Transcripts For CSPAN2 Senate Finance Committee Explores Tax Reform Challenges 20170719

The committee will come to order. Welcome to our first hearing of the day. We discussed the ongoing effort to reform our tax code. We have a distinguished panel of experts to help shed some light on the issues surrounding tax reform. I look forward to a productive discussion and appreciate your attendance. In 1984 resident reagan called for reform of the tax code. He laid out three main goals for tax reform. Fairness, efficiency and simplicity. Those three goals are as relevant today as they were a generation ago. American competitiveness is essential in todays Global Economy we must consider whats happening outside our borders. Addressing tax policy or legislation is very easy to find oneself. I think we would do well to keep focus and frequently remind ourselves of these basic principles. I will repeat them. Fairness, efficiency, simplicity and american competitiveness. The Tax Reform Act of 1986 is generally considered to be a great success. One question people should ask themselves is if the law we passed in 1986 with such as success, why did it disintegrate so quickly . There are competing opinions out there. They make compelling cases to changes while others have elected officials to do the same. Thats one reason for the constant change we have seen since 1986. Another reason might be that the theoretical underpinnings of the bill werent as sound as many assume. The reform was a shift toward taxable income. In the last couple of decades there has been changing and investment code invasive it tax code on assumption instead. Subsequent changes will be described as shifting away from taxing income to taxing consumption. This explains things like decreased tax rates on Capital Gains and dividends, more rapid appreciation schedules and more qualified Retirement Plan options. Many of the major reform proposals weve seen, a blueprint would take us further in that direction. Welch some of the changes have been good. Many of the changes have been bad, in my opinion. Were looking at the unraveling of the tax reform law and its had a sound theoretical base at the time but technological changes over the decades have required us to make changes ever since. Its far more mobile today than it was in 1986 and its inherently less reliable. The changes to the tax code in the past three decades have led us with a status quo that is unsustainable. American families, individuals collectively spend hundreds of billions of dollars every year and countless hours trying to comply with our tax code. They become the new normal for some. Americas national. [inaudible] all of this should be very unacceptable in the senate. That he was correct when he described the tax code as a rotting economic carcass. There is no longer any question as to whether we should reform the tax code word the only question remains are how and when. For this reason we are engaged. I know republicans on this committee and elsewhere are united to fix the broken tax system. I hope is that our democratic colleagues will be willing to join in this effort. Tax reform should not have to be a partisan exercise. Indeed the negative impact of the status quo falls on republican and democrat voters alike. We should all be willing to work toward solutions. I know many of my colleagues recognize the need for reform. Democratic leadership rhetoric has been less than encouraging that weve heard condemnations and claims about tax plans that dont exist. Weve heard demand stated as preconditions to any bipartisan cooperation. And concessions unrelated to tax reform. On a similar note weve heard demands that republicans make significant concessions for moving a tax reform bill for any prerequisite of potential legislations. I wont belabor this issue too much at this point. Ill simply say historically speaking, this is not how we worked on bipartisan tax policy and i hope that the statement where weve heard from some of the Senate Democratic leaders do not reflect the views of all our democratic colleagues. Today we have a panel of four skilled experts that represent both parties. Theyre all former assistance and treasury for tax policy. Dave then on tax reform for some time. They can help us today as we address the shortcomings of our current tax system as well as the divisions that could hamper our tax reform efforts. With that im pleased to turn to my colleague and partner senator wyden thank you, mr. Chairman. On this side we would very much like to work in a bipartisan way and have a True Partnership on this issue for a tax code that gives all americans a chance to get ahead. I want to begin by saying everyone wishes in th senator mccain a full and speedy recovery. John mccain is about as tough as anybody around. With cindy, his wife, in his corner, we are all counting on him being back with us soon. Mr. Chairman and collie, its hard to imagine member of congress, democrat or republican who would stand up before a crowd at a business or townhall meeting at home and say i am a big fan of the tax system thats on the books. Insanely complicated, riddled with sweetheart deals, and plagued by the inversion virus. I just dont see a lot of members of congress out there stumping for business as usual tax policy. What is needed is bipartisan tax reform that focuses on productivity and helping the middle class, cleaning out the tax loopholes, fiscal responsibility and giving all americans the chance to get ahead. Now those were all key principles of what happened three decades ago when democrats and republicans got together for major bipartisan tax reform. Unfortunately, in the first month of this administration, the Majority Party hasnt shown any concrete evidence in this kind of approach. Before his confirmation, senator nguyen embraced what has come to be known as many general. No absolute tax cut for the wealthy. I think would be fair to say that spurred a lot of interest on our side of the aisle, but it wasnt long before the secretary and the Trump Economic Team made a fullscale retreat from the principal. Now the administration has a onepage plan of tax reform bullet points. There is a lot of detail about how the fortunate few get their taxes cut. Not much detail about how relief is going to go to the middle class. We all remember when henry ford said look, i want to be successful. For me to be successful, working people have to have the money to buy my cars. It is all about the working class. In fact, under the trump plan, independent analysis said millions of working americans were in line for a tax increase. Furthermore, in the last few weeks the Treasury Department begun to wipe out tax rules designed to crack down on corporate and state tax loopholes. Without a plan waiting in the wings, that means the Treasury Department risks a new outbreak of the inversion virus. Thats an outbreak that would put more jobs at risk and condone tax avoidance. Here in the congress, there are widely circulated pictures of a meeting of a group called the big six. A big blowup in wall street journal. It was comprised entirely of republican senators, representatives and Trump Officials and it says these folks are going to need a tax overhaul. Now republican members have already telegraphed the plan to transplant the trump tax care breaks for the wealthy into a big regressive tax cut later this year. Majority leadership in the senate has said repeatedly, in the media that they plan to move tax legislation with the same my way or the highway approach thats been used and clearly has not turned out well on healthcare. It is hard to look at the concrete evidence and find proof that the Majority Party once real empathetic involvement in tax reform. I would say to my colleagues, you go back and read these histories in the 80s, and by this time, in 1986, democrats and republicans were hit deep into going back and forth about how you would do bipartisan tax reform. Now, anybody can write bills that flashes tax rates for the fortunate few and the biggest corporations, and you might even be able to get enough support to get it enacted into law, particularly if you use a partisan only approach. I would just say, as we launch this, thats not a good play to get the certainty and predictability thats really needed to create good paying jobs and expand opportunity. It might be a good way to tax create tax windfalls but it is not a good way to grow our economy and respond to the numbers we saw last week that showed wage growth is flat. The jobs numbers went bad, but wage growth was flat. Having middleclass people with money to buy cars and get education and childcare and houses, thats how you make an economy home. Mr. Chairman ill close with this. You and i have talked about this often, and you and your staff both know that i have spent hundreds of hours, literally, to produce what are still the only two bipartisan comprehensive, federal tax reform bills since 1986. One was with our former colleague, senator greg who Mitch Mcconnell looked to for direction and senator dan coats is now at the office of the dni. They gave everybody a chance to get ahead. They were built around progress and tax reform that puts them first by putting money into the pockets of wage earning americans. Lasting and bipartisan and im interested in hearing from our witnesses who can talk to us about the lessons of the past in terms of finding Common Ground and moving ahead. My last point i want to make deals with healthcare. Obviously there were major developments last night. I hope after it has become clear that the partisan approach, trying to jam a bill through that raises premiums and hurts those with preexisting conditions, flashes medicaid, it has now failed twice. I would hope as we start this tax reform discussion that we say using a partisan approach for the major issues of our time, healthcare and tax reform is a prescription for trouble. Its a prescription for gridlock and its a prescription that will make it harder to solve the problems that the American People sent us here for. I will close because you have a long history and we joke a lot about it, going all the way back to senator kennedy so you have a long history of working in a bipartisan way the side of the aisle. We would like to bring that kind of focus to healthcare and tax reform and the date had. Thank you. Thank you senator. Today we have the distinct pleasure of welcoming for members to our committee. I want to thank you all for agreeing to appear and for being willing to talk about such an important topic. First we will hear from jonathan, a Founding Member and he served as the assistant secretary of tax policy for the u. S. Treasury department during the clinton administration. Previously he had also served as the treasury, Deputy Assistant secretary for tax policy and the tax legislative council. Before joining the Treasury Department, he served from 1995. In 97 under senator moynihan and from 1992 until 1995 as legislative counsel to the joint committee on taxation. Prior to his tenure in government, he worked in the office. [inaudible] from 1984 until 1982 where he specialized in transactional tax planning. He currently serves on the board of advisors to the Tax Policy Center and was chair of the formation of tax policy committee, the American Bar Association. He also currently serves as an adjunct professor at Georgetown University law center. He teaches tax policy. He holds a bachelor degree from the university of virginia and the doctorate from the university of Virginia School of law. Next up will be mr. Flynn, the tax leader. [inaudible] prior to joining pwc, ms. Olson led the washington tax practice and served as assistant secretary for tax policy at the u. S. Department of treasury from 2002 until 2004. Ms. Olson has also previously served as a senior Economic Advisor to two president ial campaigns and federal tax advisor to a National Commission on Economic Growth and tax reform. Miss olson also held positions with the chief counsels office of the irs, a special assistant to the chief counsel, attorney advisor in the legislation are rigid Relations Division and attorney in san diego District Council in 2001. She was the first woman to serve as chair is the American Bar Association section on taxation. She received her ba, mba and jd from the university of minnesota. Third we will hear from eric solomon, the codirector of the National Tax Department of ernst and young in washington d. C. Mr. Solomon formally served as a Treasury Department and irs holding various roles in the office of tax policy. At the treasury from 1999 until 2009. In both the clinton and george w. Bush administrations. He was assistant secretary for tax policy from 2006 through 2009 and the irs, at the irs he went into Corporate Tax division in the office of chief counsel from 1990 until 1995. Before his government service, he practice in law firms in new york city and was a partner in philadelphia. He is a member of the executive committee of the tax section of the new york state Bar Association and has been an officer of the American Bar Association section of taxation and teaches Corporate Taxation at Georgetown University. He is a graduate of Princeton University and received his llm in taxation from new york university. Finally, we will hear from mr. Mark j, the robert c director of the urban brookings Tax Policy Center. From 2012 until early this year he served as the assistant secretary for tax policy at the department of treasury. Prior to the service he served in the federal government for 27 years in various positions including policy economist at the Congressional Joint Committee on taxation, senior economist at the council of economic advisers, chief economist and director of policy at the u. S. Department of energy. As acting administrator and director of research and analysis and statistics with the irs and Deputy Assistant secretary for tax analysis in the office of tax policy. Before entering Public Service he was an assistant professor at Heinz College in Carnegie Mellon university. He has a bachelors degree from Michigan State university as well as a masters and doctorate degree from stanford university. Please kick us off with your opening remarks and we will go from there. Thank you. Distinguished members of the committee, thank you for inviting me to discuss tax reform once again with my colleagues and friends. I am appearing here on my own behalf. Several of us appeared on a similar panel six years ago at a hearing entitled how did we get here. Given the consensus for tax reform, this hearing might be entitled why are we still here. In all seriousness, significant progress has been made in the interim. First, the fiscal agreement largely fixed him coachman and prevented it from morphing from a class tax to amass tax. Similarly, in 2011, we had well over 100 structural extenders and these were fixed by permanent extensions or for five years. In addition, over the past five years, both taxwriting committees have conducted a thorough examination of the principle tax reform options that exist including numerous hearings, bipartisan working groups and comprehensive reform bills by committee members. I believe its time for congress to heed the instructions that yoda gave to luke. Do or do not, there is no try. Let me briefly explore some of the remaining impetus is for reform. Competitiveness and growth. As has been well discussed, the United States has the highest statutory Corporate Tax rate among our Major Trading partners. Broadening the base and lowering the rate would improve productivity, reduce extortions and attract foreign direct investment. Also, our Worldwide International tax system is out of step with the rest of the world. That generally is adopted some form of territorial system. This combination often causes u. S. Businesses to be at a competitive disadvantage in foreign markets and creates a lockout problem for redeployment of foreign earnings. Other countries are taking significant steps to attract headquarters, ip ownership and other cross border investment. We must respond soon to avoid detrimental effect to our economy and u. S. Tax receipts in general. Efficiency. Broadening the Corporate Tax base could improve the efficiency and neutrality of our tax system. However, we must recognize that many tax expenditures are longtime and desired features of our system embedded in the fabric of our economy. Whether to retain them should be based on whether the purpose is still valid, whether the extende expenditure is efficient and what the potential dislocations would be if a laminated. Also, in seeking office, policymakers must be careful to avoid reform that does more harm than good such as revenue proposals that limit ordinary and necessary business expenses. As ive written in text notes, a case in point are proposed limits imposed on the interests. [inaudible] this was overstate economic income and activist negative tax expenditure. A better solution would be chairman hatch proposal. Fiscal responsibility on longterm deficit. Keith hall has said to put that on a sustainable path, lawmakers would have to increase revenues, reduce outlays or adopt some combination thereof. Obviously policy makers must keep this in mind in drafting tax reform. Income and equality in a shrinking middle class. The issue of rising income inequality in the middle class is a critical issue that should be addressed as part of tax reform. This is not a partisan issue and the. In the campaign resident trump talks about a hollowed out middleclass in a system rigged against average americans. Economists warned it may be slowing overall growth. They suggested it may not be sufficient to generate inclusio inclusion. One idea is an adoption proposed by brown and bennett to expand the eic for child child this worker and strengthen it for families with young children. Fairness, fairness of the tax code is highly subjective and it should be perceived and the general public as fair. Let me turn to the impediments. Obviously there is a strong sense in favor of tax reform. Why hasnt happened . Its hard. Healthcare reform affects only 17 of gdp heard tax reform affects one 100 of gdp. While agreement exists that tax reform is needed, theres no clear consensus as to approach. It will be important to agree on the goals and intended benefits of tax reform and then the president and policymakers must market those goals to the American Public. The success of the 86 act was largely attributed to president reagan and the chairman. Initially when they sold it to the American Public, he famously asked people to write him to stand up for fairness and lower taxes. He received more than 75000 letters in a package with a two by four with instructions to use it on any interfering lobbyist. Educating the public is important to minimize blowback. Bipartisanship is also on port and to develop major legislation that does not divide the American Public. While partisan approach to tax reform seems easy to accomplish, the truth is it creates numerous impediments that will be difficult to overcome. For example, use of budget reconciliation can invoke the bird role and other procedural improvements. While most Business Leaders are anxious for tax reform, they are not yet unified in the region. The dispute still exists regarding erosion to the territorial system. The Business Community must find a way to come together. I would like to close with two final thoughts. Too not worry about solving all perceived problems at once. Incremental progress will be a significant compliment. More fundamental reforms should not delay other reforms to improve the code. Dont worsen or inhibit our ability to address our longterm problems. Hopefully, if this happens in six years again, i will be retired. I stand ready to assist the committee in any way i can and i would be happy to answer any questions you might have. Thank you so much. Missiles and, we will take your testimony. Thank you. Good morning distinguished members of the committee. I appreciate the opportunity to appear this morning. Im tempted to say what he said, and leave it at that. Im here on my own behalf. Im not here on behalf of any client and the views i express our i own. The nation should have a tax system that looks like someone designed it on purpose. Unfortunately, the texas and we have leaves much to be desired. Weve already heard a lot about that this morning. Tax reform is just one of a number of Critical Issues facing the country but reforming the tax system is foundational to fixing many of the problems we face. Tax reform would set the stage for stronger Economic Growth, more jobs, higher wages, and a more broadly shared prosperity. It is critical that the committees effort at tax reform succeed. No one doubts that tax reform is hard. So hard that it has its own. A better indicator is that has been 31 years since Congress Last enacted comprehensive tax reform. Before highlighting some points from my written statement which is focused on Business Tax Reform, there is a need to make it simpler for individuals and families seeking to save for individuals and it retirement and less burdensome from entrepreneurs. Families and Small Businesses spend far too much time on paperwork and recordkeeping to comply with the intricacies of the Internal Revenue code. There will always be concerns about whether benefits and special provisions have been targeted appropriately to the intended recipient. The concerns inevitably lead to details that complicate compliance. Moreover they often lead to drawing lines that may be on rational or justifiable in the abstract but lead to things that adversely impact peoples perception of whether it is fair. To the maximum extent possible, congress should resist the urge to write narrow targeted rules in terms of broadly applicable provisions. Respect to Business Tax Reform, we must keep in mind that opportunities for investment are increasingly global in the competition for investment is fierce. Every decision to invest elsewhere makes more logical the next decision to invest elsewhere as a locust of activity shifts to other locations. The u. S. Market remains overly attractive, but that is despite our tax system which impedes investment, not because of it. By failing to address the features of our tax system that discourage investment here we will leave investments on the sideline. Moreover, if we broaden the base in ways that make u. S. And vestment less rewarding we will lose investments to other jurisdictions. With that in mind, congress should aim for comprehensive tax reform as opposed to temporary tax cuts which will require careful consideration of competing interests and of the countries pressing physical concerns. Congress should aim for reform that is sustainable. To be sustainable, tax reform must produce sufficient revenue to cover the cost of what Congress Agrees to spend. It must result in a system that attracts and retains the Business Investment needed for the economy to grow. A system that leaves an unlevel Playing Field that continues to discourage Capital Investment and business formation in this country is an inherently unsustainable system. The elements of a Design System included tax rate competitive with the rest of the world in an International Tax system that creates a level Playing Field and eliminates barriers to domestic reinvestment. With respect to revenue neutrality, congress should focus on measures that close loopholes or eliminate provisions that distort investment decisions. With respect to international, the need to protect their tax base is self evident however all anti erosion measures are not created equal and the unintended consequences could be significant. The best measure is a welldesigned system. Starting with a low rate that attracts investment and reduces the incentive to avoid the tax system. The world is changing rapidly. I think we can any longer afford to look at tax reform as a once in a generation exercise. Once reformed, the United States must maintain a tax code that promotes Economic Growth and improves the wellbeing of all americans which will require each succeeding congress to examine the tax system and build on the prior reforms. To quote dr. Seuss, the time has come, the time is now. Thank you again for the opportunity to testify. Im pleased to answer questions. Thank you. Mr. Solomon. Mr. Chairman, senator wyden and distinguished members of the committee, thank you for the opportunity to testify on tax reform. Im here speaking on my own behalf. For many years, policy makers expressed desire to reform the tax code. Much has changed since the last Major Overhaul in the Tax Reform Act of 1986. We all recognize updating the code is a necessity. We hope we are at a climax in this effort and in the coming months we will see the enactment of significant reform. In march 2011, i had the privilege of testifying before this committee about tax reform. As i stated in my testimony then, the primary purpose of the federal tax system is to collect the revenues needed to fund the government. We would all agree the goals of an optimal tax system include promoting Economic Growth, minimizing distortion and supporting the Competitive Position of american businesses around the globe. In addition, our tax system should be as simple as possible for all americans. It should also be fair and stable. It should be administrable for taxpayers as well as the irs. Our current tax system is sub optimal in achieving these goals. We live in a constantly changing world. Economic, social and political developments, including accelerating advancements in technology are changing our nation and its role in the Global Economy. As a Global Economy evolves, we need to reevaluate our tax law to ensure they are responsive to current and in anticipated global conditions. It does not operate in a vacuum. As other countries revise their tax systems, we must respond to ensure our tax system is in the best possible position to facilitate outbound and Inbound Investment and maximize the welfare of the American People. Numerous tax bills have been enacted since 1986. The irs code is a patchwork of provisions serving a wide variety of purposes. As the code grows and administrative guidance interpreting and implementing the code also grows are in ominously complex tax system becomes even harder for taxpayers to understand and irs to administer. There is a need for tax reform. We need it to promote Economic Growth and reduce complexity. We need to fix a system that taxes some taxpayers are high effective rates and others that much lower effective rates because of special provisions. We need to reform to address the incentives to use debt rather than equity. We also need to address our inadequate National Tax System which creates a lockout of fact that encourages Corporate Taxpayers to keep their foreign earnings offshore because those earnings will not be subject to tax until they are repatriated. This repatriation tax is not a exist in other countries. We needed to reduce incentives for businesses to move their activity offshore. This has been ongoing debate for over a decade. Extensive groundwork has been laid. It is now essential to take the next se step and enact reforms to reduce tax rate, eliminate preferences, simplify the law, modernize the International Tax system and help American Workers and families. If possible, these reforms should be permanent. All of this should be achieved in a fiscally responsible manner. Everyone is aware of the longterm fiscal challenges our nation faces as mandatory Spending Continues to increase. We need to reform our tax system in a manner that does not disadvantage us in addressing our longterm budget imbalances. There are a number of important issues that need to be addresse addressed. These issues are described in my written testimony. They include whether reform should be revenue neutral, how much tax rates can be reduced, what reductions should be eliminated, how Cost Recovery should be handled, whether interest reduction should be limited, whether border adjustments should be adopted, what base erosion rules are needed and how to deal with passthrough entities for the list of issues that must be addressed appears to be daunting. Nevertheless its important to enact legislation as quickly as possible to end uncertainty. There will be compromises along the way, but the most important objective is to enact tax reform that moves the tax law in the proper direction. Theres a window of opportunity and it is important to act before the window shuts. In march 2011, i close my testimony by referring to the studying greek mythology about the fifth labor of hercules. His task was to clean the stables which had not been cleaned in 30 years. More than 30 years have passed since the Tax Reform Act of 1986. We must complete the task of reforming our tax code. Thank you for the opportunity to testify today. Thank you. We now turn to mr. Mazer. Thank you for inviting me here to testify and to discuss issues surrounding broadbased tax reform. The views expressed are my own. What i want to do is put some guardrails around the tax reform effort. Its necessary to have a serious conversation about making the tax system more efficient, more effective fairer and simpler. We must ensure it generates adequate revenue to pay for the goods and services that americans demand from the federal government. Today the tax system raises around 3. 3 trillion. Year for thats about 17 or 18 of gdp. This still leaves us with the federal deficit of about 500 billion. Year. In given demographic trends it will grow with baby boomers. If we are serious about getting our fiscal house in order, realistically we need to put higher revenues on the agenda. As you recall, last time we balance the budget, 1998 until 2001, revenues are in 19 20 of gdp range. The second guardrail is fairness. A commons have a term called horizontal equity. That means similarly situated people are treated similarly. This means a source of income shouldnt determine the tax rate unless theres a compelling reason to do so. So a construction worker should be taxed the same as the owner of a Construction Firm if their incomes are about the same. A teacher should be taxed similarly to a farmer and a lawyer at a partnership should be taxed the same as a legislator with similar incomes. To violate this notion of fairness brings into question the overall fairness of the system. The third guardrail is another version of fairness called vertical equity. That simply means those with the greatest ability to pay taxes should bear a larger financial share of the responsibilities of government. This concept is associated with this progressive system where the tax rate increases with income. The overall federal tax system today is mildly progressive and individual income taxes fairly progressive. The very top of the Income Distribution, the top 0. 01, they actually pay lower taxes than those with slightly lower incomes. A fourth part is simplicity. Its too complex for ordinary americans understand. This is evident by the robust tax preparation and software industries. A lot of the existing complexity reflects the complex world in which we live. Individuals and businesses can enter into almost a limitless number of possibilities. They reflect economic and social complexity and longstanding efforts. However, we all have been complicit in the growing complexity. Over the past three decades, increasing amounts of social policy have been driven through the tax code. These provisions might be an efficient way to deliver benefits to taxpayers, but everyone carries eligibility rules, calculations and these can overwhelm taxpayers with their complexity. We can think about undertaking tax reform with these guardrails in mind. Previous reform efforts, tax reform is technically difficult. There are a lot of moving pieces. Its more difficult politically. When thinking of true reform, key constituency break along geographic or demographic lines not partisan lines. And the third lesson, bipartisan tax reform may prove to be durable tax reform. It bodes well for playing the leading role in developing the consensus. There are targets for opportunity. Perhaps the largest is Business Tax Reform. My colleagues on the panel talked a lot about this. If we look back at the camp plan for the obama plan, there is a lot of overlap on what you could do going forward. There are a lot of smaller opportunities for tax reform progress as well. These include tax incentives for education which could be over viewed and simplified in a revenue neutral way to make them more effective. Theres also changes to income inclusion for Debt Forgiveness with student debt that could be addressed. Each of you have students in your states that have been victimized by unscrupulous schools and this cries out for an equitable solution. Finally, increased access to cash accounting. Another opportunity for low hanging fruit on the business side you can take some steps to improve the tax system. To sum up, the country would benefit from tax reform. Its politically hard but the benefits can be substantial and it should not make our medium and long run fiscal situation worse. There are big and small opportunities for bipartisan reform. Thank you for your attention. Im happy to answer questions. Thank you all. It has been an excellent panel and we appreciate you walking us through some of the history that is so important. Im going to start with the question that i think goes right to the heart of the debate. I would like to hear your thoughts and get you on record. The tax code is insanely complicated. Yet, determining the centerpiece of bipartisan tax reform should not be. The centerpiece needs to be creating opportunities for working families in america to get ahead. Especially policies that help increase their takehome pay so they can make those purchases that drive in economy for the consumer is responsible for 70 . I want to down the road and start with mr. Mazer to get your thoughts on the importance of focusing on the middle class and their opportunities to get ahead as a centerpiece. Thank you. Focusing on the middle class is really what you want to do. You want to make sure that folks in the middle of the Income Distribution feel that the tax system is fair and that theyre getting fair amounts of return on their taxes paid. A larger issue is ensuring there are adequate jobs in rage growth in the economy. Thats why linked the two, wage growth, more jobs and the middle class driving it. If you want to look at that, probably the area of Business Tax Reform is the one you could do the best, make the best progress. Okay tax reform will help all class of americans and create jobs and opportunity. Also the fact that there will be fewer distortions and we will make economic decisions more neutral and help the economy and all americans. Also, simplification will be important to reduce compliance burdens and simplification will help americans understand the benefits that are available to them to the tax code. For example, all the various Education Centers are very hard to understand. Simplifying them or combining them would be extremely useful. One other point is we have a voluntary compliance system and having a fair more understandable system will promote confidence in the fairness of our system. Missiles and, the importance of the middle class as the centerpiece of tax reform. I think tax reform is all about creating a stronger economy and a stronger economy will generate more jobs and rising wages and broadly shared prosperity. If we can get the foundations right for tax reform to increase investment, that will get us where we want to go. It will get us more jobs, higher wages. Good. Senator wyden, i agree with the notion that tax reform should be judged by how it increases the standard of living for the middleclass and others. I think corporate reform must also be judged by whether it increases job and wage growth and i think as i testified in my written testimony, i think we also have to make sure we increase opportunity for people at the lowend and the middle, at the outset because that will save us money in the long run. I think that last point is important. One of the areas ive been interested in and i know bob casey and mr. Brown have been very interested in is that we double the earned income tax credit and we got republicans in support of that. Question for you, maybe we will pull you into this as well, the trump plan proposes a special 15 tax rate for partnerships and what our limited liability corporations. I have a lot of concern about this. The 15 special rate could create a massive new tax shelters that would allow the wealthy to funnel their money through sham partnerships and limited liability corporations. The ministration nominee who we will be hearing from, mr. Carter has testified that this socalled late. He could be accomplished that simply by taking the amount of the taxpayers scheduled see income and scheduled each income and multiply that by 15 . Somehow this will be some hocuspocus. Now, what you think of this . Will this create a big loophole . It would be good for me. [laughter] because we are in passthrough form, but seriously, i think it could be costly and prone to abuse. I think you honestly do not want to provide, allow taxpayers convert Service Income into this special pastor rate income so it will be necessary to separate Service Income from capital income. In the past we have provided various ways of doing that through regulation. Those should be looked at. They are in their with the payroll tax area as well as the passive loss area and they think another thing that could be looked at is converting, providing some payroll tax credit to ta pastors rather than a rate reduction. Very good. Looking at the order of our colleagues, i think it goes next to senator casey and then senator isaacson, in order of appearance. Thank you very much but i wanted to start facing each of you have given the country substantial Public Service in the positions youve held in the United States government and you are continuing that service with testimony like this because it is critically important that as we take the time to consider ideas about how to reform the code and undertake an effort to put in place a good process, having your experience brought to bear on that is very helpful. Thank you for that continuing service. I guess will start with mr. Talisman and all jump over to mr. Mazer as well for the white house put forth a proposa proposal, a brief onepage proposal or outline and one of the features of that was to repeal, except for three, all deductions. I guess they exempted charitable home interest and retirement. I guess most would consider that a repeal of the above line deductions. Maybe a last the whole panel. It might be easier to go from left to right about what you believe the impact of that would be if you had enacted the tax reform bill that would repeal above the line deductions and deductions like state and local tax seduction. Senator casey, the state and local Tax Deduction was put in place and kept in place because of notions of federalism and the ability to pay and also to protect double taxation. We actually provide a federal tax credit and no one views that as an expenditure and also provides double taxation relief. Eliminating state and local Tax Deduction could be viewed as an Unfunded Mandate because it will make it more difficult for states to raise revenue. I think we also have to look at the collateral consequence of getting rid of the state and local Tax Deductions that also has an effect indirectly on the charitable deduction as well as other itemized deductions. Missiles. I think this is proof that the idea of simplifying the tax code is incredibly difficult. I do think all the itemized deductions should be on the table for consideration. One of the things the Treasury Department looked at when i was the assistant secretary was a plan to get rid of the alternative minimum tax by putting both a floor and a ceiling on state and local Tax Deductions. It would have a progressive effect on the income tax because the deductions queue toward the income spectrum. I think its a complex issue but i do think its important to look at the positive aspect of limiting it in some fashion. Thank you. Senator casey, i would like to approach the question from a slightly different direction. One of the objectives of tax reform is to lower rates on individuals and broaden the base. All of this is part of a larger fabric, and in order to determine which deductions one might to only want to eliminate have to figure out how much they can lower the rate. The lower the rate, the more desirable. It will be necessary to put all this together and go through on a deduction by deduction basis and decide if the benefits it brings are worth the additional complexity. Unfortunately, as pam pointed out it is a very difficult process that requires determining how much we can lower the rate and looking at the value of each particular deduction. For example, the Home Mortgage Interest Deduction is to provide charitable contributions but i think it will require the analysis for both of those elements. Senator casey, as you point out the Trump Administration tax plan was basically a onepage outline. The Tax Policy Center did an analysis of what we know and dont know about it, and basically the take away of it are that it cuts taxes a lot by trillions of dollars of the budget window. There tilted to a high income individual. Even though some the deductions are taken out come the benefits of those are tilting more to the middle. Third, a significant fraction of families would actually see a tax increase under that plan. Either those who had large deductions that were taken away and they were compensated for by rates to lower their taxes overall. I look forward to seeing more detail from the ministration. Thank you. Senator isaacson. Thank you. Let me follow up on what Ranking Member wyden asked. He asked what would be most beneficial and helpful to the middle class. I think everyone of you in whole or in part talked about the Corporate Tax or the business tax because that tax rate will have the ultimate effect on the middle class because thats the money from which they make and spend from et cetera. Ironically i was at a dinner last night with two major corporations in the United States. Their competitors both in the same business. It is not a private meeting, is not a violation of any antitrust laws. We were learning about them what they thought about tax reform. Both of them, in the course of the conversation said the effective tax rate they paid in the United States with 34 . They have one major form based competitor whose effective tax rate is 19 . Youre getting to the point where the taxes the differential on investment that competitors would make in their companies which in the end will determine where the money will go. Are we at the point where we really have to take a look at our competitive business as a nation and look specifically at the tax code to make it more fair . If you look at the United States Corporate Tax system, we have just about the highest tax rate in the world. We have an effective tax rate around the middle of our trading partners and that indicates it should be possible to broaden the base and lower the rate and get the rate down. We will never have the lowest tax rate in the world, i dont think you want to get to a race to the bottom, but with some serious thought about tax reform, we can lower the Corporate Tax rate and get it down to where its within shouting distance of our trading partners. Just to go down, how many of you are familiar with the proposal which is to convert from an income tax to a sales tax, what is your general thought, dear but i thought at all . My basic thought about our tax system is that we have a portfolio i portfolio of taxes, some based on income, some based on consumption. We payroll taxes. Having a consumption tax would make some sense, almost everyone attorney partners have a valueadded tax. C can imagine having that is part of a portfolio tax. A shift from income to consumption taxes a huge change, and probably beyond the tolerance of the American Public to address the change. But, having a consumption tax as part of the portfolio its like what every other country does. I included support for a consumption tax as part of a portfolio in a written statement. I think the approach that professor michael has been advocating for number of years as well as a bill introduced by senator card would take us long when that direction. It would match our system with the tech systems of other countries. Which is how those other countries have managed to significantly reduce their Corporate Taxes and create a system that is more conducive to investment. Most important thing is if we make it changes how you convert the taxpayer from the old system to the new one. One of the big problems we had an 86 was passive loss. The clawed back and change the treatment of passive loss to change the treatment of investments and the Balance Sheets of corporations particularly Construction Corporation corporation so transition is critical. Just add, even the income tax is a part of consumption tax. There are many aspects of the current income tax for example Retirement Savings are not subject to tax. So even on what we considered an income tax is a hybrid of those high things. If we are to move to a consumption tax, transition is an important issue. I think dealing with Income Distribution would be an important aspect to understand how it affects the Income Distribution. Also if you switch to a ca consumption tax youd have to think about what rate it would be imposed on and what effect that would have. Thank you for your testimony. It is interesting. I appreciate very much the panel being here and one of the first hearing were having a tax reform. Its a little disturbing. Its down to Johnny Isaacson who are only still here. I thought it was interesting when we talked about the issue, at least at first the panelists quoting star wars, dr. Seuss and greek mythology, not sure what that meant but i think it was how challenging this is. I want to make it, then ask a question. Heres my worry. And i agree very strongly i want to do tax reform. I want to bring large corporate rates much lower, be believe very strongly that we need to do with repatriation and bring the earnings offshore, back. But as someone who spent a couple of years trying to put together a plan, i really worry whether we will ever have the wherewithal to really make the tradeoff you need to make in terms of broadband the base to lower the rate. Six or seven years who, eight years ago, the on corporate was the democrats are more 28 democrats and 25. Because the world has not stayed static, i think we see many of our industrial competitors lower their corporate rates down closer to 20 and the administration looks at a rate thats closer to 15. My memory serves, and correct me if im wrong that the rule rulef thumb is that for every point you lower the corporate rate youre talking basically 100 billion per point. Its fairly straight math. One bring it down to 25 you have to get rid of raise an additional trillion dollars. If you want bring it to 15th here to bring it down to trillion dollars. One thing i dont think my colleagues realize this is where we have to keep, facts is that if you add up all of our state, federal, and local taxes combined america ranks as one of the lowest taxed industrial nations in the world. The data i have shows that america is the 31st out of 34 nations. So, you hav start with the hight tax rate when you look at collections where 31 out of 34. What i worry and this goes to where senator isaacson is that. All of these nations my friends and business like to refer to that have Corporate Taxes in the low teens, theyll still raise dramatically more revenue than we do. We are at about 24. 5 of gdp. I think it is unique. A lot of people refer to germany and their great programs and they raise close to 35 or 36 of the gdp. Do you think we realistically was some rebuilt and biases that we have on our tax expenditures, every business is for tax reform until comes to their tax expenditures, that we can never get to a rate that would keep us competitive. For arguments sake lets say that is low 20s on the corporate side, by actually broadening the base and lowering the rate. Or, will we not have to look at what senator isaacson said, looking a carbon tax, look at some other broadbased revenue raiser that will allow us to bring down rates for competitive level. I would argue hopefully on a permanent basis, ive no interest for another shortterm tax holiday without some broadbased new revenue source. We can start at the other end and could on the list. First, a near 100 billion per point, its true for the first point, but each point gets progressively more expensive. Its even more than to join. And masterson see rates, doesnt talk about exactly. The second point that you had on is that if you want to look at other countries with a low corporate rate you need another revenue source. It could be evaluated tax could be something else. But, you cannot just broaden the base. Correct me if im wrong,. I would just add, i think its important to take the steps as far as we can go to get the rate down and it goes back to my answer to the previous question which is how far do you want to push the rate down. Do really want to push it down you have to take on a lot of the tax expenditures. To we say lets tries hard as we can on broadening the base and then if we want to get to 20 you can put whatever that delta is you could put. Then he had to make the hard decision of whether not you want to move to a consumption tax. During this process at the present time if you want to push the rate on you have to give very hard thought to a tax expenditures. And then the question is how far you can get it down. I doubt we could even get to 25. I agree. I think ill be very difficult to eliminate enough tax expenditures to bring the rate down. I certainly agree that our low tax country compared to the rest of the world. But the differences in the portfolio taxes of other countries look to and what they do to make up the difference that makes them to put a more attractive rate out there is that they have a but valueadded tax as part of the portfolio. Do as much as we can, but at some point were going to have to come back. In any event to look at another tax to add. Those valueadded taxes can deal with border adjustment. I will take the leaders direction because they have said everything i would have said. I think this goes to what the bipartisanship and martek getting to the American Public is important. The only way this gets to is for these difficult issues to get sold to the American Public that this will raise their standard of living. Anything you do that will bring down the corporate rate, few raise taxes on the, through a consumption tax or tax expenditures that has to be sold is something that is going to be good for them in the long run. Were going to have to move on. Thank you mr. Chairman the president s tax proposal in the House Republican blueprint called for the elimination of the state and local tax reduction which would hike up taxes on thousands of new jersey residents and millions of americans across the country. The purpose of the deduction is to save families from double taxation by the state and federal government. Nevertheless, the Trump Administration have advocated for its repeal, arguing the federal government should not be subsidizing the tax and spending policies of individual states. Now, i find it hard to understand. And i think youve had a little dialogue on the. Bill , if one believes, do you believe its fair to force individuals and families to face double taxation while large, multinational corporations are able to avoid such treatment . As i said before, i think the state and local taxes about the ability to pay. I think the foreign tax credit is about double taxation as well. It is not listed as a tax expenditure at the state and local Tax Deduction is. If we eliminate the state local Tax Deduction we have to be worried about collateral consequences. Obviously are state governments will be putting more pressure on them to Fund Instruction education. Those issues would suffer if we were to remove state local tax reductions. It actually could be treated as an Unfunded Mandate except is [inaudible] the funding site, its on the tax side. I am concerned about it and i appreciate the question. If one believes the state local tax reduction subsidizes progressive state seem to follow the foreign tax credit subsidization with american tax dollars, dont think thats a far stretch. I dont know if we get to a logical conclusion of the argument of that is being presented that we would not be adverse to the idea that Foreign Corporations get the deduction and they are getting it in essence abroad for activities abroad that ultimately i think so my republican friends would find more objectionable than what state local municipalities are doing. Do you believe that the president should sign a tax reform bill that raises taxes on almost a quarter of all middleclass families . Id open that anybody. I think if that is all that day, no. You have to look at the totality of the bill. Well, my focus on this committee, part of what i want to do is help middleclass families afford a home, education retirement. While on the campaign trail the president promised to cut taxes on the middle class. What we see under his plan it at least the schematically we have is that the top 1 of millionaires and billionaires we would receive half of all the tax cuts and getting an average of 175,000 back columns one quarter of middleclass families would actually see a tax increase. I dont know that is tax equity at the end of the day. How to help middleclass families in that context. Let me ask you this, is it fair to say that doing tax reform under regular order is more preferable than reconciliation, because of all the policy restrictions that come with reconciliation. Anybody who wants to answer that question, can you elaborate on the weakness of doing tax reform through reconciliation . I think reconciliation first you need a budget resolution which obviously somewhat difficult to get as we saw with healthcare reform. Secondly, once you have a budget resolution in place, the margins are narrowed into any dispute could cause the bill to fail. Finally, most importantly thing going with your question is, as i called my testimony you bring in the bird whirl and other procedural protections and then reconciliation. It could cause you to then engage in gimmickry to avoid them. Therefore, like we sense the 2001 and 2003 tax cut because of the bird role. That is an example. We would have to do things to avoid that in the context of something that was run through reconciliation. Whatever consistently through leaders across the country is giving predictability dont know that reconciliation does that. The administration is advocated changing the way the cost of tax legislation is calculated or scored for the purposes of analyzing its impact on the budget. As i think you know, different dynamic scoring models produce a wide range of results depending on what the assumptions are. The joint committee on taxation is a nonpartisan, highly respected institution that provide members of congress and general public with objective analysis regarding the cost of tax legislation. To agree that congress and the ministration should continue to use and respect a nonpartisan joint committee on taxation is the ultimate arbitrator on the cost and impact of tax reform legislation . Is a joint tax alarm of course i would say that. Even as a taxpayer, that is the right thing to do. Look at a professional staff of the Tax Committee and look at the expertise in the where the hell congress get to rational decision. Anyone disagree with that . Years shaking your head so for the record i would say those are all that everyone agrees. Thank you mr. Chairman. I want to thank all of you for appearing here today. We have collectively people who have served in the last three administrations and thats particularly a valuable asset to this committee as we continue to work on the tax code. Todays tax code is overly complicated and burdensome. It is not kept pace with changes in the economy making it a major dragon economy. Im hopeful we can change the code in a way that fosters greater Economic Growth and that benefits all americans. I want to come back to the pass through rate. The Administration Tax reform in the house blueprint propose a separate tax rate through businesses, lcs, and so proprietorships. This is an area we have been exploring in particular detail. It sounds simple, tax income earned by pastor business at a separate rate which super proposed be tied to the Corporate Tax rate. As he dig deep are there are number of challenging questions. For example, how do we account for passthrough owners who are actively engaged in the business and treat them similarly to the owner of a secor corporation thats also an employee. Should the passthrough tax rate for active learners be based on the return of the capital that they invest in the business or compensation that they pay themselves . Recognizing only escorts can pay on employee wages. If so, how can industry and geographic differences be taken into account. How do we create and echoed a bowl system that treats everyone similarly. Finally, how can a pastorate take the factors into account that will be administrable for the Business Owner and the irs . These are a few of the issues that arise as we swear the propose separate rates. Some offer thoughtful approaches that begin to address these issues. Like reform in the taxation a pastor businesses and i would ask unanimous consent to insert a copy of this into the record. I wanted to put that out there in terms of framework and would welcome her thoughts on these issues and the concept of a passthrough rate overall anybody who would like to take that off, no erased a lot of issues. If you care to come out i would appreciate. Thank you for your perspective. Obviously the argument must first take into account the fact that there is a double level tax unsealed court corporations. Also designing a pass rate is difficult as you allude to. It could be costly and so we would have to figure out ways of constraining it. Also making sure it is not prone to abuse. Differentiating Service Income from capital income has been a nutty issue for all of us over the course of many years. We have put our regulations in the mid 1990s the subsequently got withdrawn that may provide some framework for what you are trying to do. Again, i think it is a very difficult issue and difficult to constrain. I think the report you are inserting the record does a good job of setting out what the alternatives are as well as what issues are. It is a very complicated issue. When that will be difficult to administer going forward. Want to go back to look at the 19862nd look at what happened there. In 19 a six week at the individual rate to 20 . Set the corporate rate of 34 of fully taxed dividends and Capital Gains from corporations at 20 . The result of that disparity was that we drove all sorts of business out of the corporate sector and into the passthrough sector. The incredible growth that we have seen in lcs, partnership started when that was enacted. If were to do corporate report we be the corporate solution more attractive than being a passthrough solution we see as we did back in the late 80s, migration out of passthrough reform and into seed court form. The problem could take care of itself. I would just add that if one is going to level the Playing Field by taking or eliminating from the code various deductions and preferences that would also us go through passthrough entities. The Way Partnership works as you know, the distributive share flows out to various owners of the entity. Stripper s corporations, partnerships in lcs. What you have to do is create baskets of income. Once you incom identify the basf income related to active business that would flow through with a lower rate. As my colleagues have pointed out you will presumably want to figure out a competition element. And thats to figure out what the competition element is. Either you can use a reasonable compensation rip approach but that is extremely difficult to administer. It may require formula, for example to treat a certain percentage of the income or to figure out the capital contribution the owner has made an earnings on that to enjoy lower rate and the rest might be subject to a higher rate. This is a very difficult issue to figure out exactly how the compensation element would be calculated. I have another question. Im out of time so submit for the record. Has to do with the gig economy and tax rules that apply. Well have to take a whole new look at the and we have a bill that does that. Im another who thinks this is an area that needs to be looked at thank you mr. Chairman. This has been terrific. I enjoyed the testimony. You are all four experts from various a ministrations, republican and democrat yet if i consensus to the fact that not only is it broken but remarkable consensus on how to fix it. As i listen to you and listen to testimony im reminded of the fact that this is not new. Let me quote missile since testimony, your efforts are timely particularly of light of the Global Landscape and we must become a set of the changes shaping other countries tax systems. She said that six years ago. At the same hearing were three of the four of you were present. And all you said something similar. It is not just a question of finding Common Ground today. I think you been on this for quite a while is this basic proposition that we need to broaden the base and lower the rate, we need simpler system and a fair system. The devil is in the details and the details are important. How do you deal with the passthrough entities if you have a lower corporate rate the differential causes some unfairness in my view. Yet, the prescription studio that mr. Solomon just talked about some of the ideas to not take with the complexity of the tax code. Its not just that there difficult philosophically, stress that once you find them the compliance is going to be a huge problem. Limited staff, do you agree that . Not in your heads, and so we need your help on that. I want to go back to something that senator wyden said earlier. I think its really important weve talked about this. We dont focus enough on why. A lot of it has to do with the very real problems in our economy which is slight growth and better job numbers in the last several months, but no waste growth. When you take it into account wages are flat. This is one way to provide some Economic Growth but also waste growth. Kevin the incoming counselors is 1 increase in Corporate Tax rates wages decreased to 1 . A 2009 study famous cbo study i refer to a lot so 70 of the bird on the corporate side, the higher taxes we talked about todays on workers. Have higher pay, and benefits if you can deal with the fact that the United States i am here to say in 2015 be for this committee and testified said 67 of the bird of our high Corporate Tax rate in the way we tax on worldwide basis falls on workers. So, you want to get wages of, this is great opportunity to do it. I know pr h tax reforms are. About remarry tax reform is mandatory and we have to do it. A mask about an issue thats interested act ability. Along with passthrough issues been a tough one. Can someone tell me maybe you mr. Sullivan, is the preference over equity finance versus Debt Financing and Economic Policy issue that you think is important to adjust . If so what would you do about in the tax code . In the code today theres a difference in the treatment between dividends, the payment of dividends in the payment of interest. It creates distortion. Having Additional Data in the system encourages systems to take on debt. It may affect the relative proportion of the debt. Thats an example of a distortion in the tax code but as you try to level the put senator hatch has been talking about making dividends deductible. Another way is to if the house bill does a deductibility of interest. Any thoughts on it . I testified in my testimony that i thought corporate integration was better approach in going after interested act ability. Based on my discussion with capitalintensive businesses come interested act ability is more important to them than most other issues. I somewhat disagree with my colic here, eric, because i believe that the debt bias is not led to over leveraging based on the research ive seen recently. In the nonfinancial sector. We have to demonstrate the distortion is actually having negative economic consequences. I agree. I think of better approach would be to go in the direction of corporate immigration rather than limiting the deduction of interest. There are a lot of businesses that depend on Debt Financing because they dont have access to the equity markets. These are some things need to take into account. We see a lot of other countries have put limitations. So theres a theme out there internationally of doing that. I think the limitations of other countries have put a are not so severe that they actually impede companies from getting the financing the need are being able to deduct the scent of that. Does it simplify the tax code or make it even more complex. We ask them to do more than is humanly possible and change the tax code at the last minute. With not enough people come money or Technology People somehow make it all work. You know how that works. They make collections and go after people who dont pay. Its like underfunding your accounts receivable. No rational business would do that and theres a number of studies that show a number of studies show that if the irs gets an extra thousand dollars, they will bring back an extra 4,000 or 5,000 in revenues, so it pays for itself. Anyone else please play along. As we know they collect the revenues that are needed to fund the government, and so it is very important that they have the capability built in services and enforcement to collect the revenues called for by the law in a fair and efficient manner. I agree with all of that thinking back to the Credit Card Company that senator portman used to talk about in the 1990s when he was a part of the Restructuring Commission that looked at restructuring the irs and the kind of service that you expect American Express doesnt come back two years later and say about that well. We need to find time to make sure they have the technology they need and to make sure in particular with all the Identity Theft and Cyber Security going on that they are able to safeguard the information they collect so its important to make sure they are adequately funded. Agreeing with mark about the one out of four, obviously we could reduce the tax gap, reducing the tax gap helps the perception of fairness of the code and what happens obviously one of the things we did this shut down the loopholes and we are also putting additional responsibilities on the irs without increasing the funding. One example of that is healthcare reform. We brought a lot of healthcare reform. There is a service that we havent increased their funding. But we ask a question, i ask a lot of yes or no questions that i would be happy with a yes or no on this one. Did you think the administration has a responsibility to put out a rigorous and well thought out opening offer on tax reform, something beyond what i think is a vague principle . I think that it is essential because the president and other leaders that want to push for tax reform market whatever they are trying to market for the American People and demonstrate that its going to increase the standard of living. Others . The Treasury Department has enormous resources that could offer a lot in the consideration of tax reform. Thank you. Anyone else . Spit it is bipartisan a way to achieve tax reform. How important is tax reform i just saw a news report that says the budget deficit was posted wind down about 400 billion now last year it was up to about 575 so far adding for 100 plus billion dollars for the current fiscal year we could be looking at 700 billion. Is that something that we should we need to be concerned with the medium and long run fiscal. They make the situation worse. Its like digging a little deeper. As i said in my testimony, the tax reform should be achieved in a fiscally responsible manner and we all know that continuin will contine need to do reform but in a way that doesnt disadvantage us and balances. I addressed this in my written statement as well. We need to look at both sides of the ledger. The spending is growing out of control and we need to take a hard look at it but we need to be fiscally responsible and tax reform has to be sustainable. That means generating enough revenue to agree with that. I agree thats what i said in my testimony as well. We need to move everybody into it than in 9 11. The highly mobile intangibles weve seen a lot of these issues as one example and others do as well for u. S. Multinationals using the tax rules in the associated earnings offshore. How do we handle this if we are going to do tax reform is it just a matter of lowering the corporate rate so that it doesnt cost them to move overseas and if we cant because you mentioned earlier its so expensive to lower the Corporate Tax rate can we get it down maybe not. How do we balance this ability of folks to move overseas down the road if you will. I think that obviously there are approaches that are being looked at in the International Tax reform regarding the structure that could help address the issues. We obviously do have to look at the transfer of the rules to make sure they work appropriately. But the chairman and the senator had he cared and sticks kind of approach to encourage it to be the domesticated into the United States has taxed at a rate commensurate to give the first right of taxation and not the first measure is a welldesigned tax system because if it is well designed that will attract and come back to the country. That is going to start with a rate that is competitive and the rest of the world. We have got to get somewhere in the ballpark and right now we are at the top so thats the first thing. The second thing that i think we should look at is a consumption tax base to ensure that they are taxing the value that is delivered in goods and services. The consumption tax has an amount if we are going to speak about taking care of the working middle class families, they are the ones that pay a greater of their income and obviously taxing consumption. But again i have to note folks have more disposable income because of the consumption tax. I would note it does seem to we have conflicting goals or priorities. There are a lot of ways to address the consumption tax they would include the tax burden in other ways that could be done through the expanded tax credit and taking more people off the income tax rules so there are lots of ways to deal with those issues. I dont necessarily always agree with economists but in this case i do think they are probably right when they say the consumption tax base works with Economic Growth and will encourage more. They think of a failover is here and raise it there it turns out if it is 20 higher than it was i may not buy it. China and germany have a consumption tax that they promote but they dont consume as much a. So they would say it if all the wash but im not sure looking at the higher price i digress. I would add though over rates will produce some of those incentives. The question is how low we can get the rate down to a. It seems like some of peace hightech companies have low effective tax rates and so how much lower can we get 20. Even on the income in the United States to get a little effective tax rate. So, how low can you go. Youve got to be quick because we have a lot of colleagues waiting. If you were going to move to a territorial system you need to be concerned about these issues and that is what my colleagues have said. If you have a tax of say 15 , then no matter where the income is earned its at least 15 and thats the way to kind of stuff the rate to the bottom and keep a minimathe minimal amount of tr the transfers of intangibles. Let me thank all of the witnesses. This is extremely helpful tax reform in order to be successful there must be certain conditio conditions. One is an open process of transparency. Weve been talking about that. This hearing helps us and talking about these issues and i want to thank the chairman for convening this hearing. I hope this will help to proceed in an open way with the committee being engaged. Second, it has to be fair which means the taxpayers shouldnt pay any more of the cost of the government percentagewise than they are paying today and most members of congress agree we want to make sure this isnt an additional burden on their families. And we will raise the revenue we said we wanted to raise. Ive listened to the x. Changes as the desire to reduce the marginal tax rate and i agree with that. The point is well taken but there is distortions as a result of high marginal tax rates. Planning is gone in order to avoid the taxes which isnt always in the best economic interest of the country. And also able to liste i want te exchanges with my other colleagues as to how we can get down to business tax rates in the income tax code and the senators point about everyone of these issueevery oneof theset to achieve is correct we have winners and losers and the losers are not going to be quiet and its going to be difficult to get that done and to get up to the revenue we need if you just give 10 reductions about a trillion dollars to deal with those that have passed through incomes or use the individual rates spent 1. 6 trillion to get a 10 rate reduction which isnt easy to find a real offset equal to those members which brings me to the exchanges we had with several colleagues and im glad we are talking about it as a consumption tax because there is no other way to give competitive marginal tax rates in the country without bringing different revenues into funding the government other than income tax revenues. I appreciate your written statement. Economists across the spectrum concluded consumptionbased taxes are a more efficient way of raising revenue in the open economy than the Corporate Income tax. So, the two Major Concerns be heard today, while middleincome families pay more, something i said i would not support so i want to take a look at the progressive consumption tax i filed working with those that do the scoring at the Tax Committee to make sure the middleincome families will not pay any more than they are taking today. You are correct there are ways of adjusting the other parts to make sure that this is progressive. But then theres concern on the other side that it will raise more revenue than we say we are going to raise. Thats been an issue of many of my colleagues. One of the conditions as we raise the revenue we say we are going to raise and in my progressive consumption tax we have a way of additional revenues if it is over what we say we are going to raise and therefore we will not be adjusting to grow government we need to make sure we have the revenue we need not an exercise of groping through the tax reform. What am i missing here . Is there a way of getting this done fcc in the political system without bringing in the consumption of. I think that adding a consumption tax wit or value add tax to the portfolio would go a long way towards making the tax reform easier. Would make thit would make the e competitive as a place to invest. As i look out into the future, weve got a rising difference between what we expect to be collecting in revenues and what we expect to be spending and we have to find a way in addition to making tax reform easier to close the gap and it seems to me to be something that is a very viable alternative that should be carefully considered by the committee. I appreciate that. Thank you mr. Chairman. You made a comment about imposing a minimum Global Tax Rate of 15 . How does that work when companies invert in th no longer American Company . The issue is how do you Text Companies that have the jurisdiction to sue in the case of a company thats a had an inquired there still is a u. S. Entity subject to u. S. Tax and you want to ensure there are sufficient rules so that it cant just shift income that is subject to u. S. Tax abroad and have it subject to the lower tax rates abroad. Is it really that tight on the rules one approach in case of shifting intangibles and comes is to have a global minimum tax so that no matter where the income is pushed around the world is still subject to some minimal rate in the u. S. But there is additional tools as well so its like a builtin suspenders approach to ensure that you have enough of a book under the u. S. Operations to subject them to the tax. Next question for mr. Olson perhaps. We have a number of companies that do businesses around the world selling major turbines around the world. The Current System of the global taxation seems to be a major impediment growing job with the economy and here at home. Can you talk for a few seconds about the improvement that could be made to the National Economy if we went to a specific territorial system that allowed for the companies to bring home their resources and build plants here. We really do need to get rid of the system that is the worst of all possible worlds a system that doesnt raise a lot of revenue because it doesnt encourage earnings to come back and results of the income being invested somewhere other than the United States, so the key is to look at bringing the corporate rate down to something competitive with the rest of the world and to fix the International Rules so that we do not have to walk out of the. To briefly add to that as an example of the situation is a situation where you have a u. S. Company wanting to do business in a foreign country and if the money is subjected back to tax. They wont be subject for the repatriation so if both are trying to compete in a particular country, a company that doesnt have a repatriation tax will have an advantage. In my last minute so, any questions . If you will walk with me through the process of reducing with 35 from the 22 or 23 for repatriation we currently have 6 million jobs that are open, so we create a million more if we dont than the conversation and tax reform, Regulatory Reform making sure the workers are able to do the work that we are creating and that weve shortchanged our economy so my question is on using the tax code if we are not absent at all what we want to focus more of our attention on the apprenticeship programs and vehicles to make sure the workforce that we have is prepared for a. Thats something that focuses on the fact we need to constantly be retraining. A lot of us are spending a long time here for the bipartisanship right now. The reform should be bipartisan. It would be profitable if it were bipartisan. I included that in my testimony. I would once again turned to the chair man and say mr. Chairman, though we have a hearing on the tax reform bill . Will the republicans allow us to have a hearing in the finance committee on the proposal that is going to restructure our tax code, is that going to be possible . Do you have any idea as the Ranking Member . Im asking my question again. Im asking you what we have a hearing in the finance committee on the tax reform proposal you all plan to vote on on the floor of the senate . Wouldnt that be the normal order . Yes and no. It depends who is running a. Thats great to hear, mr. Chairman. I am a new member and i had this idea that i was coming to this committee to actually consider important items of finance to the government and there are no more important than the structure of the tax code. There is nothing that is more impactful on the economy or businesses and job creation in this country than the tax code. If we cannot have a hearing in the United States senate on the committee on finance, on tax code reform, then i dont know why we have to this committee. Im very hopeful that there will be a proposal. You said in your Opening Statement you hope the democrats want to work on tax reform. You were not sure they wanted to work on tax reform. I can assure you all democrats want to work on tax reform. We all want a seat at the table, so i am imploring you to use your influence on senator mcconnell to allow us to have a hearing in the committee. Thats what this hearing is about right away. That we dont have a proposal. This is all hypothetical policy and thats great im glad we are having it, but this is not on a proposal that would actually change the tax code. We have nothing in front of us in terms of proposal. Nothing from the administration or the majority. Its a far cry from the finance Committee Hearings that you send through for decades in the senate that have looked at the specifics of legislation. Im listening. Okay, good. I am so glad you are. Lets talk about the temporary tax code changes versus permanent. If we go through the partisan exercise reconciliation, those tax code changes would be temporary. They would only be good for ten years. I would ask any of you to comment on whether or not it would make sense to make major changes around the deductibility of interests or territorial tax systems if the Business Community knows that these only a ten year window. I would say i think the permanence of changes is preferable that businesses want certainty. They are making longterm decisions. They basically deserve to know what the years are going to be in years 11, 12 and 13. Certainty is very important. The more significant the change, the more important something being durable longterm sustainable is. If we were just doing rate changes, thats one thing but if we are doing structural reform, thats a whole another set of challenges to do on a temporary basis. You will have a much Stronger Economic effect of his lasting reform. I agree. Planning is difficult if they are not permanent. And as we say, structural changes are important. Another good reason we shouldnt be using reconciliation to make major tax structure changes since it is only a temporary change in the tax structure. Thank you mr. Chairman. Mr. Chairman, thank you and i want to think you hav thank youe Ranking Member for holding this important hearing and the witnesses also for being here. But maybit may be the second too questions here today so im going to anticipate the most questions im going to ask you a perhaps have already been asked and part of your testimony that im going to ask anyway. I am from the state of nevada, and it was hit particularly hard during this Great Recession and ive seen a lot of recovery. But we have a long way to go. The question is what is standing in a way of the full recovery and i do believe a tax reform package, comprehensive or changes in our tax code would go a long way to see some of these changes. I want to thank the chair man for holding this hearing. And my discussions with him and the white house and the house of representatives. They do by september 1 want to have something in concept around september 1 so that we can have open hearings. And i know the tendency is to have open hearings so we can discuss in details some of the concerns that my friends from missouri may have. But back in 1986, one of the key elements of that act which is the last time we had tax reform was to broaden the tax base to reduce tax rates and simplify. I guess my question for the panelists and i will start with you, mr. Solomon is whether you believe those key product is broadening the base and reducing the rate simplify the code is still the key moving forward on this proposed movement of the tax exchanges. I think they are very important and i also think revising the International Tax system is a very important part of this for over the crossborder activity that occurs and will be increasing over time. We talk about these words, broadening the base, reducing the tax rate, simplify the code. Each essay. What does that mean for the average taxpayer . It might not have an effect because the average taxpayer today isnt necessarily affected by a lot of things, so they may not be itemizing deductions for example. If you do the above simplification you could do things like greatly expanding the bracket for the standard reduction that would take people entirely out of the itemized income and that would have a very positive effect on them without and reduce the recordkeeping burden and make it a lot simpler. So there are things we could do that would involve broadening the base and greater simplification, all these things we do with the positive. I dont want to make this an exercise about washington, d. C. I want the average taxpayer to know if we go through this activity and this process that theres something at the end of the day that works for them. I had a meeting at the white house to talk to the treasury secretary, and one of the things he mentioned i cant remember the percentage, 85 or 90 , but he wants them to be able to take a look and calculate their own taxes. Its going to get complicated for some but for the average they should be able to calculate their own taxes. Is that a worthy goal moving forward . Simplification is a goal we should try to achieve a for americans to think the tax system is fair. The Important Role seems like a ritual we all participate in. If you understand what it is i think we can use technology to do this. People talk about firing a tax return on a postcard. Everything gets downloaded electronically so if you pick up a little bit you could have a situation where they understand what the rules are and how to comply. Its simplified and weve done a great job of. Youre not going to get a giant improvement take away the things that are a bit unfortunate. I will make the numbers up with conventional scoring at about 700 billion a. Of us doing things like making the credit permanent and some other permanent so 16417. Thank you senator nelson. When i was a young congressman, i happened to see tax reform and see if passed in 1981 and then some of the things that were mistakes in the 81 bill were changed in a comprehensive tax reform in 1986. You couldnt pass either one of those without bipartisanship. I would like to ask you all with your experience and your expertise on tax do you want to venture a comment about passing just with one party as opposed to bipartisan . If you want tax reform to be durable and last you want it done in a bipartisan way. I think that is pretty obvious thank you for reaffirming that. I still have money left over. They could find a way to get in the longterm revenue natural way the Corporate Tax rate from 35 to 28 and generate a couple hundred billion dollars for infrastructure so the reduction is the corporate rate. On the individual site goes back to the point that eric and pam were making it basically depends on how bold you want to be too how low the rates can go. Anybody else want to venture . What rate individually on the corporate side as was just mentioned. Weve got trillions of dollars in needs in infrastructure, so what would you have to take individual rates to have lets say a trillion dollars for infrastructure . That sounds to me like youre talking about taking the rate off. In tax reform. The 2014 Tax Reform Act took the corporate rate down to 25 who took the individual rate to 35 and earmarked some revenue for the repatriation of the earnings for use as infrastructure spending. Just want to note theres an awful lot of capital that would be invested that is offshore. Some of biggest u. S. Corporate cash and theres also a lot of other funds available. I was over in asia last week and heard an awful lot of capital available for investment in the United States and in particular with an interest so if we get the tax system reformed, we may need some more treaties and neet needs to address issues in the tax code that are financed infrastructure but theres an awful lot of capital around the globe that would like to help with our infrastructure needs here in the country. As i mentioned before, earlier this morning and how we get the individua individual brn depends on the credits and other incentives you would eliminate. Thats correct, the tax expenditures. I will summarize my comments and my thoughts which is why i asked the question of you all. If you get rid of a lot of the tax expenditures which will allow you to then have to revenue to lower the rate both corporate and individual, you can design back in a way that you still have revenue left over a ten year period in order to invest in infrastructure. The only way youre going to get to that goal is to do it bipartisan. And thats the bottom line of my comments. Thank you mr. Chairman. Thank you, senator. We want to thank this group of experts for taking the time to be with us today to give their excellent testimony. We are grateful to you, most of a few that have been here before the committee a number of times you just cant tell you what it means to us. But now we are going to shift a little bit and consider the nomination of mr. David to serve as the assistant secretary of treasury for tax