Transcripts For CSPAN3 House Panel Holds Hearing On Border Adjustment Tax 20170524

This is 3. 5 hours. The committee will come to order. Welcome to the ways and Means Committee hearing on increasing u. S. Competitiveness and preventing american jobs from moving overseas. Before we get started, i want to take a moment to speak about the evil terror attack that occurred last night in the united kingdom. Our deepest condolences go out to the victims, to their families and their loved ones. Please know that you are in our prayers. Today, were continuing our work on pro growth tax row form that will improve lives all americans. This mornings hearing is strengthening americans pro competitiveness and preventing jobs from moving overseas. For years americans have watched as our manufacturing plants, middle class jobs and longstanding u. S. Companies have moved overseas devastating communities and the families that depend upon them. Hundreds of thousands of goodpaying american jobs have left and continued to leave to china, mexico, ireland, and other foreign countries. Some of our communities have never recovered. Because when these plants and Companies Move overseas, the local businesses, housing values and local tax revenue disappear with them. Ive watched as 17 key Texas Companies have relocated their headquarters to england, canada, bermuda, ierpd, the cayman islands, switzerland and the netherlands. Americans are being hurt because were sad eled with one of the unfair tax systems on the plan. He. According to nonpartisan Tax Department when it comes to competitive tax codes americas ranked nearly last among our global com pet. Hetors, 31 of 35. The good news is, were edging out greece. The bad news is, nearly everyone else is eating our lunch along with our jobs, manufacturing plant and research facilities. The urgency for bold, permanent progrowth tax reform has never been greater. We gathered today because with our current tax field the Playing Field for American Workers is not level, not even close. Over three decades have passed since the last time we reformed americas tax code and while washington has been on the sidelines, our foreign competitors have been improving their tax systems for their businesses and their workers. Today its clear our tax code is failing American Workers, families and businesses in three crucial areas. First our Corporate Tax rate, now the highest in the industrial world at 35 , is at least ten to 15 points higher than our competitors. This makes it much harder for our businesses to complete kbloeblly and create jobs here at home. Second, our tax system discourages u. S. Businesses from bringing home foreign profits to grow middle class jobs and middle class paychecks. Instead, our tax code encourages global u. S. Businesses to keep profits abroad, to grow foreign jobs and paychecks. The last check more than 2. 5 trillion of u. S. Profits were stranded overseas unable to be affordably reinvested back here in america. Addressing these two issues is important, and would be good enough to move america back to average, somewhere in the middle of the pack. But tax reform only happens once in a generation. Is our vision merely to be average . Given all thats at stake for middleclass families, our goal in tax reform to be to vault america from ged dead last among our global competitors back into the lead pack, back among the top three best places on the planet for that next new job, manufacturing plant or research facility. Do this, we must take action on a third crucial competitive issue, ending the made in america tax. Today, the vast majority of our International Competitors apply taxes on competitors that are sold in their country no matter where the products made and they remove taxes from products that are exported, including products that are sold into the United States. This is called border adjustment. Taxes are adjust whend products cross the border. Over 160 of our competitors border adjust their taxes. These are all the blue countries on the map on the screens. Americas one of the very few who dont. Along with countries like cuba, north korea, and somalia. In our country, we apply taxes only on products that are made in america. Washington imposes that made in america tax on our products no matter where theyre sold, including overseas. As a result, made in america products are at a major tax disadvantage here at home and around the world. So why is washington providing special tax breaks for foreign products over americanmade products . Why should chinese steel get a tax break over American Steel . Mexican auto parts and agriculture over American Auto parts and agriculture, foreign oil over american oil. This doesnt make sense, especially since this is a big reason our current tax code drives u. S. Jobs and companies overseas. In the tax reform blueprint we propose to end the made in america tax and instead tax all products and services equally when they are sold in america, at a low rate of 20 . No special tax breaks for foreign products, everyone treated the same, true competition for the first time. And we lift the tax on made in america products and service whens they were sold abroad and for the first time leflg the Playing Field for American Workers, businesses, and farmers. Our goal is not simply to remove any tax that moves jobs over seas but to reestablish america as a 21st century magnet for new jobs and investment. And for the first Time Companies will no longer gain by moving their head quarts to bermuda, their manufacturing plants to china, or their intellectual property to ireland. As a result, for the first time in decades companies and industries are coming forward to describe how under the republican blueprint they can bring large part of their supply chains back to america. These are the goodpaying jobs, manufacturing plants, research labs, and Technology Centers that cutting that hows cutting edge intellectual property like patents. The current tax code told them to move these activities overseas. The house blueprint allows them to bring them back to the United States. We recognize this is a significant change from our current tax code. We know there are legitimate concerns, including from some of our witnesses here today and our colleagues on the other side of the aisle about how it will affect American Workers, businesses, and consumers. And we are committed to working with all of you to address these concerns. We swr have to get it right and will. Its time for a tax code that rewards americans hard work rather than pushing american jobs out of our communities. The Tax Foundation estimates the house blueprint will create 1. 7 million jobs over the next decade and grow paychecks for middleclass American Families by roughly 5,000. Imagine how successful American Consumers will be when they have a secure, goodpaying job and a tax code that allows them to keep more of their paychecks. Its time for washington to get off the sidelines and back into the game. Fighting for our businesses, workers, and consumers. I want to thank all of our witnesses for being here today. We have a stellar field, and we look forward to hearing your ideas on how question level the Playing Field for American Workers and unleash a new era of american prosperity. Before i recognize the Ranking Member, i want to announce that we are joined here today by bill thomas who chaired this committee from 2001 through 2006. Mr. Chairman, welcome back. [ applause ] i now eeld to discontinue wishing Ranking Member mr. Neal for Opening Statement. Thank you. First let me thank you, mr. Chairman, for holding todays hearings on increasing u. S. Competitiveness and preventing american jobs from moving overseas. Its an important topic and i look forward to a productive conversation. As we continue with this series of hearings on comprehensive tax reform, i want to reiterate my support for reforming the tax code. Theres certainly strong bipartisan support for simplifying the tax system and making it more fair. We on the democrat side are willing partners this those efforts. However, we will support tax reform at a comprehensive basis that will ease financial burden on the middle class and working families. We will not support tax cuts for those at the top of the income scale at the expense of those of the middle class. Our primary focus and top priority in tax reform needs to be putting the middle class first. I also believe that a key component of tax reform sen surg that american wizes remain competitive in the Global Economy and that we prevent american jobs from moving overseas. Achieving thin concludes providing incentives to companies to conduct research and development here in the United States. We also need tacoma prove our nations infrastructure so that its in line woerj developed nations. That includes meaningful investments to repair and enhance our nations roads, rails, bridges, harbor, sea and water harbor opportunities as well. These reforms can be done through the tax code and would also jump start Economic Growth and create thousands of jobs. Another key component of International Competitive science investment in well trained and Skilled Workforce opportunities. A 215 report indicated over the next decade 2 Million Manufacturing jobs in this country could go unfilled due to a skills gap. The new England Council recentedest matded that thousands of advanced highpaying manufacturing jobs some with salaries over 80,000 a year with benefits go unfilled because employers are struggling to find candidates to meet the needs of these open positions. At a time when families across the country are trying to reach and stay in the middle class, our nation cannot afford to have factories and workers sit idol. To remain competitive, we need to invest in workforce development. Let me shift to another focus of todays hearing. The border adjustment tax. I think that the border adjustment tax proposal is certainly interesting. As my past support of an Innovation Box demonstrates, im no stranger to innovative tax ideas and willing to look outside the box for smart tax policy and certainly encourage others to do the same. Some argue that a border adjustment tax would create such an incentive for companies to make things in the u. S. That it would drive up demand for American Made goods. We certainly are supportive of american manufacturers. However, there are many unknowns about the border adjustment tax. Given the many significant economic uncertainties and risks associated with the border adjustment tax, the committee must evaluate its merits thoroughly and methodically. There are many very important questions that must be answered in order to evaluate the proposal. Psi plowed the chairman for holding todays hearings do just that. For example, what will the impact be on consumesers. The retailers tell is that the cost of products like food, clothing and med sinl go up for consumeser by more than 1,700 a year. Gas price cos increase by 35 cents a gallon. Also been told that a 20 bat bat would increase heating costs for a new england family by up to 400 per winter. Middle class families cant and shouldnt have to sustain these types of increases in Consumer Prices as a result of tax reform. Is that a risk with an adjustment border tax . Will the dollar strengthen to offset increases in Consumer Prices . If so how long will it take and will it be complete . How much dpluns u influence success there with currency fluctuations and other increases of an increased dollar . In the border adjustment tax, is it wto compliant . Is there the risk of retaliation . What would the bats impact be on american jobs . Who would be the winners and losers of an adjustment to the boarder tax. Another question i are is the impact on Small Business. Unfortunately we dont have a Small Business witness with us today. But i think understanding the potential impact on Small Business is key. The owner of daves sewed and pet food city in ny direct who is quite successful tells me that his imported products would certainly provide the margin for him to operate the rest of his visit his business as currently constructed. He says that if his costs go up, he cant rent out utilities, he cant rent out other places to cut payroll, in fact he has to absorb the cost. He also is very concerned that if consuperers have to pay more for gas and other essentials, he will keep less of the pet accessories that keep his baiz float. I hope we continue to exam the influence of the bat on Small Businesses. Mr. Chairman, i hope you will consider holding a hearing in the new future on how to best use revenue from a redeemed repatriation tax as we support tax reform. I support using repay the teeation dollars to pay for it from other productive purposes from the middle class. Thanks for your leadership in calling for todays hearing and im hopeful we can dive into this topic of the bat and get our questions answered. I hope this will continuetor a productive conversation and thank the witnesses for their participation. Thank you, mr. Neal. Without objection other members Opening Statements will remain part of the record. Todays Witness Panel includes five experts, juan luciano is from the midland company. Brian cornell is the Board Chairman and chief executive officer of the target corporation. William simon is the former president and chief executive officer of walmart u. S. Lawrence b. Lind zisy from the lindsy group and Kimberly Clausing is from the read columns. The committees has received your written statements, theyll all be made part of the former hearing record. You each have five minutes to deliver your oral remarks. Well begin with mr. Luciano, welcome and you may begin when youre ready. Thank you. Chairman brady, Ranking Member neal, members of the committee. Thank you for the opportunity to testify about comprehensive tax reform. Adm began as a oil processor in minneapolis 115 years ago. Today we employ nearly 20,000 employees in the United States serving customers in 160 countries. Our network allows us to source craps, to transport them to our facilities, to transform them into food, feed, renewal fuels and chemicals and to deliver them to customers on six continents. We support the earth farmers and businesses in significant ways. In 2016, we purchased 25. 9 billion in goods and services from farmers or vendors in all 50 states. I am pleased to say we have employees in 25 of the 26 states represented on this committee. And congressman neal, we hope have to the opportunity ton invest in massachusetts, too. Adms reach open global mash kets for americas farmers who have run a trade surplus for 50 years. But u. S. Companies like adm now compete with wellcapitalized, nonu. S. Companies who often enjoy tax system with lower rates and border adjust naents create a competitive advantage for them. Adm also thrives when americas farmers thrive. For us to serve americas farmer while creating jobs and contributing to growth, we must have a globally competitive u. S. Tax code. We must encourage the return of capital to the u. S. And enable Companies Like adm to create and maintain jobs here in the United States. The proposal were discussing today will help accomplish those goals. First, reducing the corporate rate to 20 will allow Companies Like adm to operate more competitively. Today, many competitors have a substantial tax advantage. Our effective tax rate is approximately 30 and we must compete with firms with tax rates at 20 or in the teens. Second, the proposal will level the Playing Field by moving from worldwide taxation to territorial taxation. The territorial tax system would remove the burdens of highCorporate Tax rates and address the capital restrictions that hinder u. S. Companies, but not bill competitors. This the facilitate our ability to enable american crops to reach the world. Third, the destinationbased cash flow tax will level the Playing Field for our exports when we must go toe to toe with competitors who enjoy significant b. A. T. Rebates or exemptions when they export. Like b. A. T. , the u. S. Income tax system has no offset for exports. This systemically disadvantages our own producers. The destinationbased cash flow tax corrects this imbalance. The u. S. Market share of Global Exports has fallen precip tusly in major commodities over the past five decades. The u. S. Is no longer number one in soy beans and wheat. From 1965 to today, u. S. World share of soy beans exports has fallen from 90 to 39 with brazil taking the lead. Over the same period, our world share of exports of wheat has fallen from 40 to 20 with russia taking the lead. The u. S. World share of corn has fallen from 65 to 34 . Americas ante kuwaited tax system may not be the only reason for this dee klein, but it clearly contributed. We need to modernize our tax code to allow us to keep up with the rest of the world. This proposal creates the climate which will support reinvesting in america and will result in millions of american jobs. It will help stop the decline in our market share and enhance our ability to serve the world. Other countries have responded to our inaction. We have the opportunity with tax reform to give American Farmers and workers the chance to fairly compete and provide American Products to customers around the globe. Mr. Luciano, thank you very much for your testimony. Mr. Cornell, welcome and please proceed. Good morning, chairman brady, Ranking Member neal, and members of the committee. Thank you for the opportunity to be here today. Let me begin by saying that we strongly support tax reform. At target, we have a very high effective tax rate. An average of 35 over the last decade. So were as motivated as anyone to bring that rate down. We recognize our current tax code is broken, the status quo is unacceptable. Mr. Chairman, well put every tax benefit we currently receive on the table, every single one in order to pass tax reform, to lower that rate, to spur investment, to create jobs, and to grow the american economy. However, weve concluded that the new border adjustment tax would undermine the pro growth principles in the blueprint and its not just us, more than 500 companies and associations feel the same way. Im talking about main street cough fe fee shops, car dealers, grocery stores, gas stations and restaurants. From large Companies Like target, to small american businesses, weve all come to the same conclusion. Under the new border adjustment tax, American Families, your constituents would pay more so many multinational corporations can pay even less. 85 of america shops at target every year. Wee believe this new tax would hit families hard. Raising prices on Everyday Essentials by up to 20 . Were not talking about luxury items here, but instead the basics American Families need. Moms in cincinnati would pay more phonbacktoschool clothes. Parents in houston would pay more for their groceries. Seniors in philadelphia would pay more for medicine. Every time your constituents fill up their gas tanks, they would pay more. The people who shop at target are middleclass, hardworking families whos budgets are already stretched. For them, this new tax would be a budget breaker. Mr. Chairman, were investing in america, were hiring, we recently announced were investing 7 billion in communities across this country. 7 billion to build new stores, to renovate hundreds more, and to transform our distribution network. All right here in the United States. These investments will create thousands of new jobs at target and thousands more for engineers and electricians, plumbers, and painters across the country. And were doing that today. But under the new border adjustment tax, our rate would more than double from 35 to 75 . And we, like many others, would be left with only bad options. Its Pretty Simple math. If the government takes nearly 4 out of every 5 we make, four out of five, theres no Capital Invest and no prospects for growth. And that matters a lot. Both to us, and to the american economy. Instead of investing and creating jobs, wed be pushed in the other direction. Mr. Chairman, i have a responsibility to more than 320,000 employees, 99 of whom are based right here in the United States. Thats hundreds of thousands of American Families who depend on me every day. I know theres an academic theory that says currency markets will adjust, that families wont be harmed under this plan. Well, thats that might work in a textbook, but i cant tell my employ employees that their paychecks and congress shouldnt tell americans that their budgets are being wagered on a unproven and untested theory. So in close rg, mr. Chairman, members of the committee, we have a historic opportunity ton simplify the tax code, to spur Economic Growth, and to create jobs. Many parts of the blueprint will do just that. But i cant sign up for a plan that would stick American Families with that bill or a plan that would double our tax rate. A plan that would stif he will our investment in america. Mr. Chairman, i want to thank you again for your leadership, i know this is challenging and i want to help. Lets move past the border adjustment tax plan and get things done. Its too important. Thats why were here today. Thank you. Thank you. Mr. Simon welcomed to and please proceed with your testimony. Thank you, chairman brady, Ranking Member neal and members of the committee. Its my pleasure to be here with you today and discuss the importance of u. S. Manufacturing on middleclass jobs. I am leer representing myself as a private silt zen, these are my views. Id like to begin by know thing that ive been a supporter of u. S. Manufacturing in fact the u. S. Retail federation hosted in the annual meeting in 2013 where we launched walmarts u. S. Manufacturing initiative which has been quite successful. Manufacturing jobs in this country and really around the world have always represented a pathway to the middle class, thats how it works and weve seen it throughout our history. And tlpz a reason that the middle class has struggled in this country recently, and its the same reason weve seen middle classes emerge in Global Markets, and that is the Manufacturing Base has moved and with it the jobs have followed. There was a time in this country when a job in the local facry was a ticket to the middle class. I grew newspaper congressman larsons direct in connecticut, we made bratny engines and colt firearms and everybody in the community was proud of that fact and if you got a job there you were set. In this country, it doesnt work that way anymore. You, the government, lay out rules like puzzle pieces an because businesses like us take the tax, labor and trade policies that youve given us and put them together and try to deliver the best results we can for shareholders. And over the past 30 years when you assemble those puzzle peegss, virtually every scenario run by every company has resulted in the same outcome, offshore manufacturing and a hollowed out middle class with limited job progression. Something needs to change on this, everybody agrees, and i join my colleague in commending you for take on this difficult issue. Many ideas have been discussed in recent months and of the most controversial particularly for the Retail Industry has been the boarder adjustment. Ive weighed the credible challenges the proposal presents to retail and they are considerable with the significant benefits it will differ to the economy as a whole and conclude had if properly implemented its in the best interest of the country for this to be considered. However, such a system would have to be implemented with careful consideration to the challenges retailers will face. It has to allow for adjustments that are necessary to address the concerns that youve heard from the industry. For example, most of the manufacturing capacity that exists in the world outside of the Food Products no longer is based in the u. S. As weve herd so simply applying a 20 tax across the board on day one would have serious impact to the industry and consumer and no, i thats not being propose. I hope you see my point of view is not completely at odds from the industry i look at that time from a different perspective. If were to move forward, i believe its important that retailers work with the committee and provide input on how to best transition. Were already in flux, dealing with Generational Technology and trend changes and i submit its all part of the same issue. The challenges it face face the middle class today put a damper on the power of the consumer and are now impacting retail broadly. Resurgence in American Manufacturing would result in a stronger u. S. Consumer and a stronger Retail Industry over the long run. But in manufacturing, and in supply chains the long run say long time. And a migration of manufacturing out of the u. S. Took 30 years and so its critical that me proposed legislation understanded and accounts for this. If you move forward with the border adjustment id recommend a long Adjustment Program and a phasein impact to guard against things that some believe air textbook thing. I would suggest that you peg or use the value of the dollar maybe to trigger a signal the next phasein of the tax or some other method that provides some security to the Retail Industry. And theres also things that the retailers can do, the industry can do to accelerate the transition. First and foremost embrace u. S. Manufacturers when they come on line and they will come on line rapidly because with the change american source will become increasingly viable. Also being closer to the point of consumption shortens lead times, lowers transportation costs and increases manufacturing flex ability. Second, for some products and apaper say good example, competitively price the u. S. Product wont be available for some time. In that case they need to work with existing suppliers and lookup stream to drive down costs. American cotton is readily available in the International Markets and could be acquired by a importer and then reimported to offset some of the adjustment. With competition, obviously prices will welcome u come down. Our Current System isnt serving anybody well at all but until we substantially change the puzzle pieces, the puzzle will continue to be assembled in a way that inhibits the development of our Manufacturing Base. It will continue to restrict the development of the american middle class, and it will not deliver the Economic Security that we need. But, if we get the pieces right, well see a rebirth of American Manufacturing without the severe negative impacts on important sectors like retail. Well see more good middle class jobs, a robust u. S. Economy and an era of growth that will be led by a new industrial revolution. Thank you. Thank you, mr. Simon. Mr. Lindsy welcome to you as well and please provide. Thank you, mr. Chairman. You can hit that microphone. I was told do that. Cant teach old dogs new tricks i guess. Mr. Chairman, Ranking Member neal, members of the Committee Thanks very much for having mooe me hear today. I think we all have the same objective, and that objective is 0 to grow in economy faster, improve our competitiveness, raise living standards, and, if possible, improve the distribution of income by making it more fair. Im here today because i believe that the basic blueprint that was outlined will accomplish all these goals. 40s years ago when i was a graduate student, the basic structure of what was laid out in the blueprint was considered across the political spectrum to be the best way we could design a tax system. I quoted my testimony a paper written by a colleague of mine Larry Sommers that points this out. He said the welfare cost of capital Income Taxation is seriously underest matd. For reasonable parameter values, the annual welfare gain from a shift to conservation is conservativeliest mated at 10 of gdp. It is unlikely that that basic conclusion of this analysis would be altered, capital income taxes are likely to appear very undesirable in any sort of realistic lifecycle formulation. Thats how broad the consensus was about how we should structure our tax code. There was a sur vaf 69 Public Finance economists by nper that said that the 86 bill which was a pale imitation of what were doing herein creased the longrun growth of the u. S. Economy by a full point. My work on the house blueprint suggests that we will have groaning rate of about 3. 5 for the first four or five years and that will ultimately moderate to about 2. 75 . This is almost identical to sommers calculation of the increase. The reason is if you look at recent performance our problem has been a lack of Capital Formation which in the current recovery has fallen by almost fourlt and a collapse in productivity which has fallen by twothirds. By this im not counting the recession im counting the years after the recession. This has been the worst period of recovery ever. And thats why. And this builds both Capital Formation and entrepreneurship. I think all of the extra growth that will show up will be in the form of increased Labor Compensation. Its not only because of the structure of the tax, which will give each worker more capital to work with, but because youre right now at roughly full employment and so any expansion of the economy i think is likely to lead to higher real wage growth. The last time we did anything like this, ie, a Capital Formation oriented supplyside tax cut at a time of full employment were the kennedy tax cuts in 1964 and the takeoff in the economy and the rapid rise in capital excuse me, rapid rise in wage income and improvements in the distribution of income occurred just like i think will happen today. Let me turn to the territorial system and the border adjustment tax. I think we need to move to a territorial destinationbased system and away from our current global productionbased system. Right now, our goods are taxed here when theyre produced and are taxed there when they are imported. On the other hand, their goods have a big tax rebate given to them when they leave there and are not taxed here. So essentially a good portion of our goods are taxed twice while a good portion of our goods going there arent taxed at all. Let me turn to a few particular points. Border adjustment isnt kofrm indicated, it doesnt follow each good each time it crosses the border. Its a netteding effect of exports minus impockets. Second, border adjustment will lead to a currency at just meant. We can argue about how much, but basically when you put Something Like this in, you increase the dough manned for dollars and you decrease the supply of dollars and higher demand and lower supply means a higher value of the dollar, its as simple as that. One of my competitors, i guess, has estimated this. They actually have the lowest percentage of Exchange Rate adjustment that i know of, 65 , and they estimate that the effect of border adjustment on Consumer Prices will be a onetime probably over two years, a onetime increase of the total Consumer Price level of just 1 . Thats what were talking about here. Will there be transition costs to these changes . Absolutely. And i agree with the other witnesses that that, in fact, is where the kboek focus of our conversation should be. But the most important thing you can do is pass this bill. Thank you. Thank you, dr. Lindsay. Ms. Clausing, welcome to todays hearing. Please proceed. Chairman brady, Ranking Member neal, members of the committee, thank you so much for inviting me today. In my testimony, i will talk about competitiveness, the ryan brady plan, and alter matives to the plan that can keep the advantages but without the downsides. First competitiveness. In talking about competitiveness, many people emphasize tax, but competitiveness has more do with fundamentals, like worker education, economic secure middle class, sound infrastructure. The investments that make the middle class prosperous will make our businesses successful. But by most measures, our businesses are quite successful. Corporate profits are a higher share of gdp than they have been at any time in recent history. Profits in the last 15 years are 50 higher than they were in prior decades. Also, our companies do nate the forbes list of the most Important Companies in the world. While our economy is about one fifening the size of the world, our companies is onethird of the Worlds Top Companies about the while our corporate operate tax system has problems were most multinational firms face comp per rabl tax rates as firms in other countries. Our corporate operate tax revenues are lower than tax revenues of pure nations by about 1 gdp. Turpg to the ryan brady plan there gr parts. First it tarkles offshore Profit Shifting and this has become a huge problem. My Research Suggests that Profit Shifting to tax havens is currently costing the u. S. Government over 100 billion every year. In fact, our corporate sorry. Our profits are often shifted to tax havens such as those shown on the chart, bermuda, and the caymans. First, the plan is likely to generate large economic shocks, harming American Workers, and major parts of our economy. The plan taxes imported goods and absent dollar appreciation, this will harm american businesses abharm American Consumers. In oregon a nike executive called this plan the single biggest threat to the company in its history. Many practical considerations may get in the way of dollar appreciation and the eftsds we ha evidence we have suggests there serious risks here. The Retail Sector alone accounts for 1 in ten american jobs. Second, legal experts argue that the plan is incompatible with the World Trading system. Because of this, our trading partners will file suit and whether we inevitably lose, there will be authorized to retaliate with tariffs. Reducing u. S. Exports by hundreds of billions of dollars. Trade disputes of this magnitude generate uncertainty, an unstable investment environment, and a threat to a trading system that we spent 50 years negotiating after world war ii. Third, this plan loses revenue. The nonpartisan tax center estimates that it lose 3 trillion over ten years while the border adjustment feature raises revenue, that revenue is simply borrowed from future taxpayers since trade deficits event wlal turn to surpluses. Although theres no intellectually coherent rational for a lower rate under this plan, the lower rate will cause revenue loss as they mask Labor Compensation as business income. Fourth, the plan is regressive. It benefits the top 1 way tax cut 1,000 times lower than the tax cut for the lower 80 . It used to be that Income Growth was higher for the middle class than for those at the top. But in the fast 35 years, theres been very little Income Growth for the bottom 90 of the population. Because of these trends, tax policies should be moving in the opposite direction of the ryan brady plan. Fortunately there are good alternatives to the ryan brady plan. We should focus on a revenue reducing form that eliminates the rate but reeliminates loopholes. Repealing in full, offshore investing in fool and end the repatriation problem but without the negative iz of the ryan brady plan. Making our tax system compatible with the Global Economy is an important goal. We need a simpler corporate ralt tax system that collects tax thats due at a reasonable rate. Even more important we need a tax code that addresses the real strug lds for the middle class by giving tax cuts for the milled class than for the rich. We should solidify the fundamentals that are crucial for this. This provides legislation enough revenue for priorities and frauks that we need. Thank you for inviting me to testify today. I look forward to your questions. Thank you. And thank you all for your excellent testimony. Wee now proceed to question and answer session and ill lead off. So dr. Lindsey you see in the blueprint significant acceleration growth greater than even the reagan reforms which you know quite a bit about, but you see all this growth reflected in higher wages, which is exactly what we want to see with tax reform and why we need tax reform now. Youve heard mr. Cornell eloquently express concern the border adjustment element could result in higher prices for consumers and increase costs for retailers like target. That import a lot of products that they sell. We dont want to see that happen. You can explain why you dont think that will be a result of the border adjustment provision and, more broadly, how increased wages can help grow the economy, including for importers who are an important part of our economy . Absolutely, mr. Chairman. I learned that time. First of all, why will wages at this point increase . I think there are two elements, some of which are neglected in the longrun analysis. And thats the porl point the business psych that will were at right now. We are labor constrained, but because of the free flow of goods into this country, effectively were not capital constrained. Now, if you have growth at this point and you keep that in place, what youre probably going to have is higher wages but the cause will be less a less competitive situation. I think what youll end up with is either inflation nary push or youll have a recession or possibly both. This is a very, very difficult time for the Federal Reserve and i think that will still actually be making the decision. The only way you can extend this expansion is to also increase the supply side of the economy. Because what youre basically doing right now is youre driving up and youre about to hit a brick wall. And i think what you have to do is you either hit the brick wall our move the wall. And i think what this bill will do is move the wall, that will allow wages to rise as we continue to expand jobs at full employment. I think any measure of how much wages will go up, absolutely swamps any other distributional considerations. Think well actually see for the first time in 50 years actually for the First Time Since the kennedy tax cut a reduction in the measures of inequality we have. Thank you, doctor. Mr. Simon, you are strong advocate for the Retail Industry because of your work experience. You also have a passion for bringing manufacturing back to the United States which will revitalize our loecal communities. You say that will shotten lead times, traction costs, but it will grow a middle class thats sustainable. So your experience with Global Supply chains, you can share your thoughts on what kind of manufacturing capability and jobs can return to the United States and, as part of that, how can manufacturing retail work together, partner with us to make sure this tax reform works well for them . Thank you for the question, chairman. Based on experience, and weve had early successions with the walmart program. And the early successes in repatriation were new lines that existing factory and reopening of old facilities that had closed. Investors and companies have been a little bit hesitant to spend major cap thats needed for a transformational change and hopefully this will bring that forward. In order for the transformational change we need some of the things that have been talked about today, access to all the capitol thats stashed offshore ib investigate nrtd u. S. Would be a huge boom. For some Small Businesses you should potentially consider an either or option. And as the Ranking Member said, Workforce Transformation is really, really critical because that say limiting factor today. Retailers need to do some things too. The way p ls are structures arent align to think. Weve been trained over 30 years to behave the way we behave. An example of that would be imported goods, a retailer has to order a year ahead of time nearly and then take position fob, at the foreign port, and theyre on the water for up to three months. So a year lead time, three months you own the product where your cash is not doing anything for you. Domestic products when you order them the lead times could be as short as 14 or 16 weeks and you take possession when it hits your distribution center. So the clash flow is different, but most companies in their model dont insent buyers on cash flow, thats a treasury function. It isnt it will nul look at the whole picture wholistically that you start to realize that this can and does make sense. We can expect products to come back in this order and we did this work large, heavy, big items, heavy cube items first like furniture, lawn furniture can now once the plans in place with some of the changes you make, the list the line will go down. There are some products today that the economics dont suggest they could come back, small items like microchips in some cases or heavy labor items like cut and sew apparel could be challenging. If we do the work, it is worth it and ive toured towel factories in georgia and bicycle factories in South Carolina where you can see the difference that it makes in peoples lives and more so you can see the excitement and the energy and the transformation that occurs in the communities when these plants open and its worth every bit of the sacrifice that it might take care of. Ill now ranking mr. Kneel for any questions he may have. As i mentioned in my Opening Statement my priority as well as the minoritys position here is in support fully of middle class relief. Would you talk a little bit about your ideas for what we might do with the tax code that would help with the middle class growth and aspiration . Absolutely. One of the key things we can do with the tax code to help the middle class is to expand tax relief to the middle class at a greater rate than for the rich. I also think expanding the earned income tax credit is a crucial policy tool. Awards work for some of the people in our society who most need help with their wages. Those two would be great contributors. I also think its important to avoid tax changes that raise the deficit because that hurts future generations of taxpayers and the fundamentals of our economy. Mr. Cornell, you seem to be a bit skeptical about the argument over dollar appreciation. You want to talk a little bit about that . Weve spent a lot of time looking at this issue and im certainly not an economist, im not a kern yensy expert. Weve been studying what some of the experts have been saying and as you might know theres very different opinions. Ive talked to many of our economists, Goldman Sachs that support us. Their comments have been there should be grave doubts that Exchange Rates will smoothly offset the affects of the border adjustment. Weve been listening to fed sherman yellen. Theres great uncertainty of how markets will respond to these changes. We worked very closely with the lead economist at bank of america, david woo. He talks about this being the most difficult thing to forecast. And to build an intergenerational tax reform plan based on these assumptions is somewhat of a laughable notion. When i read comments and read reports like this and think about the impact this can have on our business, on American Families, i worry about the impact on those families, who for basic essential items for clothing, for back to school essentials, for those basic family essentials as weve looked at it would be paying prices that could be 20 higher. So weve certainly looked at the currency adjustment as weve run our models. Every time we run the models we come to the same conclusion, americans will pay more for basic essential items that they need today and we dont think thats the right thing for American Families and i have a sense that many of you would agree with that. Who might be the winners and losers as a result of a border judgment tax . I think the big losers would be import intensive industry and the workers in those industries and the consumers of their products. Mostly because of this uncertainty about the Exchange Rate. Many countries have fixed Exchange Rates, much trade is priced in dollars and, you know, as just mentioned the Exchange Rate is very difficult to forecast. Its a 5 trillion a day market. 88 of which in is u. S. Dollars, so we arent sure the Exchange Rate is going to appreciate an absent that the import competing the import intensive industries would be really hurt. The export forms could win but they also face some risks here in terms of possible retaliation from trading partners and the like. Id be happy to elaborate on those if youd like. You have another minute. For instance, if we lose in the wto which most trade law lawyers think we would that would cause retaliation by our trading partners and they would be authorized to have historically very large tariffs enough to reduce u. S. Exports by hundreds of billions of dollars. This has given a lot of exporting firms pause in thinking about the benefits of this proposal. Another major downside for them is that they may not show tax liabilities under this proposal but if the Exchange Rate adjusts they would be due a credit back from the government, however the plan doesnt include enough to fully offset these losses so theyll find that they arent able to use the losses that theyre showing, which might lead to some silly outcomes like adm merging with target and its not entirely clear that we want the tax code to induce those types of mergers just because adm cant use their losses and target can. Thank you, mr. Chairman. So for the record im assuming adm is not merging with target . We can pretty much go with that today. You can go with that today. Thank you, mr. Cornell. Mr. Noonis youre recognized. Dr. Lynncy, thanks so much for being here. I want to ask you chairman brady talked about this in his Opening Statement but its interesting that the one thing that the United States, syria, iraq and afghanistan and north korea have in common is what . They that we dont have any border judgment. We dont do border adjustment. All the other major countries in the world do. Mr. Simon you formally worked with walmart so you operated in many of these places that werent north korea, iraq, syria, mali. I think you had places your big markets were where, canada, mexico . Correct, uk, china. Uk, china. In any of those countries, did you pay because they border adjust did you pay anywhere close to a 70 or 80 or 90 tax rate . I dont have that information at my fingertips but my inclination is no. Dr. Lindsey i will come back to you in your Opening Statement. You at the very end you didnt get a lot of chance to expand on it, but the one economists whose your rival who disagrees with the Exchange Rate, could you go into that how he only came up with a 1 change in prices . Sure. Again the consensus if the economics profession is that simply supply and demand is going to cause the dollar to appreciate, and their estimate which is actually very much in the low end was that the appreciation would only be 65 of what one would expect in terms of full appreciation and if you plug that number into the model, what youre going to end up with is a total increase in Consumer Prices of just 1 , not 1 a year, 1 all together. Now, i know there are some concerns that have been expressed about the pace of it. The first thing id point out is that markets move ahead of reality, thats what thats how they make profits as Market Makers move quickly. I wouldnt worry about things being delayed. The second point id make is, yes, some currenty some countries have administered Exchange Rates, notably china. But if anything an administered currencisy Exchange Rate is something thats quicker to move and, in fact, the chinese as soon as november 9th, when it appeared that Something Like this might actually have a good chance of moving, the chinese began the appreciation process quickly. Now that the markets think that its less likely they tend to slow it down. I wouldnt worry about the administered Exchange Rate argument because i think actually theyll be the first to move their Exchange Rates. And you worked on this obviously for a long time and can you talk about the wto argument which is one of the main objections to this . Can you walk us through that . Congressman, when you say a long time, you mean i think you were seven when i first started working on it, so that is a long time. Ive worked on it on every administration. The wto is dominated by europeans. Theres no question about it, most of the rulings are proeuropean. And yes, its an International Body and we should respect the International Body but we should recognize that prejudice. Thats why europeans style tax systems, one reason why european style tax systems all had border adjustability declared legal. Now, there are technical arguments and i would acknowledge that there are both lawyers and economists on both sides of this issue. I suspect that if not even the wto would be so balled face as to say its okay for europeans to do this but not americans. Its such a transparent recognition of their bias that i dont even think they would do that. Now, if they were, then i think maybe we should reconsider our situation with the wto but i dont think thats going to happen. I just dont think thats logical. So with the 30 seconds i have left, mr. Lindsey, can you walk us through maybe a possible phase in approach of the border adjustment . Yeah. I get that 20 is a big leap and i can understand the issue of uncertainty very well. I think one way of addressing that is to just do a portion of it, declare the first thing i would make sure i did was in the short run, maybe a year or two, you might want to say all dollar based contracts are deemed to be domestic, but secondly, i think maybe say 30 have only 30 of exports and imports involved. I dont think anybody thinks that a 6 border adjustment is going to ruin the world. Its not going to cause the Retail Industry to go out of business. Lets try it. All time has expired, mr. Levin youre recognized. Thank you. I dont want to focus on this mr. Lindsey but as someone who worked here with the wto on light cases, i think there is a deep distinction between a vet and a border adjustment tax and i think we lost cases for the wto and we would likely lose this one with some very serious implications and ive worked on this, we lost the cases twice that had some similarities. We need tax reform but i think we need to step away from some of the methodologies. By the way, one is that the big benefit in terms of Income Growth will come from a further income tax break for the high income and id like to have introduced into the record a paper by owens zidar, stimulus effect of income tax cuts are largely driven by cuts for the bottom 90 and that the impeercal link between employment growth and tax changes for the top 10 is weak to negligentable over a Business Cycle frequency. Without objection. Now i want to talk about manufacturing. The chairman used a few examples and no one cares more i think about resurgence of manufacturing than i do, but the examples that you used, steel, that happened because china rigged its currency, because of their state owned enterprise. It was not related in any real way to our tax system or theirs. The same is true of your reference to the Automotive Industry and the movement of auto parts and Vehicle Assembly to mexico. It wasnt because of our tax systems, it was because of the huge differential in the cost of labor. And in both cases, the republican majority both as to steel and as to auto parts refused to address trade related issues that impacted in the loss of manufacturing jobs. Now let me just try to get to one of the nubs. I want to ask professor clausing this, in mr. Lindseys testimony he reiterates an argument made by proponents of a bat, namely that u. S. Companies are now disadvantaged when other countries operate under vats with rebates for their exports, two conservative analysts from kato have suggested this claim is false, saying the real issue is whether the Playing Field is level in a giving market. They point out that if a u. S. Company and a Germany Company sell a product in germany both folks play a vat and Corporate Tax if they sell in the u. S. , both pay just a Corporate Tax. In other words, Companies Selling in the same market are treated the same. What is your view of this issue . I absolutely agree with that characterization and the designers of this tax who are economists also agree with that characterization. The vat doesnt create an unlevel Playing Field across countrys and so the made in america tax concept is a little bit misleading. Imagine an American Firm selling a good in france. If the American Firm sells it in trans they pay the french value added tax but so does a french firm. They pay the u. S. Corporate tax and the french firm pays the french Corporate Tax so theyre treated the same. If the two firms instead sell in america, neither of them pay value added tax but they both pay their Corporate Taxes at home so we already have a level Playing Field with respect to those taxes and thats why the cato person that you cite agrees with that but also others who designed this tax would similarly agree with that. This is one of the gist of the argument and as we talk about substance, both on manufacturing but also on the vat, we need to really look at the realities. There may be a difference in the Corporate Tax structure in europe and in the United States and therefore there may be some differential, it may not be entirely level but in terms of each paying the same kind of taxes, it is the same. I yield back. Thank you, mr. Ryker. Youre recognized. Thank you, mr. Chairman. Welcome and thank you for your testimony today. Like our witnesses last week, youve all made it very clear that were behind in global competition, that the tax code is holding our businesses, farmers and workers back and we all know that given half a chance our American Workers will always exceed and win from the apple grower in Eastern Washington to the manufacturer on the west side of the mountains south of seattle. We all agree that we need tax reform, the devil is in the details and your testimony today has been very educational and helpful to me. I know for sure. But this is our chance to build a competitive tax code that leads to increased growth, higher paychecks and greater opportunity. Ease the financial burden of the middle class but were more interested in not just easing the financial burden, but providing Job Opportunities and Economic Growth. We want to think big and move forward, look to the future. So i want mr. Lucy ann noe, please if you could discuss further how the International Tax system impacts your companys Domestic International operations and with a modernize code would you invest more in the United States . Thank you for the question, congressman. So, a Health Agriculture industry is important for us to be able to feed the world, we will have to feed 9 billion and thats a change in itself. Because of the connection with the middle class and Middle America, we are a company that have 32,000 people but we have only in our global headquarter in chicago, we are less than 70 people. The rest of the people are in a small communities, whether it was the seeder rapids, iowa, georgia, those where the people are and we see those communities. And in those communities inside the country in a small rural america, there are very little competiti competitive advantages left and thats why its so difficult to get jobs. But the way were operating today, when we compete in a global market, if i need to sell to egypt, and i have the choice to bring the product from kansas city wheat or from ukraine, ukraine has the opportunity to get the refund of the so ukraine does not they get the credit for that 20 where the u. S. Does not so to me if you think about wanting to have a competitive Playing Field for the farmers in the u. S. , and you heard my oral testimony, we have lost market share. We used to be the bread basket of the world. We have lost it to inn wheat to russia, we have lost it in soy beans to brazil, we are in corn but not for long. So what happened in this period is that acreage in the United States has been reduced 12 over the last 20 years, while in russia, production of corn has improved 61 . They plant soy beans has increased by three times, so all this countries where they have they have the same competitive advantage that we have whether its a very good weather, good soil and land available, that had actually had been helping those farmers to take market share from the u. S. We are not leading any more into that and were slowly declining. As you decline, those communities that are boosted by agriculture continue to decline as well because when we go there, we just dont have an elevator or storage. We provide we buy from the farmers and the farmers and we also have an ecosystem of other companies that basically comply security and they supply, you know, safety equipment, that they supply would you invest for money in the United States . Im sorry . Would your company invest more money back into the United States . Of course, if the farmer will be growing in the United States. At this point in time, again, we have lost 50 million acres, so were going to invest if theres going to be more production. And i think that with the plan that, like the blueprint were considering today we can see us leveling the Playing Field for the u. S. Farmer to be competitive in the world and that could become as you guys said before a magnet for investment in the u. S. And jobs and i think that this blueprint chaefz that. Thank you. Time is expired. Mr. Lewis youre recognized. Let me thank all of the witnesses for being here today. Dr. Clausing, youre the democratic witness, right . Thats correct. And youre the only woman on this panel. Thats also correct. And you see a lot of men here dressed in blue suits. Not everybody. Well, one in gray. Dont you think its strange when were talking about tax reform and when women make up more than 50 of the population of america and you see all of these men here . Well, theres a lot of strange things about tax reform. Well, dont you think we should move into the 21st century as a nation and as a people . Absolutely. Tax reform should help the middle class and working family. Do you think this proposal will help the middle class and working families . I have several doubts about that and mostly if you rely on the Nonpartisan Tax Policy Center estimates my biggest concern is that the top 1 get a tax cut thats about 200,000 and the bottom 4 5 of the population thats a tax cut about 200. Now this 200 tax cut is nice but its not going to go very far if youre imported goods are more expensive or if youve lost your job because youre in the Retail Industry and the Exchange Rate didnt adjust as quickly as we we thought. That can take some time and as cain once said in the long run were all dead. I worry a lot about the middle class given the way that this tax cut is structured. You stated in your testimony that Business Tax Reform should be revenue neutral. Can you explain why this is so important . Yes, the deficit is an important issue for several reasons. We have a lot of obligations to our senior citizens, many of whom are retiring now and well be older in the coming years and this means that even on a normal trajectory our deficits are going to be increasing due to our Social Security so tax cuts at this point will make those deficits even larger and those deficits can crowd out investment or increase the size of our trade deficit both things that this committee might worry about, so i think its important to raise adequate revenue because were going to need that revenue for priorities that also effect our competitiveness like infrastructure, education, health care and the like. Thank you. Mr. Chairman, id like to yield the balance of my time to mr. Doggit. So many of our colleagues believe that there is a giant tax cut rainbow and at the end of that rainbow is a huge pot of tax cut gold that if we can just fine the right good tax cut fairy everything will be blissful in our country and because they believe that, theres no obstruction of justice, theres no breach of our national security, theres no tweet thats two outrageous to be ignored because donald trump is viewed as the key way to find that good tax cut fairy. We find ourselves here today with more of the methodology and fantasy that is characterized this debate from the outset. Now i agree 100 with the chairman that we should be supporting a progrowth tax policy to grow jobs in this country, the problem is the socalled better way as self styled does not do that and it does not even come close. It is a better way to get more national debt, it is a better way to widen the income gap and disparities that are already out there, and without the border adjustment tax which is already on life support, the remainder of the territorial system here will only grow jobs overseas as it advantages multinationals over small territories. And how amazing to hear that the policy we need to follow from the Tax Foundation is to achieve the type of system estonia that lav nia have. Who knew . In the time theyve had that over the last three years have never grown more than 3 and were told that under this magical tax fairy approach well achieve over 5 growth. Its mythology in action. All time has expired. Three observations ann question for you mr. Simon. Observation number one, mr. Neil observed that theres no Small Business here and yet on thursday its no myth there was a Small Business here mr. Modal from the chicago area who testified two or three times in a competitive hearing how in favor he was of border adjustment. Very powerful testimony you can look at the record. Point number two, its interesting were an hour and 20 minutes into this hearing and no witness, no member of this body, has mentioned the myth of 1,700 negative impact on average Middle Americans that has been running on Television Ads criticizing the border judgment tax. Really interesting and i commend the critics of border adjustment today not using what factcheck. Org called baloney. Third point. Professor clausing was pretty dismiss siff, i mean, were all in advocacy business but was pretty dismissive of this wto question she made a claim that this will inhe have taably lose before the wto and quickly in the testimony was like tripping us down into the valley of retaliation and i thought, its important to recognize that the director general alberto aziveto has noted that theres lots of gray areas in the wto rules and he has declined to speculate. And were working through these details and were mindful of the criticism but surely we dont we dont need to be just coming to conclusion that this is not compliant. Mr. Simon, i think youre the most interesting person here today. Urt most interesting person here today because youve got the value of actual perspective and youve made some very strong claims. You said this is in the best interest of our country if properly implemented. Thats an incredibly strong claim. You said if we do the work, its worth it. The change in american sourcing becomes increasingly viable. Theres an aspiration there. Look, one point im really interested in your viewpoint it was something whos run arguably one of the biggest Retail Operations on the globe. Why doesnt this create fear and loathing new in the way that it does mr. Cornell and others . Why do you say no, no, this is a good thing. I know the system. This is a good thing. Heres one point. We havent discussed the nature of the companys that are leaving today, so in chicago, for example, when aen left they went to the uk, our best friends. When burger king left, they went to canada. Theyre not going to some tax haven. Wall greens tried to make a jail break not long ago. They werent successfully based on the politics. It seems to me like our tax code is an island thats dissolving underneath us. And weve got an opportunity for a transformational moment. What is the transformational moment, mr. Simon that we should seize . Why is your insight so helpful and what assurance do you have for people who have no interest in having an adverse impact on middle class families . Why is this a boon . My view is not to dramatically different from what mr. Cornell just described or the Retail Industry. The concerns that they have are real and if we can address those with an implementation mechanism or a safety net of sorts or a transitional plan for them on the other side of this, it will be very good for the country and thats the point that i came here to say today. I dont want to ignore nor bull doze their concerns because improperly implemented it will be very, very hurtful for the industry and the consumer, but if we take the time and do the work and sit down in a group and iron out, lay out what will look like i think it will be very successful for u. S. Manufacturing once the middle class jobs start to return to the country in the wage increases that would come with that, retail will start to see a new a new sort of resurgence in a period of growth. Right now the wind is coming out of retail sales because the wind is coming out of the middle class and the points about the buy fur indication of income have been well documented. There just arent enough people on the high end to keep all the Retail Locations that we have going and thats why theyre struggling but if we can rebuild a middle class through a Manufacturing Base, retail in the long run and i know everybodys dead, but in the long run well be better. The question is how do we get to the long run and thats what i like to get to discuss. A smooth transition is key. Time is expired. Mr. Dogget youre recognized. Thank you very much. I guess we do just have a basic disagreement in referring to america as a prison break. American is not a prison for american business. We have some of the most competitive businesses in the entire world and to refer to it as a prison break is also wrong in that the reason these companies have suddenly reannounced their american citizenship and gone abroad in many cases is because of the consistent refusing of our republican colleagues to support measures to put a stop to it. They wont close the door to those who want to do their business here in america and head off to ireland or the bahamas or the okayman islands and dr. Clausing has some impressive data about that that i would like to explore. Additionally weve already seen the path, the rainbow to the pot of gold followed once in this committee already with the results that will be achieved if we do it a second time and that is on the socalled Obamacare Repeal which was really nothing but a trillion dollars tax cut that were awarded certain special interests like pharmaceutical manufacturers and widen the income gap by giving the benefits to those at the top rather than to those at the middle class. Of course we dont know exactly how much it did that because it was rushed through this committee almost overnight and we still dont have a score from the Congressional Budget Office for that illadvised proposal even though they rushed it through, its still sitting on the speakers desk. They sent it over to the senate for action. Lets focus on the propaganda and methodology associated with todays proposal. The socalled better way. And one of the big aspects of the pot of gold thats out there waiting for us is 2. 6 trillion that just dieing to come back to america if we will treat it right. Dr. Clausing, i would like to ask you about this 2. 6 trillion in socalled stranded offshore earnings that could allegedly do so much good in creating jobs here in america. Is it true that much of that money can already been invested in the u. S. Economy without those multinationals paying a dime of tax on it unless they earn money from their investments here . Indeed arent a substantial portion of that 2. 6 trillion, isnt it already being held in wall street institutions right here on shore within the United States . Agreed. Yes, much of that money is offshore booked off shore for tax purposes but its still invested in u. S. Assets through u. S. Financial institutions. There are limits on what firms can do with that money. They cant give it back to their shareholders as dividends or Share Repurchases and this is why theyre very anxious to get ta money back but they can still borrow against those funds and the firms that have those funds abroad are some of the most credit worthy firms on the planet and they have no trouble financing new investments. And your paper shows that they, in fact, earn millions if not billions of dollars in interest in dividends right here in the United States on their offshore earnings today. Thats correct. Now, you mentioned the fact that theyd like to have this money back not to create jobs but to give hiring executives even more high earnings and to give their shareholders dividends and stock buy backs. Weve had a little experience in that before and how it just really appropriate the former chairman thomas was here because he was the author pushing through this committee what was called the american Jobs Creation act of 2004. How many jobs did that bill that this Committee Heard much of the same rhetoric that were hearing in support of this measure, how many jobs did that bill create . My understanding is that all economists that looked at this bill found that it didnt create a single job or single investment and this includes some people who advised george w. Bush who also looked in this. That money was used for dividends and Share Repurchases and some of the firms that repatriated the most money laid off workers. Its possible it did have a small job creation effect for lawyers or accountants because there was a lot of complexity in the bill as well. We were told by the chairman, follow the example of the Tax Foundation, do you think our companies will be more competitive if we adopt the estonia approach . Are they competitive today in the International Market . They, the slides i showed earlier indicates theyre quite competitive. We have profit that are 50 higher than they were in prior decades. Thank you. Time is expired. Mr. Bu cainen youre recognize i had. Thank you, mr. Chairman. I want to thank all of our witnesses for being here today. Dr. Lindsey, let me ask you, i think youve had as much to do with the blueprint as anybody. The economys growing anemic 1 on average, 1 1 2 i guess the last ten years. Was your thoughts when you talk about growing the economy at this plan from 3, 3. 5, 4 but i heard 3 1 2, what basis and what are the drivers thats going to drive it up from 1, 1 1 2 to 3 . Theres two steps here. The first is what i would call long run capacity. Have the same long run number that i do which is 2 3 4 percent. However to get to that capacity were likely to have a shortterm increase in investment. Thats actually the demand side of the proposal. Thats going to stimulate the economy in the short run. I think this is a very high multiplier tax cut in that regard. And thats how i think thats how i got to the numbers that i got to, both long run and short run. Let me ask you another question. One of my concerns and ive heard other people express it is the idea of budget deficits. When we came here almost ten years ago, it was 8 trillion and change and todays its 20 trillion. At some point it ends badly. I have a constitutional balanced bud yet amendment what does this do to our deficit longterm . It should be somewhat revenue neutrality ideally . Whats your thoughts on that . I scored out the longterm debt situation. I think on an annual basis the blueprint breaks even about in year six and i think that by year 12 the total cost of the deficit deficit cost of the bill will be covered. So long run, very long run i think its a positive and i think that its essentially a revenue neutral bill over 12 years. And my last my last question is on inversions. We do have a lot of Care Companies leaving america. Id like to think as a part of our tax planning this could be the best place on the planet to do business in terms of pro growth tax policy but theyre not moving the tax havens, theyre moving to our friends in canada and Great Britain where theyve cut their rates. In fact, i read someone said the the New York Times that the inversions in Great Britain have come down dramatically are pretty much quit. Whats your thoughts in terms of that differentiate between the inversion piece and the offshore money piece. Listen to mr. Doggets comments carefully and theres one component in which i think hes correct and that is that the money socalled kept overseas is in International Markets and i know people have said use thats for infrastructure. However, the tax revenue associated with that has not come to the u. S. Treasury. My colleague here estimates that the annual cost of that is 100 billion thats being lost to the u. S. Treasury. This bill fixes that. In addition, if you have a one time deemed repatriation depending on the rates you select, your liable to get perhaps as much as 200 billion. I dont know what the actual number is, depends on your rate, so yes, the money is International Markets, but the taxes on that money is not in the u. S. Treasury. It should be and the bill under consideration will do that. The other thing i would just as ive watched and been in business for 30 years before i got here is that people will move the difference states, florida, no state income tax, nevada you can name the states, they will move and move their businesses to other states and its the same thing in terms of moving in terms of inversions and other things. Not everybody, but some. Takes major consideration and major driver, dont you agree . The best thing we can do is long run for workers, for everyone is to make america the best place in the world in which to invest and start a business and hire people and i think this bill does that. Thank you. Mr. Chairman, i have two articles that id like unanimous consent placed in the record. Ones out of the the New York Times that points out that after eight years of steady growth the main economic concern in utah and a growing number of other states is no longer the lack of jobs but a lack of workers and it goes on to explain this shortage. Id like to have that. Without objection. The second one is a the wall street journal article that explains i think beautifully what the point that mr. Dogget was making as to what companies who repatriated monies from overseas spent that money on and i think it hits those points exactly and i think mr. Dogget was correct. Id like to have that put into the record. Without objection. Thank you. You mentioned your written testimony that the border adjustment tax would raise revenue but that that revenue was ultimately borrowed from future taxpayers. I want to make sure that people at home i want to make sure that people at home fully understand what this means and how its going to impact their pocket book. Can you elabor rate on that, please . Sure. At present we run a trade deficit and because of the size that deficit that means that when you tax imports and exempt exports from taxation on net the border tax will raise revenue and the Tax Policy Center estimates its about a trillion over ten years. But no country can run a trade deficit forever. Trade deficits entail a flip side which is borrowing from foreigners thats equal and opposite to the size of the trade deficit. So eventually when we repay that money, we will be running a trade surplus. In those years the import tax will raise less revenue than the export exemption costs the treasury. In the future our taxpayers will actually lose money from the border adjustment so that means that basically what were getting from that is revenue that were borrowing from future generations. I had someone come in and talk to me the other day about the effect that the border adjustment tax would have on their business. Theyre a Company Located in washington, 30 million, they make 30 million a year, employ 4,000 employees and what they sell, they buy from 31 other countries and there are items that wouldnt be made in this country, no matter what we do other than very low markup on this stuff and they told me if the v. A. T. Comes about, theyll make 30 million to losing 130 million a year. In other words, this Washington State company would close the doors five generations long company would close the door. I think thats something that we need to be concerned about, but the other side of that and its really become made clear today is our constituents, those consumers that buy those products and theres a couple of Companies Represented on the dais today that represent companies that those consumers, that buy those products, theyre going to be hurt and thats exactly i think what it is that ms. Clausing is talking about. Youre consumers are going to see their prices go up. The point about the wto impact. How would this playout . When would we see this happen . I represent a district that imports a lot of product overseas, i represent wine country in california and whenever theres a discussion about anybody retaliating, it doesnt take long before that conversation comes back to u. S. Exported wine. So can you tell me what our constituent companies are going to experience if retaliation becomes reality . Yeah, so our trading partners are already preparing suits to be followed with the dispute settlement mechanism of the wto. This dispute settlement mechanism, by the way, is something the u. S. Helped negotiate and something that serves our interest very well because often the wto will rule in our favor about disputes that we have too. The wto has over 106 member countries and it supervises a well functioning trading system. Once they authorize that our tax say direct tax which it is and thus it violates the wto obligations, that then gives the green light to trading partners to retaliate in an equal and opposite fashion and because of the size of this that will entail large tariff burdens. Thank you very much. Thank you and without objection i would seek to place in the record the Goldman Sachs report that estimates with no appreciation the dollar industry can actually cut their prices still maintain their current Profit Margins and with the dollar even partially adjusted, without objection. Mr. Smith, your recognized. Thank you, mr. Chairman and thank you to our witnesses here today for sharing your perspective and incites. I think this is an overdue conversation that we need to have and i think a constructive moment here as we do sift through the facts and i just think that the status quo with our tax code shows that we have great opportunity to change it, to be bold and to truly pursue growth oriented policies. I represent agriculture and the number one Agriculture District in the nation, certainly were pretty good at exporting things already. I dont want to jeopardize that but i also am concerned that there are still significant barriers and ma that mr. Luciano you stated that there are some barriers that are still out there that you feel that the tax proposals that are being made would be helpful in overcoming some of those obstacles. I am also concerned when with i hear professor clausing say that u. S. Multinationals are not paying very much tax and that the tax rates proposed in the tax reform plan are too low and that a better reform would be to expand the u. S. Worldwide tax system by eliminating deferral and now imposing immediate taxes on u. S. Companies worldwide income i believe would move our country in the exact opposite direction as our trading partners and i think a lot of the facts would point to that but mr. Luciano, can you talk about your perspective obviously, its a pretty broad perspective, i know you depend on ag producers, one at a time, being successful, hopefully on their productivity, their efficiency. Can you perhaps expound on how you think this plan might help and that also perhaps some of the notions that imposing immediate taxes on u. S. Companies worldwide income moving our country in a negative direction . Yes. Thank you for the question. This is all about balancing the Playing Field. When we compete with the other Companies Global Grain Companies will capitalize or they have the same technology that we have an experience we have, as i said before, we pay about 30 . I have two of them that pay in the low 20s. The rest in the midteens. Thats the kind of difference and in agriculture and the business were in, businesses models are very similar so its very similar to compare this. Its trade of commodities are very thin. These differences in income tax are astri no, maamcal and putting adm at this point a degrees advantage to other competitors and they have the flexibility to move their earnings or invest whatever they want which, you know, we are partially restricted to and the third point is that a lot of the exports are coming from countries that they refund the v. A. T. If you look at ukraine provides 20 refund of v. A. T. Argentina, 10 , germany, 19 . And then you have places that compete with us australia, canada or brazil that basically have internal consumption taxes that they are not assessed for exports. So theres no wonder that our market share of Global Commodities from the u. S. Exported to the world is declining and its going to continue to do so because were at a disadvantage. So to me this proposal addresses those three issues where were going to get jobs back to the Middle America through agriculture which i think is one of the true competitive advantage of the u. S. , inside the u. S. , the middle of the u. S. Still have. Thank you. I know that there are many challenges facing agriculture and i would hope that we would not complicate matters and that hopefully a growing economy will also help agriculture. Ms. Clausing, i think you suggested, but correct me if i am wrong, that perhaps the Corporate Tax code that we currently have is really not that bad. Now, i thought that perhaps some lower hanging fruit in terms of agreement on changing our tax code would fall in that corporate category, but i am i wrong. Youre wrong. I think that most economists across the political spectrum think that theres ample room for a fair improvement to the Corporate Tax system and i suggest what would that look like . But i believe it would include potentially a lower rate but combine that with closing the loopholes that we have presently. Right now some of the domestic firms pay, you know, much higher rates than this mobile multinationals. Thank you. Thank you, mr. Chairman. And i want to thank all the panelists. We always like to think that congress is about the vitality of ideas openly exchanged and today, mr. Chairman, youre to be commended because i think were witnessing that here. I also wanted to thank my colleague, mr. Ross com for pointing out and i share his sentiments about mr. Simon, i must confess a prejudice because of representing the city of hartford and also would note the strong feeling we share, i know on this side of the aisle and i dare say my colleagues on the opposite side of the aisle too. Whitney which is part of United Technologies. Its exemly in terms of what they do for their employees and i hope all manufacturers would take heed in terms of offering Free Education to further their training in any field paying for that and giving them time off. Thats a little plug for United Technologies and for the city of hartford and thank you for being here. Thank all the panelists. To get back to your point about manufacturing. If were going to revive the middle class and i think the disparity is, everyone on this committee has pointed out are pretty wellknown to everybody. The concern on this side is that what we see is this shift, this going to take place again, mr. Dogget pointed out that we saw that in health care and now it seems in the tax proposal that were going to see this again. Ms. Clausing you pointed out that that shift is very dramatic and what would result in this would be almost a thousand percent difference in term of what would be the share for the middle class versus the nations top 1 . Could you explain that . Those come from the Tax Policy Center estimates of the bill and thats a Nonpartisan Center and those are their estimates with the top 1 , we got 200,000 top cut and the bottom 80 would get a 200 tax cut. So thats a thousand fold difference. What mr. Lindseys testimony suggests is that if you had enough growth that could maybe counter some of those effects if you had enough investment that could raise wages, but i have some concerns about that as well. In particular, it seems odd to suggest that what we need is more after tax corporate profits to generate investment and wages when were at a period of historically very high corporate profits. And sometimes these growth forecasts can be a little too optimistic when they surveyed economists very recently about whether the trump growth forecast that went with his tax plan were, you know, accurate, 35 of 37 economists concluded that those growth forecasts were way too optimistic and when they asked the other two, why do you think its going to grow so quickly, it turns out they misread the question. So all 37 really disagreed with those optimistic growth estimates. I think its important that our budgets and our tax plans raise the revenue thats needed now without making valiant assumptions about growth. I think a number of our manufacturers and exporters and mr. Simon pointed out how this could work and i appreciate a lot of the optimism and concern that have been stressed. He mentioned caution as we go forward to make sure that we get this right. Being from a Strong Manufacturing state, what would be some of the risks for major manufacturers and is it clear that this is a clear winner or do we have to exhibit that caution and what would be your concerns, ms. Clausing . I think its a serious concern. I look back at all the countries that have adopted vats under floating Exchange Rate and there are only a handful of rich countries that have adopted vats under floating Exchange Rates to look at but if you look at that set of countries in three quarters of the cases the Exchange Rate moved in the wrong direction. So i guess my point is that Exchange Rate are very volatile. Its a very large market. We cant be sure its going to move in the right direction and by the right amount and that gives us a big risk for the industries it. If you look at the data, the vats also trade somewhat less than other countries and i think trade is an important part of a healthy Manufacturing Sector and many of our products are made with Global Supply chains throughout the world. Thank you and i again thank the panelists in many cases, many people have commented on this bill often times feel theyre trapped between this proposal and the white house and the senate but i want to assure people and thank them for being here today and the exchange of the ideas has been beneficial to the committee. Thank you. Enthusiasm, mr. Chairman for holding the hearing. Mr. Luciano, i have a question for you coming from kansas just to followup on the ag inquiry of my seatmate mr. Smith. In your testimony you talk about growing Global Demand for food. If we can get this International Tax reform right, how does that pair with increased Global Demand to put more money in the pockets of kansas farmers and how is the border adjustment help u. S. Farmers see a bigger and better market for their goods . Thank you for the question. So the world is growing in population and the population as i said before will reach 9 billion people in 2050. But the production is in only three parts of the world. The production is concentrated in north america, south america and eastern europe. So you have china has 22 of the world population, only 6 of the water, 8 of the land so they always going to be important. So you have this global middle class that needs to produce. The issue is this race between eastern europe, south america and the u. S. And both places, brazil or argentina or ukraine or romaina or russia, they have v. A. T. S that basically they discount when we export so the u. S. , the u. S. Farmer in kansas is actually at a disadvantage because when you form the price everybody else discount that tax and we add it to the tax. So were all just waiting for a level Playing Field. Theres no logical difference in the farmer in the u. S. And the farmer in russia. There is a competitive advantage that we have in logistics. We still have a competitive advantage. We still can ship something 1,500 miles cheaper than with argentina can ship it 300 kilometers, but the issue is with all the things that the farmer and Companies Like us can control, we are more competitive than the other countries. Only tax that makes a difference. So i dont think its the only factor, but i think that the proposal, the blue print, theres a lot of that delta. Thank you, mr. Chairman. I yield back. Thank you. I would like to welcome dr. Clausen, a constituent from reed college. I really appreciate your joining us, but first, mr. Chairman, i would like to enter into the record a letter to you from tim boyle, the chairman and ceo of Columbia Manufacturing in portland where he outlines the deep concerns his company has with the approach to a border adjustment tax. He also points out that they they transact with their foreign partners and contractors exclusively in u. S. Dollars and so the adjustment in terms of the current time objection. Have problems for them. And that most of the products that they are involved with are no longer manufactured in the United States and havent been for some time. Leaving them without choice so i appreciate your courtesy on that. I do appreciate the notion that youre talking about doing it right, trying to get the balance, your concern about having hollowed out the middle class and not being available to purchase and collapsing retail. Would it not be possible to stimulate demand here at home by putting people to work on Infrastructure Projects that cant be outsourced . If we were to do something radical like raise the gas tax, like dozens of republican states have done to improve infrastructure, wouldnt we be able to strengthen the middle class and purchase purchasing power by taking a step like that. Well, youre clearly out of my area of expertise when you Start Talking about infrastructure but anything that would provide. Havent your enterprises relied heavily on well functions american infrastructure . Absolutely. Problems with congestion or lack of reliability . Anything that builds good, solid strong middle class jobs would be good for the industry. But doesnt your business rely upon a well functioning american infrastructure . We certainly do and wed certainly love to see infrastructure improvements. I would like to turn dr. Clausen to a point that you made that i think is important. In your testimony i really appreciate that youre making a distinction that is not often made before this committee. Yes, there are some companies that are wildly disadvantaged and paid close to the statutory rate because they dont have as many opportunities to engineer the tax code, be you make a point that American International corporations have been very successful, they have higher profit rates than their competitors, that they have an effective tax rate that is very similar to what their competitors are because they take advantage of this stupid jerry rigged tax code and they spend time and jenergy engineering it but at the end, arent they basically at status quo . Arent they you say it better than i in your testimony. Yes, theres a big difference between label and reality in our tax system. So our label is a statutory tax rate of 35 but our reality treats different firms very differently from each other. Some domestics pay an amount close to the statutory rate but many multinational firms including some of the more aggressive profit shifters can get their rate down into the Single Digits so you have a big discrepancy there. Theres another label mismatch with the world wide and territorial. Our worldwide system some describe as a stupid territorial system and i think thats pretty accurate. Many multinational firms, most of them dont pay a single cent on their foreign profits. They leave them offshore and then they wait for the hopes that one of you guys will give them a holiday. You know, so where some of our trading partners who have purportedly territorial systems they tax immediately some of the foreign income thats earned because of their base erosion protections, through things that look a lot like a minimum tax. So we have to be careful about how we characterize the system. I think its important to look at the big picture the way that you do. But to have a broad brush socalled reform that puts us at risk for Companies Like Columbia Sportswear and sets us up in the future because we are not going to run huge trade deficits in perpetuity for significant revenue loss, it and your point about tax changes like this could incent people to have unnatural mergers simply because of the tax code like the aforementioned Archer Daniel midlands and walmart. We can do better than that and i think the committee can do better with that if we listen carefully to the information like youve presented. Thank you. Awful time is expired. Thank you, mr. Chairman and thank you all for providing very constructive testimony here today. I especially appreciate the opportunity to have a Great Minnesota Company have a part of this tax reform conversation which provides a good component to this discussion. The primary justification for the advocates of border adjustability is to end the special tax breaks for foreign products over American Products and to keep american businesses and jobs from moving overseas. And certainly given at the pace of American Companies moving their Head Quarters to other countries, inversions which we talked about earlier in recent year, its happened both in minnesota and across the country, you dont need to convince minnesotaians that something needs to be done. We need to make sure that america is a destination to not only invest but to build and create a business. But this has to be done in a very thoughtful way. A way that addresses the very real and valid concerns that mr. Cornell you raised today and others that have raised. I cannot support the adjustability as introduced last year in the blue print. I want this committee to listen, to be educated and address these concerns that weve heard as we move forward with reform. Last week we had a really good hearing. Its very important, we heard a lot about the positive effects that it would have in the form of more jobs. Of higher wages and greater Economic Growth and we also heard about the effects it would have on companies both large and small, up and down the supply chain at every level. So we know that tax policy impacts different businesses in different ways and we know the reform propose salts will Impact Industries in different ways. Weve got to focus that we are lifting everyone up and Economic Growth is a key component because i think of the four key principles as focusing on growth, simplicity, dealing with base erosion and dealing with perm nancy so you can count on with predictability and certainties your budgeting capital for five years, investing in your companies. Were giving you that confidence. You shared your views about border adjustability and you also mentioned we cant keep the status quo. You said we should have every tax provision out there, tax benefit should be on the table. I agree. So keeping that in mind, what might be some knowing that were working on fiscally responsible tax reform, revenue neutrality, what might be some policy recommendations that you would offer that should be key components of this reform effort as part of a comprehensive effort . Because its not just about cutting rates. Its about the comprehensive effort that you want to do. Again, im certainly not a tax expert. I run a Retail Business and deal with real consumers and real families and real employees every day. We would certainly like to see tax reform. As a company that pays one of the highest effective rates anywhere in america at 35 , wed certainly like to see that rate lowered so we can continue to invest in our business and see our business grow. Wed certainly like to see simplification. But as i listened this morning to the discussion theres one word i continue to hear repeated again and again and thats if. And if currency appreciates and if the gdp grows and if manufacturing comes back and if we can avoid trade wars, we certainly need to be sitting here working on something thats going to provide greater certainty to certainly the families we serve at target, my 320,000 employees, those Small Businesses that are in the back of the room. Its really hard for me to sit here today and craft a business plan, one thats focused on investing in america and strengthening my company and creating more jobs when i keep hearing these provisions that say, if this happens, and if these triggers are in place, i think we have to be focused on a plan that creates growth in america, but simplifies the tax code, gives us greater certainty so that we have greater certainty as i talk to families across america or interface with my team each and every day. I cant ask American Families to sit back and say, if these things happen, youll be okay. I cant sit with 320,000 employees, and let them know if all these things come to pass, our company will still be here. And i know for Small Business in america, they cant sit here today saying if all of these different factors come together theyll be okay. So id be happy to work with you. I think weve shown and demonstrated that to the chairman. Were really going to roll up our sleeves but i think we need much greater clarity and much more certainty going forward. And i would urge you to keep your seat at the table for that discussion. Because were counting on that as a part of the edge occasion effort. I yield back, mr. Chairman. Thank you, mr. Chairman. Great committee before us today. The panel and thank you for all of your testimony. Mr. Simon, theres a reason, you say in your testimony, that the middle class in the United States has struggled recently. It is the same reason the middle class in the other Global Markets has emerged. The Manufacturing Base has moved and jobs followed, unquote. Look, Manufacturing Base, thats an inanimate object. You, your companies and before even this panel in the past 25 years, you moved manufacturing. You moved it. You moved it offshore because it was cheaper labor and very few regulations. Youre entitled to your opinions as some would say, youre not entitled to your own set of facts. Now this is i look at this hearing today as act part of act ii, scene ii. Act i was what happened in 2001 and 2003 with promises attached as to what it would do to not only increase and help the economy, the Gross Domestic Product but also have it sustained. Question number one and question number two as it was obviously not sustained. Act ii began last week in our hearing. We had a search for anything in tax reform that even referred to the people in the other cars and the caboose. Everyone else was left offstage. Now, weve heard a lot today. That businesses in this country cannot compete globally because our taxes are too high. Id like to see real bipartisan revenue neutral tax reform that would benefit all americans while bringing down the top corporate rate to be more in line with our competitors around the world. I have no problem doing it. The number we can debate. I introduced legislation a few years back, bring jobs home act. I tried to get bipartisan support like i do all my legislation. My republican colleagues are clinging to a debunct idea. No, they believe in the idea that taxes, if you cut taxes at the top, all of that will trickle down and serve everyone. But firms in the United States already have, check this out, the highest higher after tax profits than in any time since the 1960s. Thats a fact of life. But theyre not investing those profits towards increased productivity. Theyre just paying out to wealthy shareholders. Corporations that are sitting on record profits today do not need to be showered with deficit tax cuts at a time when middle class wages are stag gnnant as some o you brugt up in your presentations. Its quite simply a misallocation of our resources. Further, u. S. Firms are extremely competitive, mr. Chairman, by any metric. The forbes global 2,000 lists the Largest Public Companies in the United States is disproportionately represented. The World Economic forum ranks the United States third in Global Competitiveness out of 138 countries. And lastly, with all the deductions and loopholes corporations employ, effective tax rates paid by profitable organizations and companies are closer to 25 , similar to or lower than the averages around the world. Manufacturing jobs arent moving abroad because really primarily the tax code, but because they seek low labor costs. So as long as factory workers in vietnam make 20 cents an hour, textile factories will continue to move there regardless of what tax we employ on whats coming across the border. We know what boosts productivity. We could informs in infrastructure and developing our work force and raising wages for middle class families and the working poor. Mr. Chairman, is my time up . Yes, sir, all time is expired. I had a lot more to say about it. I know. Moving to the one question. Mr. March, youre recognized. Thank you, mr. Chairman. We all have the same goals here today. We want a simpler, fairer tax code that significantly lowers personal pass through corporate rates and makes our Companies Competitive on the world stage. I think we can all agree on that. Mr. Cornell, what percentage of product that you sell in your store comes is brought in from overseas . Half of all the products we sell today are made right here in the United States. The other half obviously would be brought in from other countries so you take a look at the composition of our business today, eight of our top ten vendors are companies right here in the United States. Theyre Companies Like proctor and gamble in ohio or frito lay in plano, texas. Companies like kitchen aid in ohio. Johnson and johnson in new york. So its a balance. But the answer is about 50 . About 50 50. Mr. Simon, when you were affiliated with another major retailer, what what figure did you use . What was the common because of the heavy concentration of the food at walmart about two thirds of what of what theyd sell in the u. S. Is either grown or made in the u. S. So about a third. Two thirds. Two thirds. Okay. One of the big objections that ive heard today about the border adjustability tax is the uncertainty of how the currency would adjust and whether the currency would adjust and how how would you deal with a currency that adjusted . So mr. March, while were adjusting the microphones you might want to speak a little closer to the microphone. Id like to ask mr. Lindsay, how has retail across the world adjusted in the last three months while weve seen the dollar euro, the dollars lost about 8 against the euro in the last three or four weeks while weve been talking about this discussion and the pound has gained about 8 8 cents from 122 to 130 and then when we had the brexit, we had a drop in one day from 1. 60 down to 1. 20. So after all thats happened, what what have the companies that are adjusting the currency, mr. Simon and mr. Cornell, how has your company dealt with those currency swings . We have currency experts that look at this all the time. There are a number of other factors that you have to consider as we think about changes in costs. Currency is one of them. Commodity prices tend to change and those are impacted by a number of different variables starting with weather. Extreme freezes, extreme heat, floods and droughts, trmgs co s transportation costs can be impacted. But how are companies dealing with these kind of currencies . Well, first of all, lets take the example of border adjust blts. All of the countries, the 160 countries that have border adjustability amazingly have Retail Sectors that havent been wiped out. Soy think the claims of the damage that will be done to those companies is exaggerated. What companies do, first of all, is there are currency hedgers, they take up positions in various currencies. The other thing that happens is one of the reasons the currencies adjust is these folks have market power. To imagine that walmart doesnt or target doesnt have market power with regard to chinese sweat shops i find kind of silly and in fact, what will happen. Is chinese understand that perfectly well and they will adjust their currency. There is no doubt in my mind that they will do it and then thats why theres not really an issue here. I think one of the other important factors we all need to recognize is for a company like target and i can speak for many others in the Retail Industry today, our contracts are dollar denominated. They are today, they will be tomorrow, and the vendors that we work with, their Raw Materials are largely dollar denominated so i think we have to recognize the u. S. Dollar is the global currency. Thank you. Mr. Kelly, youre recognized. Thank you, chairman. And thank you all for being here. And please dont take this as disrespect, mr. Lindsey and mr. Clausen. I wanted to talk to the people that are actually in the Retail Business. Im an automobile dealer. Im not someone who grew up on a laptop. I grew up on blacktop and i talk to moms and dads trying to make sure that their budgets are workable and whenever i sit down with people to see if we can get to some type of solution for their transportation problem its always the wife who makes the final determination of whether they can afford or not afford to buy a new car or new truck and sometimes the difference is five dollars a month. Now, in washington, d. C. , they go oh, no, that cant be possible. Please come home with me and see what blue collar people go through every single day of their life. Thats why i wanted to ask you, because youre in the Retail Business, and my concern is the final price on the shelf for those folks that pick up the tab on every single thing this wonderful government does in their name, so if you can just tell me and im just going to see how you talked about things happening. Mr. Cornell you talked about things happening at target which my wife is addicted to being there every sunday after mass and walmart i go to quite a bit because theyre all in my time. The effect, the actual effect on everyday americans. Because the Global Supply chain has changed. I also have in my pocket labels which i would love to share with people to show parts content because thats truly the complication of how do you tax different pieces, so if you can tell us and theres not enough time to do it. Five minutes is not nearly enough time to talk about this huge proposal. How does this affect the price on the shelf and how would it affect consumers as we go down this road. I know we have to pay for these tax cuts but i dont want them to back up hardworking everyday american taxpayers. I think ill stay with mr. Cornell for today. But we talk to consumers all the time. I have 30 million shoppers in our stores every single week. I spend time with them in our stores and in their homes. And to your point, these are families, middle class families on a budget. And for those families as we look at the implications, i think the unintended implications of the new border adjustability tax, we know that their prices will go up on essential items. Theyll pay 20 more for apparel. Ill spend a few minutes explaining why. On back to school items. Theyre also going to spend more on essential items like produce that in the winter we dont grow in the United States. They come from mexico and chile. Were not going to be growing bananas any time soon in ohio or coffee beans in michigan so that basic american family, theyre going to pay higher prices. Weve talked about manufacturing coming back to the u. S. And id certainly love to see that happen. But i also know that mr. Simon talked about this. For many of the supply chains they dont exist here in the u. S. Right now. 97 97 of all of the apparel we buy in the u. S. Is made outside the u. S. Those supply chains dont exist here. So i know under the new border adjustability tax, the prices we pay that those moms pay to buy apparel and clothing for their kids, they go up. And right now, i can tell you when i sit with them, theyre on a budget. At the start of the month when they get a paycheck in their family, theyre loading up their pantry, theyre buying a few unique things for their family. By the end of the month theyre counting their final dollars, so weve got to make sure we understand the impact on American Consumers. All of the Electronic Devices we all love, all of our phones and tablets, those supply chains are not here in the u. S. Let me stop you for one second. How many employees do you have . I have 320,000 employees, 99 of which are right here many the u. S. Mr. Simon . Well, im retired now. I have one. But when you werent retired. 1. 3 million. 1. 3 million. 32,000 globally. 20,000 in the u. S. But i want to make it really clear. We go into political talking points rather than good policy here, how can we attack the other side. I would like to remind everybody thats sitting on this panel, in addition to paying taxes on your profits, theres a huge item there called wage taxes. Theres business privilege taxes, theres real estate taxes that actually propel all the wonderful programs this nation supplies for its people and i think sometimes we miss the bigger part of this. It is you that is responsible or makes up all the revenue for Social Security, for medicare, all these wonderful programs that we have come out of wage taxes and i think that we better take a look at are we going to eliminate people who are working . Theyre the ones that pick up the tab on all these wonderful things. I thank you for being here with us and were going to do this on board. Ill submit for the record, Research Shows that the dollar didnt adjust at all, which no one believes. Retailers would need to raise prices 5 on average to offset it and 2 final parts retailers without objections so dr. Davis, youre recognized. Thank you very much, mr. Chairman and i too want to thank our witnesses. Its very interesting hearing and i think in order to understand how these tax proposals will affect our constituents, we must examine them in light of the republican Budget Priorities released today. This budget, which cuts hundreds of billions of dollars. From the most vulnerable americans, this budget which makes draconian cuts in food stamps, meal on wheels, assistance and support for the extremely poor, elderly and disabled people particularly targeting families with disabled children, it eliminates the social services blocked grant that funds critical Child Welfare and youth services, and evis rates our health, education and job training supports. The trump republican tax plan amp ampli amplify the harm from these mean spirited policies by taking even more from these families to give an average tax cut of at least 15 million a year to the wealthiest 400 families and the most profitable corporations, in sharp contrast to the minimal 250 relief for middle class families. In addition, these untested tax policies promises to shout our vulnerable Economic System in a time of stagnant wages, heightened economic insecurity, appalling wealth gaps and shocks to the work force from trade agreements and technological advances, the republican plan could send prices at stores skyrocketing by 20 and force huge job losses in the Retail Sector, which would certainly undermine my city, my state, and our nation. Professor classen, given the republican policies to drastically cut federal support to middle and working class families on the spending side, i am deeply concerned about the possible harm to these same families from these tax policies. Could you expand on your concerns about the potential shock to our Economic System and how it could affect jobs, income and cost to families . Sure. This tax system, while border adjusted in similar and some respects to that really has no precedent. There isnt another country that does a border adjusted Corporate Tax. And so that makes it fundamentally different. I think the biggest risk to households really do come from the possible absence of adequate Exchange Rate appreciation. But this is an untested plan and there are other types of risks too. Lets say that a dollar does appreciate by the amount they said it would to 25 immediately. That could create an emerging market crisis. There is 9 trillion worth of dollar denominated debt in the World Economy, and mr. Cornell is exactly right. The dollar is a unique currency in the world system and so when the dollar appreciates, that can harm the entire World Economy which again, can hurt the middle class. Because the middle class is dependent on International Trade whether they have export jobs or whether they have jobs that are import industries. So between the the fears of higher costs and the fears of job loss in traded intensive sectors, those would be my big concerns. Thank you. All time is expired. Thank you, mr. Chairman. I want to thank the witnesses for being here. I i believe getting tax legislation signed in law is absolutely critical to getting our economy growing. I must admit ive been skeptical of the border adjustment as a central element of the blue print but i am trying not to be. Its not because i oppose border adjustment in all context. As many of you know im a vong supporter of a more conventional adjustment tax. Does border adjustment adjustability and the blue print pick winners and losers . Who will the tax burden shift to and is it compliant with our International Treaty obligations . Its just three simple questions. From what ive heard today the answer to the first two hinges on economic theory. Market analysts and currency experts have been skeptical, wall street firms believe theres a large potential for disruption and could cause volatility in the market. With respect to question three, it really seems at best border adjustment is a case of First Impression or at worst, its a flagrant violation of our international obligations. Im also hearing very real concerns from ohio where i represent. Coffee beans generally come from High Altitude mountains, you just cant buy much u. S. Grown coffee here in america. Border adjustment would increase the price of coffee. Im very concerned for the low Margin Companies in my district that rely on imported goods, not primarily produced in the United States whether that be coffee or any other good that can only be imported. So look, im a business guy like mr. Kelly, a cpa, a tax practitioner. I understand taxes and i understand business. Ive been in the Business World for 30 years. Ive made all of my decisions on factual background, normally not on economic theory. In fact, economic theory in many cases in a Business World can be troubling if you do it the wrong way as you all know. So to each witnesses can any of you assure me that the currency will adjust so that there will be no effect to the cost of our consumers . Yes or no to each one of you . No, i cant. Anybody . No. Theres going to be an effect to our consumers. I think it will be extremely minimal. Okay. But there is an effect. Mr. Land soindsey you gave an a to my third concern. Do you have any experience to know whether this will pass, wto . No one will know whether it can pass wto until its brought there. No one could possibly know the answer to that question. Anybody else . Do you think yes or no. I dont think it will based on discussions with lots of trade lawyers. Any other individuals. Difficult to know. Its very difficult to know. Mr. Lindsey, im going to come back to you. You said wto is a european organization. Isnt it true that European Border adjustments do not allow for adjustment of labor and if it did, the same thing with our bat concept it would become a vat and therefore would be wto compliant . Yes or no. No, let me describe exactly what the europeans did. What they did is they put on a vat and then they cut other taxes with the revenue they got. I understand. So essentially what they did was exactly what the bat do. Exactly. But if labor was eliminated we would have the same thing. But they what they did was to reduce other taxes on labor. I understand that. With it. So thats why i think it will pass wto muster because essentially the europeans did exactly what this tax ive got a couple other questions. Mr. Simon, you indicate in your testimony long implementation period for this to work. In the 1950s, 90 American Companies made tvs. Today theres not a single American Company making tvs and there hasnt been in over 20 years. How long on average do you think it would take to get American Companies back in the business of making tvs . Because you said a long implementation period. Id like to know what that means. Tvs are being assembled in the u. S. For the First Time Since the 70s today with a progression of making them in the u. S. The same thing about bicycles. They started in South Carolina in assembly and theyre moving into paint and powder and rolled steel. It takes time and the process for bicycles has taken four years. You said this bill is the best way to make america the most competitive place in the Business World. Is this the only way to get this accomplished, this bill . Is it the only way . Im not this is the best way that i have seen to get it done. So far . Thats correct. And im, by the way, very supportive of what was called for here, which is careful implementation, fazing in and things like that. Im a big supporter of it and what i hear from the chairman and others is that they are too. I think that will happen. I thank you all. Time is expired. Thank you, mr. Chairman. My name is christy, i represent the entire state of South Carolina and i go to walmart to get a lot of things i need but i go to target for fun. So our family appreciates you being in towns in South Carolina because we dont have a lot of options. Im concerned about Small Businesses. Thats the life blood of South Carolina, but our number one industry is agriculture which supports all the Small Businesses in our state and our families. I wanted to talk to you about that because we read over and over again about Large Companies being bought out by companies not from the United States especially in the agriculture industry. Were seeing concentration happening in Chinese Companies specifically coming in and purchasing Large Chemical Companies and other within the agricultural industry. Do you believe that our tax code and policies have perpetuated this problem that we see, this consolidation happening in the industry, but also we see it the ownership changing to other countries and how thats impacting the United States and what in this proposal could be beneficial in stopping that type of change that we dont believe is necessarily i dont believe necessarily is in the nations best interest . And i have a followup question when youre done with that one too. First of all, congressman, let me thank you on behalf of adm for your personal leadership and for both bio fuels overall and for bio to the industry. Thank you. I appreciate that. I think frthis proposal help improve the competitiveness of the industry. The fight for grabbing sources of food as you describe is very important, very strategic whether you are in the middle east, whether you are in china, whether you already know those places, where you have more production than population actually and we have that and south america has that and the black sea has that, so whether we can stop that, i mean, i im not sure any proposal can stop if china determines that strategically they need to unresource us. I think it can allow us for the u. S. Farmer to continue to invest and for us to have the ability to help the farmer to become more competitive by investing in infrastructure, but investing in support for the farmer and i think thats what it limits. When i worry very much about loosing competitiveness and losing share, what i said in my oral testimony because once you lose a customer, once you present to that customer that you are not reliable supplier because you are retreating, things change and when somebody in egypt that has been using our wheat for years to make bread starts to use some wheat from romania, things change and they adapt recipes and all that and then they dont want you become a secondary supplier. A supplier of last resort instead of the primary suppliers and we are slowly going into that direction so to me, this has raised how to restore the profitability and the competitiveness. Im a life long farmer and rancher. When i talk about the bat at other farmers and ranchers i talk about it when our beef leaves the United States, its taxed, they add another tariff to it which makes it unaffordable and the bat could make it more affordable if we didnt do that. But a lot of the farmers and the ranchers are worried. Theyre concerned that with the bat that potentially they sell their commodity to adm. Adm keeps more of a profit margin, doesnt necessarily let it flow down no those guys producing the actual crops, the actual commodities. How would you answer that concern . I face that quite often that yeah, maybe the Big Companies that market the grain overseas get a bigger profit but how is that going to help my pocketbook . Its a very good question. In the u. S. The product is coming, we have this system, so but you have to understand adm does not thrive unless there is a thriving farmer. We dont own land. We dont farm, so we cannot export. I mean, individually. The farmer cannot export, we cannot export the production that doesnt exist. So we work with the farmer. Our farmers are our partners and we spend a lot of time in this Community Supporting the farmer. If you go and see what we do every day in an elevator, you go into an elevator, it might have six commercial people from our side, i mean, in a storage unit or origination unit and then youre going to have six or seven farmers sitting out there reading the newspaper but evaluating what they should do and getting from adm what they should plan, so it adm does not exist without the farmer. Thank you. Appreciate that. Ms. Sanchez, youre recognized. Thank you mr. Chairman and to our witnesses for being here today. Id like to enter into the record Bloomberg News article in which treasury secretary states it doesnt create a level Playing Field. It has very impacts on different companies. It has the potential to pass on significant cost to the consu r consumer. Without objection. An interesting mix of perspectives on what most consider to be the center piece of the republican tax reform plan and i think its high time that we began to dig into this brand new proposal thats blind sided everybody last year. I happen to believe that this this size proposal of this size deserves some thoughtful consideration and im pleased that were finally starting that process today. But i cant help but note that i wish we were here discussing a bipartisan idea that came together through substantive Committee Process rather than a few pages of talking points. I want to share some of the concerns that my colleagues have highlighted. Number one is an ill advised gamble on the value of the u. S. Dollar to not tank economic markets should the rate not adjust immediately to the very optimistically projected levels. Second, the fear that adopting the republican plan would set the United States up for a huge loss at the wto which could have lasting implications on domestic producers and consumers for many years to come and thirdly, a system that could insent vise some of the largest corporate exporters to merge with large importers creating even bigger multinational corporations to gain the new tax system. Those are just three of my concerns. Ms. Clausing, id like to spend my time focusing on the issue of distribution in the slides that you provided. I find those numbers to be truly staggering so can you provide more insight into how the republican plan not only exacerbates the divide between the rich and the poor in this country but how the middle class household specifically will be squeezed by this policy . Sure. Youre exactly right to focus on income distribution. Its been a big issue for the last 35 years. If you look at the last 35 years of data, youll see that the middle class wages have been growing very slowly and that the vast majority of gdp growth has gone to those at the top of the income distribution, so this is an important thing to consider. The problem with this tax plan is that the tax cut is much higher for those at the very top of the distribution whove already been benefit ago lot from the Global Economy and from technological change and from other forces that have been hitting our economy. So it seems in a way the opposite of what you would want to do. When you have shocks to an economy like trade disruption, technological change and other things, you want the tax system to sort of insulate people from shock so that everybodys after tax income can go up, you know, a rising tide should lift all boats. But if your response to those shocks is to give a huge tax cut at the top, the top 1 and give 200 to the bottom 80 then thats going to be the opposite of what would be helpful in the current context. Following up on that, right now middle class families in my district are forced to make what i call unwinnable choices such as using the majority of one parents salary to pay for child care or having a parent leave the Work Force Entirely because the cost of child care means that what they effectively take home at the end of the year is not going to is not worth it. And i think we should be highlighting those issues that we force our constituents to try to figure out, you know, for themselves, when we have a tax code that can help blunt those effects and and hopefully make those working families not have to make those difficult choices, so with if time i have left id like you to address alternative ways that we could address International Tax reform in a way that would actually help working families. Absolutely. Theres a lot of good ways that we could do better to protect our Corporate Tax base from erosion. One option is to simply end deferal and combine that with a lower rate, but a minimum tax done on a per country basis could also be very effective. 98 of all of the Profit Shifting is done with countries that have effective tax rates below 15 and 80 is done with just a few havens, so expanding the Corporate Tax base would help buttress revenues and thats important because a lot of our priority, including infrastructure, health care, education, require revenue so having a revenue base is important. Thank you so much for your testimony. I yield back. Thank you. Mr. Holden, youre recognized. Thank you, mr. Chairman. I think we all agree weve got a tax code thats 30 years old and despite having an economy thats vastly different than it was 30 years ago and i think we can all probably agree that we need to undertake a permanent comprehensive tax reform. My concern, like i know the concern of a lot of us here for eight years weve had ballooning debt, well over 20 trillion. We need to insure that we put in place a tax code that spurs the economy in a fiscal way and promotes growth and puts us in a position to be able to reduce the debt. So im worried when i hear from ms. Clausings testimony when she states that when trade deficits turn into surpluses the border adjustment will lose revenue. So mr. Lindsey, do you agree with this statement and could you walk us through the impact that the border adjustment will have perhaps on the deficit long and short term . Certainly, mr. Holding. Id also take just 30 seconds to say what to comment on something congresswoman sanchez just said. That this was a new idea that was just sprung at us in talking points. This was a tax system, a tax structure. It was discussed when i was in graduate school and was considered one of the best systems we could have and i assure you i was not in graduate school yesterday. As to the your particular question, im sorry. The particular question has to do with the border adjustment. Right. Being permanent. Thank you. See, i wasnt in school yesterday. I tend to forget things. First of all, we have had a trade deficit now for 50 years. So saying that trade deficits will turn into surpluses is gives new meaning to the word theoretical. However, i think that the right thing to focus on is how we finance that trade deficit. And what we do now is we basically put it on our credit card. We sell our debt overseas. That is the main way we finance it. This is called the capital account. What this bill will do instead is it will finance it by encouraging Foreign Direct Investment into america. And i think that is a much better way of financing a trade deficit than simply selling treasury bonds. The another function that were trying to get, a goal were trying to reach is protecting our national tax base. The from base erosion, whether it be from the erosion of the Corporate Tax base and i also think we feed to be worried about the erosion of our Human Capital base here. Its a stunning fact that the number of ex petriuations from the United States has been rising just at a tremendous rate in 2016 we had 5,400 people ex patri patriotuate from the United States. Mr. Chairman, for the id like to introduce into the record a recent article from the international kax clautax claus. Without objection. Back to the tax base on a corporate level. Is there any other plan that achieves other than the border adjustment what were trying to achieve with protecting the national tax base . Yes, theres a lot been discussed and some of the comments have come out today and this committee considered a number of options a few years ago to try and crack down on the ability of firms to go overseas. You know, theres theres an old saying that the beatings will stop once morale improves, which i think kind of has it backwards. And what i think we need to focus on is that all of those other plans punish American Companies by putting more rules on American Companies but do not touch Foreign Companies and i just think that is simply the wrong way to go about it. We need to start thinking about why it should be attractive to be head quartered in america and why it should be attractive to move our production facilities here. Thank you. Mr. Chairman, i yield back. Mr. Higgins, youre recognized. Thank you, mr. Chairman. I the border assessment adjustment tax is a poorly conceived tax, because it will be adjusted a second time domestically internally in higher Consumer Prices for every american. Target and walmart dont make things. They sell to americans who other countries make. Particularly china. Americas 5 of the worlds population and 23 of the worlds economy. The United States is the Worlds Largest economy and 70 consumption, we consume much more than we make. China is 20 of the worlds population and 9 of the worlds economy. Americas largest goods trading partner is china. Last year we sold to china 115 billion worth of goods and they sold to us 462 billion. We had a goods trade deficit with china last year of 347 billion. So the border adjustment tax will hit china mostly, which i would be okay with, but we know that the border adjustment tax will really result in higher Consumer Prices and hurt american retailers. There is lots of tough talk in washington about challenging chinas ambitions to become the worlds economic leader. But that tough talk lacks guts or backbone. What do i mean by this . Washington whines about chinas currency manipulation, about chinas poor quality of their air and their water and their land, about how poorly they treat their own people. But you know what china just did . China announced a 1 trillion investment to open up china, to connect to 47 other asian countries, to sell the stuff that they make to 47 brand new markets, much more efficiently. The United States under this administration is looking inward. The United States wants to build a 38 billion wall along its southern border and the United States has responded to 2 trillion in infrastructure needs with a pathetically weak investment american infrastructure maybe. Look, i think you get the point. China is making an aggressive challenge to the United States leadership in the world. China knows that infrastructure is how you dominate. Chinas peaceful rise is driven by Economic Growth rather than military force. The United States under this administration wants to spend another 50 billion on war. Wants to take health care from those who need it most, and has a tax scheme to take away money from those who need it to give it to people who dont. Im not quite sure what im missing here, but a tax policy that doesnt put money into the hands of people that will spend it in the Worlds Largest economy that is 70 consumption is a policy that cant work. I often hear here that these tax cuts will pay for themselves. There is not a tax cut in Human History that has paid for itself. The most conservative, economic estimates are that maybe a third of tax cuts would be paid for by ensuing Economic Growth. What you have to do to grow your economy is to invest in it. The people to bring them to and beyond the current technology, your infrastructure, which based on any objective analysis puts the quality of our infrastructure at a very, very poor rate as it relates to the rest of the world. So you can talk about tax policy, all we want here, but unless were going to back it up with serious investments to compete on a global scale with places like china, the platitudes about where we want our tax policy to take us will never take us there. Ive pretty much used all the time and i apologize for that, but i think its a statement that needed to be made and i think its very important and relative to this debate. I yield back. Thank you, mr. Chairman. This is going to be one of these hearings when we all go back and read the transcripts its going to be absolutely fascinating trying to follow some of the intellectual consistency on the lines but now we have heard our brothers and sisters on the left are supporting much more trade and these other things. I cannot wait to grab my highlighter and go over this. Mr. Simon, you have one of the most unique work experiences in history and that was a Massive Company trying to restructure parts of your supply chain. Can you tell put a little more detail on that experience . Because i just a moment ago which your company i absolutely love, its in my neighborhood but we grow vegetables in arizona in the winter. We provide the nations lettuce crop and we can do a lot more but right now the rest of the world has a financial or by traz on us by the rest of the border. Well, mr. Cornells right. 97 of apparel is made outside of the u. S. Today. A good percentage of it is made with american cotton, so imagine the irony. Cotton grown in the u. S. , 12 million bails exported and reimported into the u. S. It makes no sense. The labor component isnt the driver of that. We have transportation in two directions and all the other things that go with it, but my motherinlaw in North Carolina used to make blue jeans atz a factory there, and that product migrated. It migrated because the initially labor, but eventually tax and infrastructure eroded. In order for it to come back it needs we need to rejigger the puzzle pieces. We need incentives that will allow that to happen. It wont happen on its own. We cant survive as a service economy, the yesman mentioned a economy. It is. But i cant go to the movies and you cant go to the restaurant everyday and have the economy be buoyant. We have to make things. Did you have that experience where a product that as walmart had been an International Supply chain and the skepticism and then a couple years later you had found a way to domestically source . Every product at walmart has been able to repetriuate and the list is quite long now. It has taken an incredible amount of effort from both the supplier and the company. They sit down and they analyze the cost components of every single leg along the way, and were overcoming 30 years of muscle memory where the things the way weve done things, the way we accounted for costs that are in the system, costs like currency and we had that discussion earlier. Currency most companies is a footnote on their earning statement. They say our earnings were 3 a share. Thats up or down versus last year because of currency. And then wall street usually doesnt reward our penalize currency adjustment. Our whole thinking isnt around currency adjustments its about how much earnings per share can you deliver. We found out that the transportation costs and the time value of money from pain, fob in shanghai versus delivery at your dock in delaware is three months. And that three months on, you know, a billion dollars of imports is a significant amount of money. So as you restructure your supply chains you also have to restructure your practices and the way you look at your business. It has everything from currency exposures to environmental costs to moving things. Hopefully we have a universal agreement of all the members on the right and left here, we actually have a wealth gap issue. We actually have an income Worker Mobility issue. And yet i keep hearing taking little shots at each other, almost defense of the status quo, which is absurd. And as we sort of walk through this, look, im fix sated on some of the technologies. Weve been talking about apparel and the articles that are coming out that last year we now know how to laser cut cloth where before that was the excuse why it had to be done with labor, now we have a technology that can change that capacity. There are Technological Solutions that actually will make repatriation of some of these supply chains possible. And im theres so many things. Ms. Clausen, can you help me just because you said a couple things i found absolutely fascinating. I must give you a compliment. Ive been reading some of the things youve done. Thank you for being a person of the left but also caring about whats happening debt wise and the destruction that does for our next generation and why we must actually step up and deal with it. That i yield back. Thank you. Thank you, mr. Chair. Thanks to all of you for being here today and professor clausen for being here from my alma mater. Actually i want to start with a question for you. Ive heard from small brewers in my district, theyre very concerned about the border adjustment proposal because they rely on imported ingredients in barrels to produce specialty beers and often they only sell domestically. So despite the fact that theyre supporting jobs and Economic Activity right here at home, they would be hit by border adjustment with no offset. And so i wondered, do you agree with that . How would you respond to their concerns . Yes. I agree that there are substantial risks here to importintensive industries because of the possibility that the Exchange Rate wont adjust perfectly. And one thing that this testimony has reminded me of is the fact that we cant really do everything in one country. Like we have International Trade for a reason. We dont want absolutely everything to be done in the United States. It might make more sense to do the apparel abroad. But that doesnt mean, you know, that we cant be sensitive in terms of thinking about how trade has affected American Workers. One way you can help the workers who have been hurt by the down sides of International Trade is by a tax system that favors, for instance, the earned income tax credit, the low end or middle incomes as well. But there are many industries, including brewing and the wine makers of oregon and others that are worried about this because of the possible lack of an Exchange Rate offset. Are taxes similar, we talk about things that we generally talk about physical goods, the movement of something or nexus where something is located. I wonder if you can comment on Digital Goods and intangible goods, how they would be treated right now under this proposal or do we even have enough information to have a sense of how they would be treated . One of the difficult things with Digital Goods is that theyre more difficult to observe. This has actually raised a huge issue with countries that have vats, for instance. Because they need to observe the passage of a good across a border and with a digital good thats often difficult to observe. So that generates possible avoidance opportunities. In general, the economic literature and tax asian suggests that the more physical or real something is the less responsive it is to taxes. So if you look, for instance, to u. S. Multinational firms where they have jobs abroad is often other countries that have high tax rates and high regulations. But where they have their profits are in these low tax havens. So you get this big difference in how responsive things are to tax based on how easy they are to move and Digital Goods are one example of things that are very, very easy to move. Do we have enough information right now in terms of how border adjustment in particular might impact Digital Goods specifically this plan . I think it would raise enforcement concerns. This is one of several things that havent been fully worked out in a plan. Another big issue is finance because the Financial Sector would have to be treated differently under this plan and this creates huge headaches in terms of thinking about how to administer this tax with respect to Financial Sector. One other issue that was eluded to earlier is that manufacturing is moving to more automation, using technology, artificial intelligence, robots. So it may not be used as many people for that work. And if we look going forward, do economists look at this as we estimate kind of future impact and impact on families and workers . Is that part of the modelling . I havent heard people talking about that as much. I think technological change is a huge issue. One thing to think about when we think about what it means to bring Something Back to the United States, if we bring it back and we use robots to make it, its not clear that thats generating any more american jobs than if we left it somewhere else. Adapting to technological change requires both tax policy thats sensitive to the needs of the middle class but also spending policy. We want workers who can use technology to their advantage, not be replaced by it. So if you have an engineering degree or you write software, technology is your friend. But if youre a lowskilled worker, technology hurts you. So the answer to that seems to be upgrading the skill levels of our population and thats going to require investments in education and investments in infrastructure, not just hard infrastructure like roads but other types of infrastructure like internet access, computing access and the like. So i think our Spending Priorities need to reflect that. Thank you very much. And mr. Chair, i yield back. Thank you. I have a question for you, mr. Lindsey. If you have an American Company and an Irish Company and they both make the exact same product and they both compete worldwide for the materials to make that product and they both compete worldwide for customers to sell that product to, and the American Company pays 35 income tax and the Irish Company pays a 13 income tax in a vat k you tell me the outcome of that story . Its very simple. Obviously the Irish Company is well advantaged. So the American Company is going to end up bankrupt, right . Or bought by the Irish Company, correct . Well certainly going to be less competitive. Theres no question. Do you disagree with that, ms. Clausing . I think some of the competitive issues here are misunderstood n particular any company thats serving you disagree with that . Yeah, i disagree. You know, i asked that theoretical question all the time. Youre the first person ive heard disagree with that, but that point i ask as a theoretical question, but we have a real live instance of it right here. The gentleman made the best case point for that than i ever could when he says our american manufacturers are facing competition from ukraine and from brazil on grain exports, correct . And they have for what period of time . What period of time have we faced this competition . Well, we face it for the last 50 years, but i will say in the last five years of accelerated significance. And brazil and ukraine have these consumption taxes that were talking about here, the border adjustment, is that correct . Thats correct. So the effect of that as you said earlier is that on to sell to worldwide marketsts their co, the price they charge for their product is less, by how much . Enough to make the u. S. Uncompetitive for long periods of time. So if china is one of the big markets for our agricultural exports, the question is i suppose, if our tax system, our income tax system creates a 15 higher cost on American Farmers, are the chinese going to pay 15 more for american corn than they are for ukrainian corn or brazilian corn, is that right . I think what would end up happening is that the actual price that the u. S. Farmer will get for the product in order to compete with those markets will be lower, the price that the brazilian farmer or ukrainian farmer. But weve seen the effects of it already over the last decades, right . What has been the effect . Whats happened to our market share . We have been declining. We lost it by half. Mr. Lindsey, does that line of reasoning just apply to Agricultural Products or does it apply to any other products made in america with this higher tax bracket . Sorry. Obviously it applies to all products. I would also point out the number of companies, how Many Companies have switched and moved intellectual property from here to ireland versus the number of Irish Companies that have moved back. I think i would point out to the Ranking Member how smart the irish are in this regard. Well, you know, and they are. Theyve designed a tax system that has a low income tax and a higher vat, correct . Why would they do such a thing . Why would the irish do such a thing . Yeah. Because theyre very clever people. They want to be competitive, correct . They want to be competitive. And its worked, hasnt it. It has worked beautifully. Ireland 30 years ago was not a particularly prosperous place. Now it is. And theyve done a very good job. I think that if the Playing Field is level, the American Worker can compete with anybody. But since 1986 washington has stood by and let the rest of the world tilt the Playing Field against the American Worker. My friends on the left spend their time arguing about the distribution of the tax reductions. And i sure want to work and make that fair. But in my opinion, that is small potatoes. Median Household Income in the United States is just about equal today to what it was in 1990. The american middle class has not had a raise in 27 years. The american middle class is 50 of the population in 1990. Today its 43 . So our middle class is shrinking and its income is stagnant. We have to do better. We cant stay where we are. In my opinion, the growth in gdp from this plan will dwarf any reduction in taxes. In my opinion, well see a resurgence in American Manufacturing and resurgence in the american middle class, in my opinion we will see a reduction in income disparity. I yield back, mr. Chairman. Thank you. Mr. Chairman, thank you for hosting yet another important hearing on comprehensive tax reform. And i thank the witnesses for their participation today. I would to build on my comments from last week and reiterate my support for permanent, revenue neutral and comprehensive tax reform as the surest way to bring the u. S. Economy into the 21st century. Again, im pleased to hear that theres so much bipartisan consensus in favor of permanent revenue neutral tax reform. I think thats absolutely critical, as it is important that individuals and as families as well as businesses of all sizes have confidence in knowing their tax system is permanent, fair and that it strives to achieve the lowest rates and the most simplicity for all taxpayers. I want to ask mr. Simon. I would like you to take into account the region i represent, miami oftentimes mentioned the gate way to the americas. Many export opportunities in south florida. We have access to many markets all over the world, but also the port of miami sees a lot of imports. So, looking at our blueprint more broadly and then honing in specifically on todays topic, border adjustability, how do you think an area like miami, like south florida where theres this great entrepreneurial spirit where we have immigrants who are thirsty to contribute to our country, to start new businesses, who bring new ideas, how does an area like ours fair under house blueprint and specifically with regards to the policy that were considering today . Well, i mean by all accounts american exporters will be more competitive because theyll have a substantially different tax situation than they do today. So, the port and all the activity around the port of miami and all of our ports will remain vital. By most accounts, at least in the short and medium term, well still be very, very heavily importing because the supply chain, supply lines wont be there. I think the risk and weve talked about it quite a bit is that if we cant figure out a transition plan and prices go up, Consumer Prices go up, which i think everybody in the room doesnt want to have happen, if we cant figure that out, we could see a slow down in some of the imports. But fundamentally what will happen in most of the economy in the u. S. Is that because of the revitalization of our export base and our Manufacturing Base, well start to see Rising Consumer Household Incomes and increased participation of consumers in the market and Retail Industry will begin to become more vital both large and small retailers because of the spending power of the middle class which as we heard eloquently just a moment ago has been eroded over the last 20 years. Once thats rebuilt, a lot of really, really exciting things happened. Mr. Simon, whats your message for businesses who rely on textile imports, of course south florida has been a great beneficiary of many wonderful trade deals like drcafta and other bilateral deals throughout the region and we do receive a lot of imports through our south florida ports and of course there are american businesses that rely on these imports, who employ many people in my community, they have very serious concerns that they have conveyed to me. How would you address those concerns . I really commend my friend, mr. Cornell here for being here and being able the table because thats the way were going to get this done, particularly in some of these more challenges industries. We need to sit down together and understand the impact and then try to find ways, the best ways to mitigate them and not with theory and not with hope and not with plan. And build in bridges and safety nets so these industries that may be impacted and to be quite honest with you were all, you know, have our own opinions, but lets not have our opinions determine the outcome of his company or his industry. Lets figure out ways to bridge the gap and build a transition so that we can get to the other side of this and get rid of that 30 years of muscle memory thats having us doing things this way and has no other option besides offshore for apparel and many other industries. Once we do that, well be able to move forward. Mr. Cornell, briefly ill give you the blanalance of my t. Mr. Simon has talked about some of the issues but you hit a really important topic, shortterm. All of the products that are imported into your district today will be impacted in a very negative way. And knowing your district pretty well, you have hundreds and hundreds of Small Businesses. And i know that they depend on import products, so the shortterm implications are significant. They could be deaf stating. Thank you, mr. Cornell. Thank you mr. Chairman. Ms. Clausing, i represent a district in Los Angeles County that relies on its cars, in fact, our survival in that area depends on owning a vehicle and navigating the freeways. For many middle class and working families purchasing a vehicle is often one of the largest household expenditures of their lives and im concerned about the effect of a border adjustment tax on vehicle prices for these families. Now, the auto makers that have come in to see me tell me that auto makers in the u. S. Are part of a highly globally integrated industry and because of the integrated supply chain no vehicle made in the u. S. Contains exclusively doe m lly content. There are studies which estimates that the average auto price will increase by 2,000 and the study estimates that the average price increase would be about 3,300. That sounds to be pretty prohibitive. I would like to know how you think this plan will affect the American Consumers of automobiles and the Auto Industry as a whole. And there are others on this panel who are saying that the rise in wages will mitigate price increases, is that true . Yes, thank you for your question. I think the Auto Industry is one that is highly globally integrated as you point it, whether you buy a ford or toyota. If you look at that sticker, youll see that both of those cars come from many, many different countries. And so any globally integrated industry like the Auto Industry is going to have some risk associated with this. On the import side if the Exchange Rate doesnt appreciate that will drive up the auto prices of imported cars, which will, of course, increase the price of domestic cars as well because they compete with each other in the economy as a whole. So that would be one risk for the auto consumer. For exporters of cars, there are also risks associated with the potential for wto problems and trade and tariff retailuation. The auto sector would be an obvious one to target and retail yaatory tariffs. Thats one worry i would have there. Our auto exporters in general are competing on a level Playing Field with other countries with respect to a sales tax. If a country like the ukraine has a sales tax or a vat, you know, that is of course rebaited when they export to another country. We could add a sales tax here and rebait it, but thats not going to make our companies more competitive. We already have a level Playing Field with respect to the sales tax. Well, i was shocked to see that this proposal could have very different effects for the top 1 versus the bottom 80 . In fact, you point out that the top 1 would get a tax cut averaging 213,000. The bottom 80 will get a tax cut averaging 210. That means that the upper 1 benefit by 1,000 times more than the bottom 80 . And we see also that the cost of everyday products that average consumers purchase would rise like food and the usda says that certain Food Products are very import heavy like fish, fruit and nuts and that almost all bananas, mango, coffee, cocoa, tea, mellons and grapes are imported. So, i have families in my district that live on a limited income, seniors that live on a fixed income. Thinking about all these families and seniors, does this tax plan result in a regressive tax on consumers and especially those on a fixed income. Yes. There are three ways in which i would worry about this. One, as you point out, if the Exchange Rate doesnt adjust, people will pay more for all of their imported taxes. Second, if you just look at the estimates, even ignoring the Exchange Rate effect, the tax cuts are just much larger at the top as you point out, 1,000 times larger than they are for the bottom 80 . And third, returning to this wage issue that you mentioned in your last question, we really have to ask what is going to drive american wages higher. I think this plan is premised on the idea that will unleash a new waive of investments and increase the supply side of the economy to drive up wages. But if you look again at corporate profits after tax, theyre higher than theyve ever been in all of our life times. So, if they really need more after tax profits in order to generate more investments, you kind of wonder where is the investment paradise over the last 15 years because we had really high profits but without big investments. I think a strong middle class is the answer to big investment. Thank you. Mr. Reed, youre recognized. Well, thank you, mr. Chairman. I know i went down to three minutes so ill be quick. Thats the penalty of coming late. You have to go a little shorter which i appreciate. To the panel, i want to just one, i think theres broad agreement, we cannot maintain the status quo. The status quo of the american tax code is just fundamentally flawed and puts us at such a competitive disadvantage that we have to do something. Would everybody agree with that. Heads shaking. Common agreement. I want to focus on repatriation because this is important to a lot of folks back in my district and some interests that we have in the district. The holiday of 2004 was just that, a holiday. And when that occurred, there was a lot of concern about that going to corporate shareholders and others. Obviously i believe theres a reason for that. Dont you have a fu douche yar obligation to your shareholders in america and you got a holiday and one got one time injection of cash, is there fiduciary is that a concern if we do another holiday going forward, mr. Lindsey . I would not do another holiday. Thats one reason i like this bill. Not only is it not a holiday, it is takes care of the problem permanently. And ms. Clausing my colleagues estimate was 100 billion a year by ending profit reclaim my time. So for the democratic witness, you would agree with that, too, correct . Correct. Doing it permanent is the way to go . Im sure we disagree on the rate but i agree it should be permanent and hom days are a bad idea. I totally appreciate that. The other source of agreement i want to get to is when you look at the overseas trapped earnings. My understanding of it you have two types of overseas trapped earnings that are there. You have cash or cash equivalence and you have investment oversea earnings that are sitting in brick and mortar and other type of investments overseas. Does that not encourage us to make sure that we have a by fur indicated rate as opposed to one rate. Mr. Lindsey, can you offer some comments . My instinct and obviously its just my instinct is no because the way that money was repetriuated over there, retained over there was due to the foreign combination of tax credit and delay of repatriation. What they chose to do with that money given that it was over there, that issue should be irrelevant to how we have deemed repatriation. So youre advocating for a single rate . Single rate. Anyone disagree that assessment . Any of you have overseas trapped earnings . Doesnt mat r either way. Okay. Im very concerned because i know uncle sam and he does not take payments in regards to brick or mortar. He wants cash. If you dont have cash on your books to pay, im concerned impact of a single rate could have on those companies is that they would be significantly hit from a cash flow perspective and a cash balance sheet. So with that, i yield back. Thank you. Thank you, mr. Chair. Sitting here i know that i have a thousands questions for all of you. Thank you for the time youve taken and sorry they only have three minutes to ask the question. Im from the detroit area, home of the motor city. Auto, component parts, manufacturing big deal for us. Mr. Simon, your comment that we have to make things is very important to me. I do believe that and were not a service centered economy. In my area, that is very important and i would like to if i could drill down to the manufacturing issue a little bit more. Is on the verge of extinction. We are the home of the big three, home of henry ford, home of the greatest Auto Industry in the world. Yet in a blink of an eye we have seen we have lost 70 of the tool and dye industry and full 80 of its skilled work force. In a Magazine Article i have here dated may 15th, mark submit president of atlas tool in roseville, michigan, made a some alarming statements and very dire prediction. In his article he said that china is under a deliberate and predatory economic attack right now. He talks about how theyre undercutting all the prices in the United States and making it impossible for American Auto folks to compete. And he also says that soon we will not have the sufficient capacity because well be pushed out of the industry entirely. China will completely take over and as a result will become the dominant automotive manufacturer and supplier in the world. This represents huge a huge threat to the United States, not just in the area of the economy and jobs but also all the way into the realm of national security. What are we doing . This is the craziest thing ive ever heard. If we are not doing something today or in the process that will address this concern, i would like to know from all of you what we can do to try to address this. But this is insanity to me if we cant do something about this. I dont know if border adjustment is the solution, mr. Lindsey, can you comment on that . Im sorry to have taken so much time. I think there are a number of things. Again, it comes back to how do you make america the best place in the world which to invest and produce things . And i think were targeting that in this bill. Particularly with the expensing component because were going to be accelerating the incentives to have new plant, new equipment here. I think that that is number one. I also think the general reduction in rates is probably helpful, but i would go back to the most important answer i think is the expensing component. Thank you. One quick question for all of you, how important is it for us to get this done before 2018 . Oh, vital, vital, vital, vital. Mr. Simon . Everyday is important. Were eroding. Were running out of energy. Thanks. I would ask you all all the time has expired. For the last question . Last question, thanks again for being here. I represent northern indiana. I come from the medical device and pharmaceutical industry, so inversions have been extremely detrimental to our state and could potentially be as well. Other issues, global i met their head of global tax a few months ago and he put this in stark terms this is why i brought this up. Indiana is a consistent leader in quality infrastructure, high skilled labor, reliable and low energy costs. A few years ago they were considering expanding their manufacturing footprint and excluding the tax code indiana was the clear leader. But when you factored t u. S. Code, indiana dropped to dead last and thats jarring. Is there a solution to make the u. S. Competitive and attract investment other than tax reform . Other important for adm and others in your industry is moving away from a worldwide tax system and ending the lockout effect . And then what ripple effects do you see when companies are acquired from former competitors or inverters . Yeah, i think i said this before, i think that what we see in this proposal addresses that competitive issue that you are describing. I think allows us to move freely investments to wherever we need to make those investment. I would intentionally wish to make it here to improve the competitiveness of the u. S. Its very come pittiveness market out there and we cannot are allowed to help in my case farmer or any other manufacturers were going to be falling behind to other countries that are charging the u. S. Supremesy. I yield back this one minute. So noted. So couple things, one, i would for the record like to introduce the study for the petersons that shows in review of 34 countries that have adopted or adjusted their border adjusted taxes since 1970 all but one full appreciation of the currency to balance trade effects and other research paper, i would like to thank our witnesses today. Youve brought incredible insight to this well watched hearing. You can tell some have already given up on u. S. Manufacturing and agriculture. Youve heard it. We dont make that anymore. Its not coming back. Im heartened, though, by the discussions weve heard here today that thats not necessarily the case. And i know with mr. Simon youve told me before about when you bring back manufacturing capability for lawn furniture, you bring it back to manufacturing hair dryers not that i use those anymore and on and on and on down the supply chain. Im heartened by the hans company, haines apparel, very import sensitive who makes the case if we had this tax code in place today this supply chains would be back here in america. I also am heartened by the fact that we all recognize that moving forward with this type of bold change requires thoughtful transition, deliberate transition, addressing successfully the val concerns we heard today. Were going to continue on that track and please be advised that members of the congress on the committee have two weeks to submit written questions to you to be answered later in writing so those questions and your answers will be made part of the formal hearing record. Again, on behalf of mr. Neil and myself, thank you for being here today. The meeting stands adjourned. Cspans washington journal live everyday with news and policy issues that impact you. Coming up wednesday morning, the hills Katie Bo Williams discusses the house and Senate Investigations into russian interference in the 2016 campaign. Then Tea Party Patriots cofounder Jenny Beth Martin discusses president trumps budget. And ted liue weighs on the budget. Live at 7 00 a. M. Eastern wednesday morning. Join the discussion. On wednesday, the director of the office of management and budget, mic mulvaney testifies on president trumps proposed budget for fiscal 2018 speaking before the house budget committee, live at 9 30 a. M. Eastern here on cspan 3. And on thursday, more on the 2018 Budget Proposal with testimony from the treasury secretary steve mnuchin. During a Senate Finance Committee Hearing live thursday at 10 00 a. M. Eastern. Also on cspan 3. Sunday night on afterwords, msnbc host chris hayes examines how the criminal Justice System is dividing the country in his book a colony and a nation. Mr. Hayes is interviewed by author elizabeth hinton. It seems like ferguson is really kind of an anchor in many ways in the book. Im wondering how your experience reporting there kind of illuminated what youre talking about growing up in the bronx in the 80s. The thing about ferguson that blew my mind you grow up in a city and grew up in the bronx, you have this conception of cities distinct things. There are racial frictions, in cities you have bad neighborhoods and good neighborhoods. All kinds of like loaded ways in which Police Police communities differently, all kinds of loaded ways in which the borders of the different neighborhoods sit atop of each other and overlap and create sandpaper friction. All of that was tied to bronx, new york and cities. I moved to chicago and i lived in d. C. The thing that blew my mind about ferguson is like, its just a municipality of 20,000 people. Its totally it is anywhere usa. Its between the Northern Edge of st. Louis and like the suburbs. You just drive through it. It looks like anywhere. Right. Its just strip malls and parking lots and houses. And the idea that what i experienced there was the level of exploitation and the level of racial oppression and friction, the level of invasiveness of the policing, the intensity of the humiliation, all of that just in this place that was here to fore amon mouse