether we do want to have revenue neutrality or deficit neutrality, whether we willing to have some tax cuts that lose revenue. If youre concerned about growth, if growth comes from the corporate side, not the individual side, the individual is good to do but generally its more political than growth oriented. Im willing to take a revenue hit on the corporate side and maybe raise pay for an individual side. Its hard because if it looks as a package. Look at the details what goes into it but it might be wise to survey our discussion and said the growth come come some expeng of a corporate rates, lets do that. Lets not worry about paying that. Its the growth in the talk about the individual reforms and so what do you want to pay for to get lower rates down, what does that mean . All the growth stuff does come from the corpus site and thats what really does need significant reform. President trump and chairman brady are outlined, very close, not a lot of fights going back and forth. They will come to an agreement with the corporate side is willing to do some work and get some agreement on. So we can get reform done this year. Thank you. [applause] thank you, chris. Thank you for the organizers of today, the cato team, credit for getting to all. Thank you all for being here. Asked my accident probably implies and chris has alluded to im relatively fresh off the boat from uk so not going to patronize you my virginity know the intricacies of your tax code. The chris necessity to talk briefly about two areas where you cast type reform you might want to think about some of the lessons and that comes on the Corporate Tax reform and the taxation of savings. As j. D. A letter to its widely acknowledged Corporate Income taxes are one of the most damaging forms of taxation. High statutory Corporate Tax rates not only encourage businesses to locate elsewhere but also deter new inward investment from overseas and on the margin deter those new investment from Companies Already operating here as the high statutory rate raises both the average tax on profits and the affected marginal rate which is what jason just outlined. What has the uk done . The uk has substantially reduced its headline Corporation Tax rate. Weve gone from 28 to 19 today 19 today with a plan to reduce the 17 by 2020. That is along the trend that chris outlined. The uk, as soon as 1980, as long ago as 1980 at a rate of 52 . It is current 19 after seven years of rate cuts. The uk now is the fifth lowest tax rate in the oecd and the lowest in the g7. Obviously, considerably lower than your headline great here. That doesnt tell the whole story of the reforms in uk which probably come into two parts. In the first couple of years of cutting the rate in order to make those reforms revenue neutral, the government broadened the base in a damaging way i reducing the generosity of depreciation allowances, so offsetting the rate cut by raising the cost of capital in other ways and the effective marginal rate on a new investment that broke even actually rose a little bit from 2022 . Economically that the statutory rate was being cut, and this was incentivizing new investments, with all of the things the same, Encouraging Companies to locate in uk as well. The reform is not helping to stimulate that new incremental investment from Companies Already in uk because the effective marginal tax rate had gone up. Since then thankfully the government has focused on rate cutting and has an try to offset that she hasnt tried to offset broadcasting over. The packets between 222017 has been a very large Corporate Tax cut with only about a quarter of the static cost of the cut offset by the less generous depreciation allowances and other antitax avoidance measures. To give you an idea of the skin of that tax cut in revenue terms, a as a static cost it was about onethird of revenues from when the rate started being cut. This is not an insignificant tax cut. As i said the result is uk among the lowest statutory rates and average Corporate Tax rates around. Weve still got relatively stingy depreciation allowances and comparison with other countries, so our marginal rate is closer to the packed but falling. The long and short is our marginal effective tax rate is now 17 and thats still a significantly lower than the u. S. 23 . What has this meant for revenues . The uk government dynamically scored the whole package and they said that with improved economic activity, faster Economic Growth, over 18 years the exchequer would recoup some of between 4565 of the static cost of the cut. You might imagine that might even be higher. Given your high statutory rate, perhaps we can discuss later the estimate of that. Actually early signs suggest the official statistics, the official forecast may have underestimated the effects of the cut on economic activity. Nominal receipts fell significantly in the uk after the financial crisis and through about 2013. Since the time the government has purely been cutting the rate and aggressively cut the rate to 20 within three years from 2013, they projected initially that by this year revenues would be about 38. 2 billion pounds. Actually the out term has been 50 billion pounds. Thats despite revenues from some other areas of the economy, offshore oil and gas falling pretty dramatically. Yes, theres been some offsets in other areas in attempt to clamp down on tax avoidance, but continued cuts for the headline rate dont appear to be leading to the falls in revenue predicted. Looking at the longest week of history, that probably shouldnt surprise us, over the last 30 years the rate as i say has fallen from 52 to 19 in the uk, and revenues, although pretty cyclical, have tended to range between about 1. 7 and 3. 5 of gdp. They are currently about 2. 6 which is exactly the same rate which is exactly the same rate as seen in 1985 when the main rate of tax was 40 40 and the thatcher boom was well underway. The government appears to been somewhat successful in its aim to attract businesses to locate to the uk. Mcdonalds, starbucks, snap which leases the Parent Company of snapchat and a range of other companies have moved headquarters on a significant part of the nonu. S. Operations to the uk over recent years, and its likely the government will continue to articulate that rational given the need to remain open for Business Post brexit and with International Coordination putting the pressure on the superlow tax jurisdictions, i think the case is an opportunity to get even more businesses to locate. So what are the two key lessons for the u. S. At this experience . The first one i suggest is cutting the headline rate doesnt appear to reduce revenues anywhere near as much as expected. The second one is the one that adjacent other two which is, base broadened to extend to do to offset the revenues lost through the rate cut, should be done for economic reasons, not just to achieve revenue neutrality. Corporate income tax is a damaging tax, and the uk 16 shows that reducing appreciation allowances making depreciation odds is less generous to allow the rate cuts can lead to trade off between attracting companies to locate in the uk and actual stimulating investment for the first couple of years when we cut the rates, we cut the in such a way we didnt incentivize more investment. The uki uk also offers lessons n the taxation of savings. While most focus has been a business taxation, i agree that should be the priority, theres been relatively little discussion on taxation of savings even though the house plan such as creating whats described as universal savings accounts based on legislation introduced by senator jeff like an representative dave brown. The uk has similar accounts called individual savings account, and they are incredibly popular. The broad idea of this type of savings account is this. Corporate income taxes tend to double tax savings. Therefore most income tax coats try to exempt saving from taxation on return so that the texas and doesnt discriminate in favor of consumption over savings, but most income tax codes tend to do this by exempting a raft of returns from retirement savings. A loan from tax. Theres no economic reason in principle by the tax code should favor certain savings for certain purposes that others. And for that reason both the uk and canada have said that more allpurpose savings account with a simple tax treatment. So contributions are made to these accounts aftertax. In the uk up a limit of very generous limit of 25,000 per person. No income tax is an levied on income on the savings and investments, no are Capital Gains tax. Savers can access your account anytime for any purpose without penalty, and investors are able to transfer their money between isa managers, Fund Managers come pretty easily. There are no lifetime limits on how much you can put in or earn taxfree. So these are pretty much like supercharge roth iras. The main difference being theres no withdrawal fees or penalties. And basic economics would imply to us the margin that would encourage people who are indifferent between consuming and saving the more likely to favor putting that money into a savings account. These accounts are incredibly popular, especially for those who want to say but like the security of that liquidity that come some no withdrawal penalties. 43 of the Adult Population hold of these accounts. Compared with about 20 i believe of adults of roth iras here, and 58 of those who only accounts contributions contributed to them last year with a very high average contribution. These accounts appeared to be very, very popular with people of modest too low incomes as well, about 54 of all those isa folders have incomes of less than 25,000 per year, and relative to thei the incomes can lower earners hold more in their isas that higher earners. The government has added some unnecessary complexities and we could spend all day going into those government tends to try to make things more complicated than they need to be. But overall, this tax reform has led to a tax system which is, for the vast madrid people, vast majority of earners, neutral between consumption and saving, and neutral between the purpose of saving as well, and your child is a key principle that we seek from tax reform. What about the effect on savings . Theres lots of other things going on and you would imagine it would be a lot of displacement as well from ordinary savings accounts to these isas. So theres little evidence over all that they might have increased aggregate savings rate but what have had a big impact is helping to alleviate the problem on the margin of poor people and people of modest incomes, not having modest amounts of savings to call upon for contingencies. As i say these accounts are popular across age groups and income levels, precisely because of their flexibility which is why chris and i have wrote on why they should be introduced here. The proposal by senator blake and representative bragg would see individual been able to put up to about 5000 per year aftertax income into the accounts which would then grow taxfree. But you could have a more generous starting point from that. We suggested actually you could make this 10,000, but at the same time use this as an opportunity to scrap a range of existing favored savings vehicles and introduce these accounts as part of a broader tax simplification measure. You always have to be careful about taking lessons from other countries, and it would be very easy to look at whats happened in the uk and purely focused on the rate and perhaps not look at things that we did wrong in the first couple of years or look at the impact of isas and a look at the broad framework for the taxation of savings including pensions. I think in these two areas even considering that, and if somebody has come from the uk to the u. S. , the uk shown things they can be accomplished and perhaps some ways not to do these things as well. Thank you very much. [applause] thank you, ryan. We are going to open up to questions now. To reiterate what ryan said on his last point, the idea of universal savings accounts, theres a house and panel legislation on that. We have a new report on that that you can put on the cato website under either his name or my name. We think these accounts ought to be part of tax reform this year. Yes, norm. Norm singleton, or molested of director for ron paul. What im about to say wont surprise anybody given my background. I like most of the presentations, i agree with almost everything you said at the very end and so you tour type of revenue raises. Theres three things i found lacking in the presentation so i want to make a point up and ask for your response. One, in the idea of the moral and philosophical philosophy behind the tax system and tax reform . It seems like even conservatives and libertarians when they discuss this talk about in very technocratic measure that buys into the premise of the government has a claim and in many cases a first claim income before we get, before those of us actually go out and have earned it a habit to spend on taking care of our families, investing in businesses and buying cato policy reports. Second, my second and related point is that, is that in rearranging deck chairs on the titanic, i think that sometimes we get, that the tax reform debate get so caught up in revenue neutrality and this kind of feeds off the first one, that it forgets what 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 even from the right of Center Policy community about actually making sure that the total tax burden on the American People is lowered instead of lets get this tax efficiency versus raising this tax because their inefficient. Lets get rid of this deduction and keep this deduction. Instead its a much lower taxes. The third point which feeds from the first is the reason for that is a kind of ignored the elephant in the room, which is the other half of the fiscal equation which is pending. I would respectfully suggest that if you want a tax reform that is revenue neutral, or even in my case, actually revenue depriving of the federal government, that we Start Talking about no tax reform until Congress Gets serious about cutting spending, which is difficult to do. But it is a fact, as dr. Paul has often said, that a tax cut is good because always good but a tax cut without spending cut is really a temper tax cut because eventually in terms of the debt that impose, we are either going to pay in terms of future revenue raises or in terms of the inflation taxes the Federal Reserve monetizes the debt in order to help the government deal with crushing Interest Rate payments and other negative effects of the deficit. Go for it, j. D. Thanks. I think you make a great point. When you have a tax reform that is a significant tax cut, we are running budget surpluses. That wouldnt be an issue. We are running a budget deficit that today we most easily talk about an fractions of a trojan, over half a trillion that will double without any changes in spending. That makes it quite accurate what you say, if you have a major tax cut now without the spin the cat georges thompson future tax increases. In fact, we both face a lot of pressure because of those budget deficit for future tax increases. We have to address it if you dont want the tax increases you have to address it with spending cuts. Congress has been attempting with republicans in control, with democrats in control, with mixed governments, for some decades to cut spending. Great to have that discussion. We have Social Security and Medicare Trust funds going broke and just over the budgetary arising from just over ten years. Technical expression is they will be exhausted and that programs cant function anymore and just a short period of time, and yet Congress Seems reluctant to do anything about that at this point. We could in fact, all tax reform hostage to getting to spend cuts necessary for tax reform to be a massive packet. We could do that in which case are projected date for passing a taxi from probably would be somewhere around 2015, excuse me, 2025, 2035, 2045. I would 45. I would rather not wait that long. Taking what you said about the need to get the spending down, especially given a budget deficits and how much easier it would be to do comprehensive tax reform if we didnt have all these pay fors to pay for the rate reduction, i dont think thats where we are right now. If you can change the political calculus then we can change that discussion thats not where we are right now. Otherwise with one exception i i believe the philosophy to the philosophers. That one exception is the concept of transparency. What we have now is a system which in many respects is extraordinarily nontransparent to people who are paying tax. You all t experienced this every time you get a paycheck. Look at that paycheck and you see about this also sturdy tax a collected and you thats a lot of tax. Its twice but they dont want to let you know that. If you introduce legislation saying no, were going to have both halves of the payroll tax show up on your pay stub, you have a very clear indication who wants transparency and two likes hiding the ball. I raised that because thats exactly, as jason mentioned, whats at issue with business tax. Not just Corporate Income tax that all business tax. No business ever paid a tax. They collect tax picnic lacked on so what else and you want to know who pays the tax . We dont know. We estimate in aggregate ashes of the Corporate Income tax between capital and labor. That doesnt mean you know that you paid it. Everybody in the shrim champagne business tax but your dog you how much. If youve ever save a dollar and put it in a 401 k bought a stock, you paid Corporate Income tax. Can you tell how much . You never will. In essence the Corporate Income tax, the reason it is so perfect for the nature of the government we have, we will all adults Corporate Income tax collects a fair amount of money with relatively modest expense into exhibit a lot of expense engines of economic effects. Why do we like taxing businesses so much . Because nobody knows who paid the tax. Thats why one philosophical note for the day. Other questions . I would build on that a little bit, transparency is very much in the between principle, norm. I think youre right about spin but i think there is a lot of prolibertarian stuff you could do with the tax code. Grows, more growth is more freedom, more transparency is better government. Yep. Richard with the National Foreign trade council and a veteran of 1986 with j. D. Within the parameters of existing deductions, the fact that the president s plan leaves intact the deduction for Home Mortgage payment, and the fact that none of these plans touch the deduction for employerprovided healthcare, can you comment on this . This is how you are being set up for failure. In terms of economic efficiency and transparency. Well, ultimately, this isnt an exercise done by a bunch of tax economists this is going to be an exercise hopefully guided by tax economists to some small extent but ultimately it is a political exercise. If you want the rate reduction shift to decide where you can pay fors to the extent you have to pay fors. The employer, the solution for Employer Sponsored Health insurance is an extremely politically popular provision in the tax code. Thats reason what its not being touched. The Home MortgageInterest Deduction in both the president s plan and the blueprint is nothing touched in part because its politically powerful it is also not being touched because unless you address the wit Interest Income is taxed, its the correct solution. As long as youre going to tax Interest Income to the recipient, symmetry, that is neutrality, demands you about the deduction for the interest expense, of any kind of interest, whether thats consumer, business, or Home Mortgage interest. We have in the blueprint a proposal to reduce or eliminate the deduction for net interest expense at the business level. I talked about tradeoffs. You do not get a rate reduction as far as we would want to take it with a did what i call some damage to tax three in the base. That elimination for net interest is not good tax three. Or may be necessary to get the rate reduction picked someone else comes up with a different Revenue Source thats better, maybe we dont need that one, that are being defined as less damaging to the economy, less damaging to the cost of capital and less damaging to the political prospects. Right now net interest is on the chopping block but that doesnt mean its good tax policy. Because we continue to tax Interest Income. If youre going to tax Interest Income just to allow deduction for that establishes symmetry and neutrality. Were going to continue to tax Interest Income for a lot of kinds of savings, may be few if we are successful with chris proposal for savings, but a lot of interest in, its still going to be subject to tax which means you still need a deduction. I want to sort of bring the two questions together. Politics is the art of impossible. My fear is where not been doing a good enough job link out the moral case for what our Current System is wrong in the first place. Wwere trying to move in that direction. We should we talk about the idea income is based on your property and all that and you should own and not the government. We are not making the case about the distortions in Home Mortgage interest. If will allow deduction for that i shouldnt pay tax and interest ofor the bank and carefully the money. We are not doing this. Were giving up the moral high ground by not talk about the morality of tax cut. By not talking about the distortion in the current code and did i get about revenue neutrality which we talk about deficit neutrality to allow us to bring in spending cuts. Instead of saying we need to have pay fors, i want pay fors, how we can reform medicare, medicaid, Social Security to offset some of the reduction in revenue coming in. When we Start Talking about revenue neutrality and not deficit neutrality, we are in a trap in which we allow one party to raise spending and we get caught, now we have to keep this pendulum up with revenues. We always get second thirdbest tax reform. I understand were going to make compromises and im okay making compromises but it want to do with the guys, lets talk about the morality first so that snow and with a better discussion of what we getting for those tradeoffs. Ill give you my really quick take, richard, and i think a reasonable cup mustard tax reform this year would be capping the mortgage Interest Deduction, a dollar cap and capping the exclusion for employerprovided health care. I think thats a reasonable step to take. Okay. I think weve exhausted the questions. Thanks a lot for coming, everybody. Thank you. [applause] [inaudible conversations] [inaudible conversations] we have this article from politico. Senator ted cruz and rand paul are pushing to test the limits of how much of obamacare can be repealed under senate rules. Setting up a potential nuclear showdown. They want to overturn longstanding precedent for what can be done under reconciliation which is a fasttrack budget process republicans are using to dismantle the Affordable Care act. They are two republicans are allowing state senate norms to tie their hands and are forfeiting a chance to completely abolish the law. Many republicans say they have no interest in testing the Senate Procedural bounds are doing doing so would undermine the institution and quickly lead to the end of the legislative filibuster. You can read more about that politico. Com. The u. S. Senate is about to gavel in to continue work on the nomination of Jeffrey Rosen to be deputy transportation secretary, a confirmation vote is possible later today. Live Senate Coverage here on cspan2. Lead the senate in pra. The chaplain let us pray. Savior, lead us as a shepherd guides his or her sheep. We find consolation in the knowledge that you have gone before us in order to bring us to your desired destination