Its my pleasure to announce the next speaker. Introduce the next speaker. He is the president of the American Action forum. Hes been a guest many times tamt Tax Policy Center and were always happy to hear him and hear the wisdom hes going to im part to us though he claims hes not. Doug has held many hats. Been an academic at syracuse university. He was director of Congressional Budget Office between 2003 and 2005 and worked on the president s council of economic advisors and early Bush Administration and he was director of the economic chief economist for john mccains president ial campaign in 2008. So he will hear maybe a different perspective from doug, but any way im sure you want to hear what the destination based cash flow tax is all and. Ill turn it other to dug. It is always a pleasure to come to the Tax Policy Center and i appreciate the chance to talk about this. Im at a little bit of a disadvantage because i didnt get a chance to hear everything that preceded me so im probably going to repeat things and i apologize in advance. I want to talk broadly about the prospects of tax reform echoing what pam said at the conclusion, which is there is a definite consensus that the u. S. Corporation income tax has to change that the status quo is untenable for the forseeable future and we need to have tax reform. I think theres a near consensus we are in an unusual political moment where it could happen in 2017 and one thing to think about is what does it take to get that done and where do we stand in that . Unlo unfortunately we have revlativey limited data. We dont do this often. If you think back to the 1986 reform the way i think about it is that it began in the mid 1970s. Arguing that the u. S. Corporation and individual income taxes were so bad that they were damaging the economy certainly but also the very prospects of average americans and that the person on maine street would benefit enormously from a change in the way we did business and improvement in our tax systems. That Public Education went on for essentially a decade and that attempt to sell that reached fruition with president reagan running for reelection promising to do tax reform, big political commitment, he won 49 states, so thats a pretty big margin of victory, even by trump i trumpian standards and presumably had the mandate to get this done. It began with putting out the treasury of volume, treasury one, it was a bold almost pure not quite almost pure moved towards a hague simon income tax, got modified quickly for some political reasons by the white house, went back up to capitol hill, died, got rewritten over a beer, and so a decade long process to enact it unwound relatively quickly. The question is how do you get it, and how do you keep that in place . So where are we from the 2017 effort . One of the things i think its fair to say about the house blueprint is that it is a bold, almost pure but not actually pure move toward a consumed income tax or consumption tax and thats a similar starting point for the debate. I would argue that theres a very different set of factors in other ways, this is not the bipartisan effort that we saw with the education efforts, this is largely driven by republicans with very little support from the other side of the aisle. Its also true that while washington has become the Worlds Largest floating tax policy seminar and happiest moment in my career for that, we havent had the sort of vast Public Education that has led the average american to think gee, we got to fix the income tax particularly the Corporation Income tax. I think were a long way from that. As an aside we did some polling and focus groups leading up to dave camps effort a while back to see what the consumers of tax reform were thinking about and as it turned out if you asked hem the day after tax filing day april 16th, tax reform was about eighth on their list of unprompted pri unprompted priorities, and in the focus groups learned two words couldnt use and those words were tax and reform, literally. Because they heard, this is a trick youre going to raise my taxes. So theres very little onthe groundfaith in this process and where it lead them. So i think were in a different place in 2017 for sure. Having said that, i think the same dynamic is important in 2017 as was true in 1986. And that is this comes down to white house leadership, only the president can make the sale to the average american that this is indeed what will make America Great again, raise wages, improve economic fortunes, the primary promise he made to them in running for election, so where the white house comes down on this, what they choose to support is the crucial decision, i really think. Obviously we dont really know at the moment. The house has been out talking and its blueprint quite a while, were not exactly where the president and the white house in general is going come down on that, but thats the key dynamic. I think another thing thats matter of my judgment but i really think its true that if the forces that dislike the house blueprint and the border adjustment provision in particular conspire to kill it in its infancy, tax reform doesnt happen. It is absolutely imperative that the house go forward with something. The constitution dictates it has to start in the house. This is the house proposal, theres no backup plan. They ended up with the blueprint because i looked at what dave camp went through, were going to throw away the distribution tables and go to a tax flow base, dedicate this to raising the pace of Economic Growth and i think to go back i think is unrealistic, it may not be the white house blueprint at the end of the day, the white house can have its role but it can start there or its not going to get there, i know everyone has talked about border adjustment and the whole thing a million times. I just want to say a couple of things and the sort of political economy thats surrounded this discussion, so first as a technical matter, i think a lot of the assertions and discussion about the border adjustment are misplaced number one, because borer adjustment is not an end, its a mean to an ends and the fact that were talking about is crazy, it is about the efficiency gains that and talked about. Neutralizing between investments and thats the heart of it as means to an end. As means to an end go, it is an important one, it protects the integrity of the base in the house proposal, stops the production abroad and eliminates the price adjusting games, its not the only way to do that, we saw the rules, take your pick, a, b, c, there are a number of ways to go about it. Its not can i have the house plan or have the house plan without the border adjustment, can i have the house plan with the border adjustment with some way to protect the integrity of the tax base . Maybe you want camp option c, now a choice something that divides the Business Community and raises a trillion dollars and something that divides the Business Community and is contentious and i think its something that people appreciate and thinking about the economics about it. What we know is that the house reform would change dramatically the real incentives in the economy. It would affect the pace of investment, the allocation of invest, location investment, the fu fundamentals, those would take time. Affect the Real Estate Exchange rate, thus the current account, i have no idea the magnitude and pace which that would happen. Theres another thing called border adjustment which simply says that other things being the same, confidence in the dollar, Interest Rates all sorts of things the dollar will be 25 higher than otherwise would be because of the presence of this provision, you cant come to any other conclusion i think allen said but not a claim that says i know what the dollar will be after the reform, i have no clue, and neither does any firm for for against the provision, i think its been badly predicted. Lots of things influence the dollar, its simply the economics of a compensating differential. The other thing thats become quite clear to me in the kofrs this de course of this debate. In the Business Community they really want the u. S. Economy to perform better. They really want the pace of growth to be faster. They would like to have bethter opportunities to compete internationality. There will be in fact changes in Business Models broadly defined the house blueprint would move us to foreign production to production, to a system thats neutral. In the grand reality of tax reform there will be winners and losers as always will be, and what were just beginning to see is the debate about those winners and losers. And theyre focused on the border adjustment provision at the moment, but theres a long list of thing to fight about and the fights have just gbegun. I expect thats the next thing thats going to sort of get a lot of the attention and in the process i think well go through the same debate that caused the 86 reform to die, and hopefully we will get a tax code that is less interfering in international competitiveness, a tax code that cements the jurisdiction with a low tax, not a Corporate Tax but a tax, that has better incentives for investments innovation, and growth in the United States, those are all desirable outcomes of tax reform, thats what we need to get, which provisions are in there to get there i think we should have less of a religious adherence to so when i look at this moment i think its true this is a chance to get a tax code that we desperately need, one thats ready for the 21st century and allows our economy to perform better. Im always struck by the fact that from the post war to 2007 gdp per capita grew in the United States fast enough that the standard of living and will double roughly every 75 years and the difference of a capacity in an individual in one working career to see a Standard Double versus where it takes two careers to happen i think is a real devaluation of whats been the American Dream and the promise to leave to the next generation a stronger economy. So this is the trajectory where it can be changed in a substantial way. So i think getting the white house to move forward and make a commitment to what it wants and thus sort of settle this and sell this to the American People is crucial and then well see how this plays out. I do want to say i do think that its premature to take the sort of comments out of the senate about the house plan as sasor a a death now if you can imagine the president to say i want this its hard to say that a senator could stand up and say no when he says i would really like give you a tax cut but they want to preserve the i think its going to be more mallable than people are thinking because if the president gets on board pushing something the capacity of influence both the house and senate are enormous. I think thats the key, so we can go back and talk about details of how were going to tax Financial Firms or whatever, but i think the real issue is the political economy of getting this moving and seeing what the white house is going to support and that this is an important year that everyone cares about tax policy, which is important for the capacity to improve the economic outlook. So thank you for the chance to be here. [ applause ] okay, are we ready . Okay, so we have a few minutes to take some questions as the moderator im going take the liberty of asking the first question. Fire away. This is a question that ha t hasnt arisen all morning, we talk about the plans work and the border adjustments work and what brought to mind was i gave a tax reform through the ird and somebody asked me how could americans ak except a reform like this that gives the benefits to the highest ranking people . How much of a concern is that . The distribution of the benefits and what can be done to achieve the goals you want to do and make it more beneficial to average americans . So thats a really hard question. I guess i would say a couple of Different Things about this. This is me talking. This is not speaking on behalf of the House Republicans or anyone, but my take on the reason they ended up doing Something Like this is they didnt watch the camp effort which is lets do what we think we need to do what is get the corporate rate down, move to a territorial system, move to neutral fashion and distributional fashion and thought it was overconstrained and couldnt get anything that had the impact on the growth economy they wanted so they said put that over there, lets go to this thing thats been discussed for a long Time Beginning going back to blueprints, lets take a look at that thing and not worry about the distributional tables lets just make a dramatic tax reform an committed to themselves to revel neutrality, sometimes they a budget yo neutrality. Second thing i would say about it, it looks to me, and again other people might disagree that theres been almost an exclusive change to cash flow, border adjustment very little on the individual side with the exception to have sole proprietors. It would be possible to look those distribution tables and think about the individual side. It may very well be that the senate has a bigger impact i dont know. The last thing is you cant solve all the problems with tax reform so you better figure it out and our primary problem is inadequate trend growth harming the real wages of average americans and the biggest distributional impact you can have is to do that so if you do that against some of the measured distribution tables thats a tradeoff at least i would be willing to make. Thank you. Im interested in the reality question here. So we have heard a lot of concerns about the cash flow tax and youre saying you may not even get through the house if they feel like theyre going to get beat up in the senate. The question is what are the variance that could do it . Theoretically you could at least say well some sort of labor credit wage credit that would then make it w. T. O. Come compliant or think of something that michael grats suggested a vat, more traditional vat and use the money at a lower rate to reduce Corporate Income tax and deal with distributional issues. I ask you that because it doesnt seem like border adjustment is going to get through so what would be the likely variance that might get through . Let me first of all be clear how i think about it. I dont worry as much as i think maybe it was john who worried about being btud, you get hung up by the senate. Im worried about the basic dynamic thats stopped tax reform 30 years and there are winners and losers, its divisive and they say its just too hard forget it. Its the white house saying this is whats good for the average american so when they get home they have their constaituents saying hey, the president says theres going to be tax reform. I dont think theres a realistic future for anything labelled of that. Thats just politically too toxic, cant be done. Even by another name . I think they should change the name. We had one tba and could probably get another one through, but this is our approach to having a vat. Weve done it with flat taxes and so i think this is the realistic one. I dont think theres another i really dont think theres chance for another big restart to get through the house. I think if something is going to come out that is different on income tax based instead of cash flow is going to have to happen in the senate. The house is locked in, this is their proposal theyre going. Before the next question i want to remind the online audience to submit your questions to event to event urban. Org. Do you think the prospects for the blueprint would be better if they dropped the individual portions of that blueprint and went with a destination cash flow tax, limit tax reform to corporate or business however you want to view it. Would it have better or worse chances . I think its hard for the president to get behind that having promised tax cuts for average americans on the campaign trail, that looks like a big renig, so i dont think that helps, maybe in the big picture. Maybe ive misread the evidence of history but i think you cannot under estimate what they have to spend to get this done and i dont see that on some on the individual side. Rick newman Yahoo Finance is it possible to get this done in 2017, and if it goes to 2018, is there any harm in this . And if so what does it take to get it done . Its possible, but you can lose a lot of money on the senate. So theres just not enough floor time for the agenda they have. Thats another reason why i worry about if it gets pushed off the laden house, whatever it just doesnt happen because the number of thing it is senate is in principal going to have to do between funding the government for 17 and 18, confirming all the appointappointees, border s, increased military spending, caps on the budget control act. I can go on, the scarcest thing is Senate Floor Time so it could very well not hit the august target that both ryan and mnuchin have mentioned what they think is the end game. I would certainly expect them to come back after the august recess and expect them with work to do. I dont think its a good idea to start running into 2018. Tax reform will have winners and losers, the last thing is you want is losers running adds in district or your state and everyone is going to be cognizant of that and so they want to get it wrapped up at the end of 2017. What do you believe the dynamics. [ inaudible ] what do you think the dynamics would be if they do this through reconciliation with the idea this may unravel in ten years if the political politics dont change. Would that support pams idea of maybe do it half way, not get rid of everything, get rid of the Business Prospects that people set up to comply and then all a sudden back to where we were . My reading of the continual emphasis of ryan and brady, is that they are very conscious for violations and reconciliation and the last thing they want to do is have this thing sunset in ten years. They want a permanent reform. And again, i think thats an important issue because this is one of the another place where taken at face value, the white house coming off the campaign is in a different place than the house proposal. You can go through the list, 15 versus 27, territorial worse worldwide. So knowing where the white house is going to come down i think is crucial. So doug, just one basic question on the house, so there was earlier debate here about this question of whether the dollar would adjust sufficiently the answer is absolutely yes. Well, thats not my question. My question is as a practical matter if there is some element of uncertainty about it are house members going to be willing to take the chance and vote for Something Like this if theyre not sure that this dollar adjustment will occur as advocates proclaim . I got the feeling john buckley had doubts about that. Look, big tax reforms dont happen often for a reason, you are basically undertaking a major policy risk literally because you think the return is going to be worth it but theres a risk, no doubt about it and thats true in this case, there will be risk on both sides, if you focus on the dollar, the importers benefit, the exporters dont. So thats going to depend on member by member how they think about that. I think that its those kind of inherent risks in getting from both sides thats killed it in the past thats been a problem. But there are thing that is are now sort of becoming better understood that i think are making people more comfortable. This isnt something that was invented in some science lab its out there in 160 countries around the world an those countries seem to have pretty vibrant Retail Markets and things have gone on pretty well. It is true that no one in the house for good reason spent a lot of time paying attention to the dollar, but its 2530 higher than it was, and everything seems to be okay and so as they move from thinking about this as a sort of paper exercise about the tax code to a more economic exercise about getting what they want which is better performance, i think theyre going to have to immerse themselves in some of these experiences and well see if that works or not. I believe as a going in proposition the odds of tax reform are less than 50 50 and thats true this year. You have to get other forces lined up in the white house to get it over the 50 line and thats not happened yet in my view. Doug, you mentioned in your talk the effort that went on before 1986. Yeah. With many years of Public Education and debate and in 1986 you had a tag line that said were going to get rid of all these off tax shelters and everyones rates are going to come down as a result. What is the parallel effort thats been done to prepare the ground for this tax reform or how can this be done without a Public Education . I think its a serious issue. I dont think theres been the same sort of concerted effort from both sides to convince the average american that tax reform is a good idea for them. I think theres been a superb effort at educating how bad the tax reform is plaparticularly i International Component and i think thats largely in the elites in washington so to substitute for that, i think you need the the only person who can do it is the president. My reading of the evidence is we havent had the democrats being interested in comprehensive reform at all. They have put things forward on the corporate side but have not talked at all about doing individual tax reform. So now were in a world that we havent even talked about and one where the public hasnt been engaged, so its a political opportunity but not like we have the same sort of preparing of the ground, so its going to be different. We have time for a few more questions. Howard. Doug, could you talk about how you think the Health Reform debate is going to affect the tax debate. Sounds like the white house is going to use a lot of capital on health care before it turns to taxes so how does that all go . Next question. Look, you can do the political ar aarithmetic, repeal and replace is the largest ever undertaken, at the end of the day, theyre going to have to pass something that is you know going to be its not going to make them happy. Its going to be sort of agrudgingly we have to get this done get it over the finish line kind of moment and thats going to be tough and tax reform i believe in many ways is going to be comparable, so where does the white house put its Political Capital . And could it for example decide that on the merits tax reform is more important, need better Economic Growth. This is something we talked a lot about and pull the plug on repeal and replace . Is that politically viable . Your sans answer is no, my answ no, so i think they have to think hard about where they use the white house. I expect them to essentially let repeal and replace be much more a congressional problem and let the white house lead on the tax form piece but well see. Yes . [ inaudible ] we do have import shutting down or exports being promoted, wouldnt he be much more favorably inclined for that kind of a sales pitch than one that says oh, its neutral, change the structure of the u. S. Economy i dont know, but i have a very strong opinion about that strategy in general, which is thats committing what i believe to be the greatest sin that staff in washington commit, which is try to trick your principal into doing the right thing, right . Thats a terrible thing, you should tell him the truth about what the policy is intend today do, what you think it will do and let them decide, but misleading them into doing the right thing is always a mistake. You have no idea where the equallibrum is. I know where it is, i dont know at the pace where the economy adjusts to the reform in part because we havent actually seen a reform, havent seen the rules, havent seen the phase in face outs, thats all going to matter so the white house can then make an informed judgment and thats the way the decision should be made. Any other questions . You asked what the tag line is going to be . What would the tag line be . Tax reform to make America Great again. Come on. Is that enough . Probably, probably. Anything else you want to say doug . Otherwise well wrap it up . No, i just want to say i think this was a tremendous contribution to the discussion about the tax reform. Its been in my view a very mixed quality and this was a high quality morning where the issues really got laid out and i thank the Tax Policy Center for that. And wep want to thank you fo your contribution. Thank you. [ applause ] first lady visited the Cornell Medical Center in new york city. She spent time with patients, families and medical staff. Also marked read across america day held annually of the late author known as dr. Suesthor ku delivered books and read oh, the places youll go to the children. How are you . How are you . Nice to meet you. Nice to meet you. Thank you for coming, pe