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, families and their loved ones. Know youre in our prayers. Today, were continuing our work on pro growth tax reform that will improve the lives of all americans. This mornings hearing is focused on strengthen americas competitiveness and preventing jobs from moving overseas. For years americans watched our our manufacturing plants, and longstanding u. S. Companies have moved overseas, devastating communities and the families that depend upon them. Hundreds of thousands of good paying 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, local businesses housing value and local tax revenue disappear with them. Ive watched as 17 key Texas Companies have relocated their headquarters to england, canada, bermuda, ireland, the Cayman Islands, switzerland and the netherlands. Americans are being hurt because our nation is saddled with one of the most costly unfaira tax systems on the planet. According to the nonpartisan Tax Foundation, when it comes to competitive tax codes, america is ranked nearly last among our global competitors. 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 globally 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 products 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 leveling 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 have to get it right and we 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 yield to distinguished 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 is insuring that american businesses 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 to 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 recently estimated 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 idle. 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 consumers. The retailers tell is that the cost of products like food, clothing and medicine will go up for consumers 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 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 have 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 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 consumers have to pay more for gas and other essentials, he will keep less of the pet accessories that keep his business afloat. 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 repatriation 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 continue to be 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. Lindsy from the lindsy group and Kimberly Clausing is from the reed 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 to invest in massachusetts, too. Adms reach open Global Markets 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 adjustments that 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 global 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 decline, 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 for backtoschool 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 employees that their paychecks and congress shouldnt tell americans that their budgets are being wagered on a unproven and untested theory. So in closing, 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 stifle 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 today 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 citizen, 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 theres 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 factory was a ticket to the middle class. I grew up in congressman larsons direct in connecticut, we made cratny 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 heard 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 that 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 any proposed legislation 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 are a 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 sourcing will become increasingly viable. Also being closer to the point of consumption shortens lead times, lowers transportation costs and increases manufacturing flexibility. Second, for some products and manufacturing flexibility. For some products, competitively u. S. Products wont be available for some time. They need to work with existing suppliers and look upstream to drive down costs. American cotton is readily available on the International Markets and could be acquired by retailer and reimported to offset some impact of the adjustment. With increased competition, prices will come down. Our Current System isnt serving anybody well. 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 and restrict the development of the american middle class. It will not deliver the Economic Security that we need. But, if we get the pieces right, we will see a rebirth of American Manufacturing without the severe negative impacts on important sectors like retail. More good, middle class jobs, a robust u. S. Economy and an error of growth that will be led by a new industrial revolution. Thank you. Thank you, mr. Simon. Mr. Lindsey, welcome to you as well. Please proceed. Hit that microphone. I was told to do that. You cant teach old dogs new tricks. Mr. Chairman, Ranking Member neal and members of the committee, thanks very much for having me here today. I think we all have the same objective, to grow this economy faster, improve our competitiveness, raise Living Standards and, if possible, improve the distribution of income by making it more fair. I am here today because i believe that the basic blueprint that was outlined will accomplish all these goals. Forty years ago, when i was a graduate student, the basic structure that was laid out was considered the bess wait to design a tax system. I quote in my testimony a paper written by a colleague of mine, larry summers. He said the welfare costs of capital Income Taxation is seriously underestimated. For reasonable parameter values, the annual welfare gain from a shift to consumption taxation, is conservatively estimated 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 life cycle formulation. Thats how broad the consensus was about how we should structure our tax code. There was a survey of 69 Public Finance economists by nber that said that the 86 bill, which was a pale imitation of what we are doing here, increased the longrun growth of the u. S. Economy by a full point. My work on the house blueprint suggests that we will have a growth rate of about 3. 5 for the first four or five years and that will ultimately moderate to about 2. 75 . If you work it out, this is almost identical to summers calculation of a 10 increase. The reason is that if you look at recent performance, our problem has been a lack of Capital Formation and a collapse in productivity which has fallen by twothirds. Im not counting the recession but the years after the recession. This has been the worst period of recovery ever. Thats why. This bill targets 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 we are roughly at full employment. Any expansion of the economy is likely to lead to higher real wage growth. The last time we did anything like that, i. E. , a Capital Formation supply side 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 wage income and improvement 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 system. Right now, our goods are taxed here when they are produced and 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 plarticula points. Border adjustment isnt adjusted. It is a netting effect of exports minus imports. It doesnt follow each good. Border adjustment will lead to a currency adjustment. We can argue about how much. Basically, when you put Something Like this in, you increase the demand for dollars and decrease the supplier. Higher demand and lower supply means a higher value of the dollar. One of my competitors, i guess, has estimated this. They actually have the lowest percentage of Exchange Rate adjustment that i know of, 65 . They estimate 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 we are talking about here. Will there be transition costs to these changes . Absolutely. I agree with the other witnesses thats where the focus of our conversation should be. The most important thing you can do is pass this bill. Thank you, dr. Lindsey. Miss klossing, welcome to todays hearing. Please proceed. Chairman brady, Ranking Member neal and members of the committee, thank you so much for inviting me today. I will talk about competitiveness, the ryan brady plan and alternatives to the plan that can keep the advantages but without the down side. First, competitiveness. In talking about competitiveness, many people emphasize tax. Competitiveness has more to do with fundamentals like worker education, an economically secure middle class, sound infrastructure. The investments that make the middle class prosperous will make our businesses successful. By most measures, our businesses are quite successful. Corporate profits are a higher share of gdp than any time in recent history. Profits in the last 15 years are 50 higher than they were in prior decades. Also, our companies dominate the forbes list of the most Important Companies in the world. Our economy is about onefifth the size of the world, our companies are onethird of the worlds top companies. Our Corporate Tax system has problems, most multinational firms face comparable effective tax rates as firms in other countries. In fact, our Corporate Tax revenues are lower than the Corporate Tax revenues of pieer nations by about 1 of gdp. Turning to the ryanbrady plan, there are good parts. It tackles offshore Profit Shifting. 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 our profits are often shifted to tax havens such as those shown on the chart, bermuda, switzerland and the camens. There are some serious flaws with the brianbrady plan. It is likely to generate large economic shocks harming American Workers andmy juror parts of our economy. It taxes imported goods. In oregon, a nik can e executiv called this the single biggest threat to the company in its history. Many may get in the way of dollar appreciation. The evidence we have suggests that there are some serious risk here. Do we want to bet large sectors of the economy on this idea . The Retail Sector alone accounts for 1 in 10 american jobs. Second, legal experts argue that the plan is incompatible with the World Trading system. Our trading partners will file suit and when we 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 we spent 50 years negotiating after world war ii. Third, this plan loses revenue. The nonpartisan Revenue Center estimates it loses 3 trillion and it is borrowed from tax payers. There is no intellectually coherent rational for a lower rate on business income under this plan. Instead, the lower rate will cause revenue loss as wealthy individuals mask Labor Compensation as business income. The plan is regress sieve at the proposed rates. It benefits the top 1 with a tax cut 1,000 times larger than the tax cut for the bottom 80 . This plan follows several decades of increasing income and inequality and middle class wage stagnation. It used to be Income Growth was higher for the middle class than those at the top. In the past 35 years, there has 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. Congress should focus on a revenue neutral reform that reduces the rate and eliminates loop holes. Most helpful, repealing defeerrl and ending the Repatriation Program without the negatives of the plan. Making us compatible with the Global Economy us an important goal. We need to collect the tax due at a reasonable rate. More important, we need a tax system that reflects the real struggles of the middle class but by giving tax cuts that are larger for the middle class than for the rich. We should also work to solidify the fundamentals that are crucial to competitiveness. This requires responsible tax legislation with enough revenue for priorities in education and infrastructure we need. Thank y thank you for inviting me to testify. I look forward to your question. Thank you and thank you four excellent testimony. We will proceed to question and answer and i will lead off. Dr. Lindsey, based on your economic analysis, you see in the blueprint, significant acceleration of growth greater than the reagan reforms, which you know quite a bit about. You see all of this growth reflected in higher wages, which is exactly what we want to see with tax reform and why we need tax reform now. You have heard mr. Cornell eloquently express that the border adjustment could result in higher prices for consumers and increased costs for retailers like target that import a lot of the products they sell. We dont want to see that happen. Can you explain why you dont any 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. Thats the particular point of the Business Cycle that were at right now. We are labor constrained but because of the freeflow of goods into this country, effectively, we are not capital constraint. Now, if you have growth at this point and you keep that in place, what you are probably going to have is higher wages but the cause will be less competitive situation. I think what you will end up with is either an inflationary push or you will have a recession or possibly both. This is a very, very difficult time for the federal reserve. I think that they will actually be make the decision. The only way you can extend this expansion, which has been anemic, once you get to full employment is to also increase the supply side of the economy. What you are basically doing right now, driving up, about to hit a brick wall. What you have to do is hit the brick wall or you move the wall. 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 weight this will go up absolutely swamps any other distributional considerations. I think we will actually see for the first time in 50 years, 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 a 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 local communities. As you say, the supply chains are local. That will shorten lead times and transaction costs. It will grow a middle class thats sustainable. So your experience with Global Supply chains, can you share your thoughts on what kind of manufacturing capability and jobs can return to the United States . As part of that, how can manufacturing and retail Work Together and partner with us to make sure this tax reform works well for them . Thank you for the question, chairman. Based on experience and we have had early successes with the Walmart Program and the early successes in repatriation were new lines at existing factory and reopening of old facilities that had closed. Investors in companies have been a little bit hesitant to spend major cap ex needed for a transformational change and hopefully this will bring that forward. In order for the transformational change, we need some things that have been talked about today, access to all the capital stashed offshore invested in the u. S. Would be a huge boon for manufacturing. The expense versus depreciation issue would help. For some Small Businesses, you should potentially consider an either or option. As the Ranking Member said, Workforce Transformation is really, really critical. That is a limiting factor today. Retailers need to do some things too. The way the pnls are structured and incentives are structured arent aligned to think. We have been trained over 30 years to behave the way we behave. An example of that would be imported goods where a retailer has to order a year ahead of time nearly and take possession f. O. B. At the foreign port. They are on the water for up to three months. A year lead time, three months, you own the product where your cash is not doing anything for you. Domestic products. When you order and the lead times could be as short as 14 or 16 weeks, you take possession when it hits your distribution center. The cash flow is different. Most companies in their model dont incent buyers on cash flow. It isnt until you look at the whole picture holistically, that you realize this can and does make sense. We can expect products to come back in this order, large, heavy, big items first, furniture, lawn furniture can come back now once the plant is in place. With some of the changes you make, 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 apparent could be challenging. If we do the work, it is worth it. I have 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 community when these plants open. It is worth every bit of the sacrifice it might take to get there. I now recognize distinguished Ranking Member, mr. Neal, for any questions he may have. Thank you, mr. Chairman. As i mentioned, my priority as well as the minoritys position 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, rewards. For some of the people in our society who most need help with their wages. Those two would be great contributors. I also think it is important to avoid tax changes that raise the deficit. That hurts future generations of tax payers and the fundamentals of our economy. Mr. Cornell, you seem to be a bit skeptical about the argument over dollar appreciation. Do you want to talk a little bit about that . We have spent a lot of time looking at this issue. Im not an economist or a currency expert. We have been studying what some of the experts have been saying. There are very different opinions. I have talked to many of our economists, economists at Goldman Sachs that support us. Their comments have been, there should be grave doubts that Exchange Rates will smoothly offset the effects of the border adjustment. We have been listening to fed chairman yellen. Her quote was, the problem is, there is great uncertainty with how in reality markets will respond to these changes. We work very closely with the lead economists and fx trader at bank of america, david woo. He talks about this being the most difficult thing to forecast. To build an inner generational tax reform plan based on these assumptions is somewhat of a laughable notion. When i read comments and 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 or clothing, for back to school essentials, for those basic family essentials, as weve looked at it, would be paying price that is could be 20 higher. So weve certainly looked at the currency adjustment as we run our models. We have factored in some currency appreciation, end capture rates. Every time we run the models, we come to the same conclusions. Maf americans will pay more for basic essential items they needed to and we dont think that is right for American Families. Professor clausing, who might be the winners and losers as a result of the border adjustment tax . Import intensive 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. As just mentioned, the Exchange Rate is very difficult to forecast. It is a 5 trillion a day market. 88 of which is in u. S. Dollars. We arent sure the he can change rate is going to appreciate. Absent that, the importintensive industries would be really hurt. The export firms could win but they also face some risks in terms of possible retaliation from trading partners and the like. I would be happy to elaborate if you like. You want to . You have another minute. For instance, if we lose in the wgo, which most trade law lawyers think that we would, that will cause retaliation by our trading partners and they would be authorized to have 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 down side 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 they will find that they arent able to use the losses that they are showing, which might lead to some silly outcomes like abm merging with target and it is not entirely clear we want the tax code to induce those types of mergers just because adm cant use their losses and target can. Thank you. 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. Nunez. Thank you, dr. Brady, for being here. The chairman talked about this. The one thing that the United States, libya, syria, afghanistan and north korea have in common is what . That we dont have any border adjustment. We dont do border adjustment. All the other major countries do. I am going to come back to you, mr. Lindsey. Mr. Sue mo mr. Simon, you were a Global Company and formerly with walmart. You operated in many places. Your big markets were where, canada, mexico . Correct, the u. K. , china. In any of those countries did you pay close to a 70 , 80 , 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, at the very end of your opening statement, you didnt get a lot of chance to expand on it. The one economist who is your rival that disagrees with the Exchange Rate, could you go into that . How did he only come up with a 1 change . Sure. Again, consensus in the economics profession is simply supply and demand is going to cause the dollar to appreciate. There estimate, which is actually very much the low end, was that the appreciation would only be 65 of what one would expect in terms of full appreciation. If you plug that number into the model, what you are going to end up with is a total increase in Consumer Prices of just increas Consumer Prices of just 1 , not 1 a year. 1 all together. I know there are some concerns that have been expressed about the pace of it. First thing i would point out is that markets move ahead of reality. Thats how they make profits. Marketmakers move quickly. I wouldnt worry about things being delayed. The second point i would make is, yes, some countries have adm administered Exchange Rates, notably chai sn notably china. If anything, that is quicker to move. 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 depreciation process quickly. They speeded it up. Now that the markets think it is less likely, they tend to slow it down. I wouldnt worry about the administered Exchange Rate argument. I think actually they will be the first to move their Exchange Rates. You have worked on this obviously for a long time. 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, i think you were seven when i first started working on it. So that is a long time. Ive worked on it in every administration, the wto is dominated by europeans. There is no question about it. Most of the rulings are proeuropean. Yes, it is an International Body and we should respect the International Body but we should recognize that prejudice. Thats why european style tax systems, one reason why european style tax systems all had border adjust ability 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 bald faced as to say, its okay for europeans to do this but not for americans to do it. It is such a transparent recognition of their bias. I dont even think they would do that. If they were, i think maybe we should reconsider our situation with the wto. I dont think that is going to happen. I just dont think thats logical. So with the 30 seconds i have left, mr. Lindsey, can you walk us through kind of maybe a possible phasein approach of the border adjustment . I get that 20 is a big leap. 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, for example first thing i would make sure i did, in the shortrun, a year or two, you might want to say all dollar based contracts are deemed to be domestic. Secondly, i think maybe 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. It is not going to cause the Retail Industry to go out of business. Lets try it. Lets try something minor. All time has expired. Mr. Levin, your recognized. Thank you. Welcome. I dont want to focus on this mr. Lindsey but as someone who worked here with the wto on like cases, i think there is a deep distinction between a vet and border adjustment tax. I think we lost cases for the wto and we would likely lose this one with some very serious implications. I have worked on this. We lost the cases twice that had some similarities. We need tax reform. I think we need to step away from some of the mythology. By the way, one is that the vague benefit, in terms of Income Growth, will come from a further income stactax break foe high income. I would like to introduce into the record a paper by owens who says stimulative effects of income tax cuts are largely driven by cuts for the bottom 90 and that the empirical link between employment growth and tax changes for the top 10 is weak to negligible over a Business Cycle frequentness. I would like that entered into the record. Without objection. I want to talk about manufacturing. The chairman used a few examples and no one cares more about resurgence of manufacturing than i do. The examples that you used, steel, that happened because china rigged its currency, because of their stateowned enterprises. 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. In both cases, the republican majority voted as to steel and auto parts, refused to address traderelated issues that impacted 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 the v. A. T. , namely that u. S. Companies are now disadvantaged when other Companies Operate under vets with research. Two conservative analysts from kato and george mason has suggested this claim is false saying the real issue is whether the Playing Field is level in a given market. They point out if a u. S. Company and a German Company sell a product in germany, both firms pay 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. The designers of this tax, who are economists, also agree with that characterization. The vat doesnt create an unlevel Playing Field across countries. So the made if america tax concept is a little bit misleading. Put simply, imagine an American Firm selling a good in france. If the American Firm sells it in france, 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. They are treated the same. If the two firms instead sell in america, neither of them pay valueadded tax but they both pay their Corporate Taxes at home. We already have a level Playing Field with respect to those taxes. Thats why the kato person that you cite agrees with that. Alan devereux and others who desipsed this td designed this tax would agree with that. This is one of the gists of the arguments. As we talk about substance 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. 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. You are recognized. Thank you, mr. Chairman. Welcome and thank you for your testimony today. Like our witnesses last week, you have all made it very clear that we are behind in global competition, that the tax code is holding our businesses, farmers and workers back, and we all know that given half awe 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. 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. Mr. Neal said it would ease the financial burden of the middle class. We are 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. Luciano, please, if you could, discuss further how the International Tax system impacts your companys domestic, International Operations and with a modernized code. Would you invest more in the United States . Thank you for the question, congressman. So a healthy cultural industry is important for us to be able to feed the world. We will have to feed 9 billion people in 2050. Thats a challenge in itself. It is also important because of the connection with the middle class and Middle America. We are a company that have 32,000 people. We have only in our headquarters, global headquarters, we are less than 70 people. The rest of the people are in small communities, whether it is cedar rapid, iowa, georgia, thats where the people are. We see those communities and inside those communities, inside the country in a small rural america, there are very little competitive advantages left. Thats why it is so difficult to get jobs or industries. One of those is culture. The way we are operating today, if i need to sell to egypt and i have the choice to bring the product from kansas city or from ukraine, ukraine has the opportunity to get the refund of the v. A. T. So ukraine gets the credit for that 20 with the u. S. 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 in wheat to russia. We have lost it in soybeans to brazil. We are hanging on to corn but not for long. 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 planted an area of soybeans that has increased by three times. All these countries where they have the same competitive advantage that we have whether it is a very good weather, good soil and land available, have countered with policies that have been helping the farmers to take market share for the u. S. We are not leading anymore. We are slowly declining. As you decline, those communities that are boosted by agriculture, continue to decline as well. When we go there, we just dont have an elevator or storage. We buy from the farmers and we also have an ecosystem of other companies that basically supply security to us. They supply safety equipment. They supply would your temperature 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 we are going to invest if there is going to be more production. I think that with the plan, the blueprint we are considering today, we can see us leveling the Playing Field for the u. S. Farmer to be competitive in the world. That could become as you guys said before, a magnet for investment in the u. S. And jobs. I think that this blueprint achieves that. Thank you. Mr. Lewis, you are recognized. Thank you very much, mr. Chairman. Let me thank all of the witnesses for being here today. Dr. Clauson. You are the democratic witness, right . Thats correct. You are the only woman on this panel . Thats also correct. You see a lot of men here, dressed in blue suits. Not everybody. Well, one in gray. Dont you think it is sort of strange when we are talking about tax reform when women make up more than 50 of the population of america, that there are all of these men here . Well, there are a lot of strange things about tax reform. Dont you think we should move into the 21st September Tri as a niation and as a people . This should help the middle class and working family. Do you think this will help the middle class and working families . I have several doubts about that. 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. The bottom fourfifths get a tax cut thats about 200. This 200 tax cut is nice but it is not going to go very far if your imported goods are more expensive or if you have lost your job because you are in the Retail Industry and the Exchange Rate didnt adjust as quickly as we thought. Waiting around for an Exchange Rate to adjust and can take some time and as caines once said, in the longrun, we are all dead. I worry about the middle class given the way 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 will be older in the coming years. This means even on a normal trajectory, our deficits are going to be increasing due to our Social Security and medicare obligations. So tax cuts at this point will make those deficits even larger. 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 that it is important to raise adequate revenue. We are going to need that for priorities that also affect our competitiveness, like infrastructure, education, health care and the like. Thank you. Mr. Chairman, i would like to yield the balance of my time to mr. Daget. Thank you very much. So many of our colleagues believe there is a giant tax cut rainbow and at the end of the rainbow is a huge tax cut gold and if we can find the right tax cut fairy, everything will be blissful. Because they believe that, there is no obstruction of justice, no breach of our National Security, no tweet that is too 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 mythology and fantasy has characterized this debate from the outset. 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 selfstyled 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. 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. How amazing to hear that the policy we need to follow from the Tax Foundation is to achieve the type of system astonia and latvia have. Who knew that was the approach to success. Astonia and latvia in the time they have had that have never grown more than 3 . We are told under this magical tax ferairy approach, we will achieve over 5 growth. Your time has expired. Mr. Roth, you are recognized. Three observations and a question. Observation, number one, mr. Neal observed there is no Small Business here. On thursday, it is no myth, there was a Small Business here. Mr. Motul, from the chicago area, who testified two or three times how in favor he was of border adjustment. Very powerful testimony. You can look at the record. Point number two, it is interesting, we are an hour and 20 minutes into this hearing and no witness, no member of this body has mentioned the myth of 1700 negative impact on average Middle Americans that has been running on Television Ads criticizing the border adjustment tax. Really interesting. I xhencommend the critics not u what factcheck. Org called balogna. Professor clausing was pretty dismissive of this w. T. O. Question. I think we have to be sort of measured and sobered. She made a claim this will inevitably lose before the w. T. O. And quickly in the testimony was tripping us down into the valley of retaliation. I thought, it is important to recognize that the director general, alberto azaveido of the w. T. O. Has noted there are lots of gray areas in the w. T. O. Rules and he has declined to speculate and we are working through these details and we are mindful of the criticism. Surely, we dont need to be just coming to a conclusion that this is not compliant. Mr. Simon, i think you are the most interesting person here today. You are the most interesting person here today because you have got the value of actual perspective. You have 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, it is worth it. The change in american sourcing becomes increasingly viable. There is an aspiration there. Look, one point i am really interested in your viewpoint as somebody who has run arguably one of the biggest Retail Operations on the global. Why doesnt this create fear and loathing in you in the way it does mr. Cornell and others. Why do you say, no, no, no, this is a good system . I know this system, this is a good thing . Here is one point. We havent discussed the nature of the companies leaving today. In chicago, froeror example, wh aeon left, they went to the u. K. , our best friends. When burger king left, they went to canada. Walgreens tried to make a jail break not long ago. They werent successful based on the politics. It seems like our tax code is an island thats dissolving underneath us. We have go the an opportunity for a transformational moment. What is the transformational moment, mr. Simon, 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 too dramatically different from what mr. Cornell just described or the Retail Industry. The concerns that they are real. If we can address those with an implementation mechanism or a safety net of sorts or a transition. A transitional plan for them . On the other side of this, it will be very, very good for the country. Thats the point that i came here to say today. I dont want to ignore nor bulldoze their concerns. Improperly implemented, it will be very, very hurtful for the industry and the consumer. If we take the time and do the work and sit down in a group and iron out, lay out what it will look like, i think it will be very, very successful for u. S. Manufacturing . Once the middle class jobs start to return to the country and the wage increase that is would come with that, retail will start to see a new sort of resurgence and a period of growth. Right now, the wind is coming out of retail sails, because the wind is coming out of the middle class. The points about the bifurcation of income have been well documented. There just arent enough people on the highend to keep all the retail location that is we have going. Thats why they are struggling. If we can rebuild a middle class through a Manufacturing Base, retail in the longrun and i know everybody is dead. In the longrun, will be better. The question is, how do we get to the longrun . Thats what i would like to discuss. A smooth transition is key. Thank you. Your time is expired. You are recognized, mr. Dauget. I think we have a basic disagreement in referring to america as a prison break. America is not a prison for american business. We have some of the most competitive businesses in the entire world. To refer to it as a prison break is also wrong in that the reason these companies have suddenly renounced their american citizenship and gonna broad in many cases is because of the consistent refusal of our republican colleagues to support measures to put a stop to it. Ut they wont close the door to those who want to do their business they want to close the door to those that want to do their business here in america and head off to the bahamas or the Cayman Islands and we have some impressive data i would like to explore. Additionally, we have 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. That is on this socalled obamacare repeal, nothing but a 1 trillion tax cut that were awarded certain special interests like pharmaceutical manufacturers and dramatically again widen the income gap by giving the benefits to those at the top rather than to the middle class. Of course, we dont know exactly how much it did that because it was rushed through this committee almost overnight. We still dont have the score from the Congressional Budget Office for that illadvised proposal. Even though they rushed it through, it is still sitting on the speakers desk. They werent in such a rush they se sent it over to the senate for action. Let focus on the propaganda associated with todays proposal, the socalled better way. One of the big aspects of the pot of gold out there that is waiting for us is 2. 6 trillion that is just dying 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 stranded offshore earnings that could do so much good in creating jobs here in america. Not paying a dime of tax on it unless they earn money from their investments here. A substantial portion of that 2. 6 trillion, isnt it already being held in wall street institutions right here onshore within the United States . Agreed. Much of that money is offshore, booked offshore for tax purposes but 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 dividend or Share Repurchases. They are very anxious to get that back. They can still borrow against those fund and the firms that have those funds abroad are some of the most credit worthy firms on the planet. They have no trouble financing new investments. Your paper shows they, in fact, earn millions, if not billions of dollars in interests and dividends right here in the United States on their offshore earnings today . Thats correct. Now, you mentioned the fact that they like to have this money back not to create jobs but to give high earning executives even more high earnings and to give their Share Holders dividends and stock buybacks. We have had a little experience with that before. It is just really appropriate that former chairman thomas was here. 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 we are hearing in support of this measure, how many jobs did that bill create . My understanding is that all economists who have looked athe that bill found it didnt create a single job or cause a single investment and this includes some people that advised george w. Bush who looked into this. That money was used for dividends and Share Repurchases and some firms actually laid off workers. It is possible it did have a small job creation effect for lawyers or accounts. There was a lot of complexity in the bill as well. We were told by the chairman, follow the example of the Tax Foundation, astonia and latvia. Do you think our companies will be more competitive if we adopt the estonian and latvian approach . Are they competitive in the International Market . The slides i showed earlier indicates they are quite competitive. We have profits that are 50 higher than they were in prior decades. Thank you. Your time is expired. Mr. Buchanon, you are recognized. Thank you, mr. Chairman. I want to thank all of our witnesses for being here today. Dr. Lindsey, let me ask you, you have had as much to do with the blueprint at anybody. The economy is growing at an anemic 1 , 1. 5 . You have to go back to the 50s where it has grown at that percentage. What are your thoughts when you talk about growing the economy, this plan from 3 , 3. 5 . On what basis, what are the drivers that are going to drive it up from 1 , 1. 5 to 3. 5 . There are two steps here. The first is what i would call longrun capacity. They have the same long run number that i do, which is 2. 75 . However, to get to that capacity, we are likely to have a shortterm increase in business fixed investment. Thats actually the demand side of the proposal. Its going to stimulate the economy in the shortrun. I think this is a very high multiplier tax cut in that regard. Thats how i got to the numbers that i got to. There is both a longrun and a shortrun. Let me ask you another question. One of my concerns and i have 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 today. It is 20 trillion at some point. At some point, it end badly. 49 out of 50 governors have a constitutionally balanced budget amendment. What does this do longterm . With the growth, we should get more receipts. It should be somewhat revenue neutral ideally. Whats your thoughts on that . Though i scored out the longterm debt situation, i think on an annual basis, the blueprint breaks even about in year six. I think that by year 12, the total cost of the deficit costs of the bill will be covered. So longrun, very longrun, i think it is a positive. I think that it is essentially a revenueneutral bill over 12 years. My last question is on inversions. We do have a lot of Great Companies leaving america. I would 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 a progrowth tax policy. They are not moving the tax havens. They are moving to our friends in canada and great briton whai where they have cut their rates and someone said the inversions in Great Britain have come down dramatically or pretty much quit. What are your thoughts in terms of that . I think it is important that we differentiate between the inversion piece and the offshore money piece. I listened to mr. Daugettes comments carefully. There is one component in which i think he is correct, that is that the money, socalled kept overseas is in International Markets. I know a lot of people have said, lets use that for infrastructure, things like that. I think it is in International Markets however already. 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 onetime deemed repatriation, depending on the rate you select, you are liable to get perhaps as much as 200 billion. I dont know what the actual number is. It depends on your rate. Yes, the money is in International Markets but the taxes on that money is not in the u. S. Treasury. It should be. The bill under consideration will do that. The other thing, as ive watched. I have been in business for 30 years before i got here. People will move to different states, florida, no state income tax, texas, nevada. They will move and move their businesses to other states. It is the same thing in terms of moving in terms of inversions and other things. Not everybody but some. It is a major consideration, a major driver, dont you agree . Absolutely. The best thing we could do longrun for workers and everyone, is to make america the best place in the world in which to invest, start a business and hire people. I think this bill does that. Thank you. Thank you. Mr. Thompson, you are recognized. Thank you, mr. Chairman. Thanks to all the witnesses for being here. Mr. Chairman, i have two articles i would like unanimous consent to place into the record, one out of the New York Times that points out 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. It goes on to explain this shortage. Yes, without objection. One is a wall street journal article that explains, i think beautifully, what the point that mr. Doggett was making as to what countries repatriated monies from overseas spent that money on. And i think it hits those points exactly, and i think mr. Doggett was correct. Id like to have that. Thank you, without objection. Thank you. You mention in your written testimony the border adjustment tax would raise revenue, but that revenue was ultimately borrowed from future taxpayers. I want to make sure that people at home people at home fully understands what this means and how its going to impact their pocketbook. Can you elaborate on that a little bit, please . Sure. At present we run a trade deficit. That means that when you tax imports and exempt exports from taxation the border tax will raise revenue and 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. Its equal and opposite to the side of the trade deficit. So eventually when we repay that money, we will also be running a trade surplus. In those years, the import tax will raise less revenue than the import exemption costs the treasury, so in the future our taxpayers will actually lose money from the border adjustment, so that means basically what were getting from that is revenue we are borrowing from future generations. I had someone come in and talk to me the other day about the effect the border adjustment tax will have on their businesses. Theres a company that makes 30 million a year, employ 4,000 employees. And what they sell they buy from 31 other countries. There are items that wouldnt be made in this country no matter what we do on a very low markup on this stuff. And they told me if the b. A. T. Comes about theyll go from making 30 million a year to losing 130 million a year. In other words, this Washington State company would close the doors, five generations long company, would close the doors. And i think thats something we need to be concerned about, but the other side of that, and its really become and made clear today, is our constituents, those consumers that buy those products, and theres a couple of those Companies Represented on the dais today, that represent companies that those consumers that try and buy those products, they are going to be hurt. And thats exactly, i think, what it is ms. Clausing is talking about. Your consumers, our constituents, are going to see those prices go up. Also the point was made about the w. T. O. Impact. How would this play out . When would we see this happen . 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 could you tell me what our constituent companies are going to experience if retaliation becomes a reality . Yeah, so our trading partners are already preparing suits to be filed with the dispute settlement mechanism of the wto. This dispute settlement negotiation, by the way, is something the u. S. Helped negotiate and serves our interest very well, because often the wto will rule in favor about disputes we have, too. The wto has over 160 member countries and it supervises a well functioning trading system, but once they authorize that our tax is a direct tax, which it is, and thus 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. Without objection, i would seek to place on the record Goldman Sachs report that estimates with no appreciation the industries have actually cut their prices, still maintain the current profit margins, and with the dollar even partially adjusted, likely no industry would need to raise prices. Without objection. Mr. Smith, youre recognized. Thank you, mr. Chairman, and thank you to our witnesses here today for sharing your perspective and insights. I think this is an overdue conversation that we need to have, and i think a constructive moment here as we do sit 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 growthoriented policies. Representing agriculture, 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 there are actually still significant barriers and 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 and would be helpful in overcoming some of those obstacles, i am also concerned when 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 that 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. Yeah, thank you for the question. This is all about balancing the Playing Field. When we compete with the other companies, other global Grain Companies that are well capitalized or have the same technology and experience we have, as i say before, we pay about 30 . I have two of them that pay in the low 20s, the rest in the mid teens. Thats the kind of difference. And in agriculture, in the business were in, Business Models are very similar, so its similar to compare. There are no major differences. Margin, because trade of commodities is the very same, so these differences in income tax are astronomical, and putting adm at a disadvantage to other competitors around the world. And then they have the flexibility to move their investments wherever they want, where we are partially restricted to. And the third point is that a lot of their exports are coming from countries that they refund the b. A. T. If you look at ukraine, 20 of the b. A. T. , argentina 10 , germany 19 , then you have places that compete with us, whether australia, canada, or brazil, that basically have International Consumption taxes that they are not assessed for exports. So its no wonder our market share of Global Commodities exported from the u. S. To the rest of the world is at a decline, and its going to continue to do so because were at a disadvantage. To me, this proposal issues those three issues, whether they are going to get jobs back to the Middle America through agriculture, which is one of the true competitive advantages of the u. S. , inside the u. S. , the middle of the u. S. Still have. Thank you. I know 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 im wrong, that perhaps the Corporate Tax code that we currently have is really not that bad. Now, i thought perhaps some lower hanging fruit in terms of agreement on changing our tax code would fall in that corporate category, but am i wrong in 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 some alternatives in my testimony, 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 these mobile multinationals. Thank you. Thank you. Mr. Larson, youre recognized. 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. Roscom for pointing out, and i share his sentiments about mr. Simon, who i must express a prejudice for 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 side the other side, as well, with the key to manufacturing. You mention, too, in hartford both coal manufacturing and, of course, a part of United Technologies. United technologies is exemplary 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, i think the disparity is everyone on this committee has pointed out are pretty well known to everybody. The concern on this side is that what we see is this shift thats going to take place. Again, mr. Doggett 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 terms of what would be the share for the middle class versus the nations top 1 . Could you explain that . Yeah, those come from the Tax Policy Center estimates of the bill, and thats a nonpartisan center, and those are their estimates. But the top 1 would get a 200,000 tax cut and the bottom 80 would get a 200 tax cut. So thats a thousandfold 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 aftertax 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, well, 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. So 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 the Exchange Rate risk is a serious one. I went back and looked at all the countries which adopted that, which should see a similar Exchange Rate adjustment under a floating Exchange Rate, and there are only a handful of rich countries that have adopted that under floating Exchange Rate to look at. The Exchange Rate actually moved in the wrong direction. So i guess my point is Exchange Rates are very volatile, its a very large market. And that gives us a big risk for the import intensive industries. If you look at the data, appears the countries of b. A. T. S also traded somewhat different than other countries and its part of a healthy Manufacturing Sector and many of our products are made with Global Supply chains throughout the world. Well, thank you, and again, i thank the panelists. In many cases, many people who have commented on this bill oftentimes feel that they are 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 this ideas has been beneficial to the committee. Thank you, mr. Chairman, for holding the hearing, and we thank the panel for your time this morning. Mr. Luciano, i have a question for you. Coming from kansas, just to follow up on the ag inquiry of my seat mate 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 does the border adjustment help u. S. Farmers see a bigger and better market for their goods . Yeah, thank you for the question. So, the world is growing in population, and the population, as i say 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 are always going to be important, so you have this global middle class that needs the products that we produce. The issue is, this race between eastern europe, south america, and the u. S. And both places, brazil, argentina, or ukraine, romania, russia, they have b. 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 added to the tax. So were all just waiting for a level Playing Field. Theres no technological difference between the farmer in kansas and the farmer in russia. There is actually a competitive advantage we have in logistics. Even if our infrastructure is deteriorating, we still have a competitive advantage. We still can ship something 1,500 miles cheaper than what argentina can ship it 300 kilometers, but the issue is of 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 the proposal, the blueprint, addresses a lot of that. Thank you. Mr. Chairman, i yield back. Thank you, youre recognized. Thank you, mr. Chairman. Id like to welcome dr. Clausing, a constituent from reed college. Really appreciate you joining us. First, mr. Chairman, id like to enter into the record a letter to you and mr. Roscom 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 adjusted tax. He also points out that they transact with their foreign partners and contractors exclusively in u. S. Dollars, so the adjustment in terms of currency have problems for them. Without objection. 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 a choice. So i appreciate your courtesy on that. I do appreciate the notion about doing it right. Trying to get the balance, your concern about having hollowed out the middle class and not being able 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 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 functioning american infrastructure . Absolutely. Problems with congestion or lack of reliability . Anything that builds good, solid, strong, longterm middle class jobs would be good for the industry. But, mr. Cornell, doesnt your business rely upon a well functioning american infrastructure . We certainly do, and would certainly love to see infrastructure improvements. I would like to turn, dr. Clausing, to a point that you made that i think is important. In your testimony, i really appreciate youre making a distinction that is not often made before this committee. Yes, there are some companies that are wildly disadvantaged and pay close to the statutory rate, because they dont have as many opportunities to engineer the tax code. 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 Energy 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 thats 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 worldwide and territorial. Our worldwide system some describe as just a stupid territorial system, and i think thats pretty accurate. Many multinational firms, most of them, dont pay a single cent on foreign profits. They leave them offshore and wait for the hopes one of you guys will give them a holiday. Whereas some of our trading partners who have purportedly territorial systems, they tax immediately some of the foreign income they earned because of base erosion protections from things that look 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 you do. There are opportunities for us to move forward investing in infrastructure is one of them, but to have a broad bush socalled reform that puts us at risk for Companies LikeColumbia Sportswear and sets us up in the future because we are not going to run huge trade deficits in perpetuity for significant revenue loss. And your point about tax changes like this could incent people to have unnatural mergers simply because of the tax code, like the aforementioned Arthur Daniel midlands and walmart. We can do better than that, and i think the committee can do better with that if we listen carefully the information like youve presented. Thank you. Thank you, time expired. Mr. Paulson, youre recognized. Thank you, mr. Chairman. First of all, thank you all for providing very constructive testimony here today. I especially appreciate the opportunity to have a Great Minnesota Company be a part of this tax reform conversation, which i think provides a good component to this discussion. You know, 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. Certainly given that the pace of American Companies moving their headquarters to other countries, inversions, which we talked about earlier in recent years, happened both in minnesota and across the country, you dont need to convince minnesotans that something needs to be done. We need to make sure that america is a destination to not only invest, but to build or be able to 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 ive heard from others, certainly, that have been raised. I cannot support the provisions as introduced last year in the blueprint. I really want to urge this committee to listen, to be educated, and to address these concerns that weve heard as we move forward with reform. Last week we had a really good hearing, a hearing that talked about the need for the comprehensive Reform Efforts for fundamental reform. Its very important. We heard a lot about the positive effects it would have in the form of more jobs, higher wages, greater Economic Growth, and we also heard about the effects it would have on Companies Large and small, up and down the supply chain at every level, so we know the tax policy impacts different businesses in different ways, and we know the reform proposals will Impact Industries in different ways. But weve got to focus on making sure 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 than. Certainties your budgeting capital for five years, investing in your companies. Were giving you that certainty, that confidence. Mr. Cornell, you shared your views about border adjustability and 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, et cetera, what might be some policy recommendations that you would offer that should be key components of this reform effort as part of the 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. To your point, we certainly would 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 f. 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, mr. Paulsen, and let them know if 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 education effort. I yield back, mr. Chairman. Thank you. Mr. Pascal, youre recognized. 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 debunked 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 stagnant as some of you brought 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 invest 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, mr. Pascal. Well begin two to one questions so we can balance out the questions. 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 kitchenaid in ohio. Johnson and johnson in new york. So, its a balance. So many of the products 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. Twothirds. Twothirds, 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. Lindsey. 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 transportation costs can be impacted. But how are companies dealing with these kind of currencies . How are companies dealing with these kinds of currencies . Well, first of all, lets take the example of border adjustability. All of the countries, the 160 countries that have border adjustability amazingly have Retail Sectors that havent been wiped out. So i 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, the chinese understands 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 ms. Clausing. 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 who are 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, it 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 were happening in ag. 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 town. The effect, the actual effect on everyday americans. Because the Global Supply chain has changed. I also have in my pocket, by the way, maroni 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. Both plus and minus. I know we have to pay for these tax cuts but i dont want them to back up hardworking everyday american taxpayers. Sir, id be happy to start. Mr. Chairman, for the record, 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, and mr. Simon has 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. Were running out of time. How many employees do you have . I have 320,000 employees, 99 of which are right here in 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. I hear this thing, 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. Were going to do this the right way. Thank you, and i yield back. Thank you, and without objection ill submit for the Record Research by jpmorgan that shows the dollar did not adjust at all, which no one believes. Retailers would need to raise prices 5 on average to offset it and just 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 a 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, heating 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 eviscerates our health, education, and job training supports. The trump republican tax plan amplifies 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 clausing, 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. Youre recognized. Thank you, mr. Chairman. I want to thank the witnesses for being here. I believe getting tax legislation signed in law is absolutely critical to getting our economy growing. I must admit, though, ive been skeptical of the border adjustment as the central element of the blueprint, but im trying not to be. Its not because i oppose border adjustment in all context. As many of you know im a strong supporter of a more conventional adjustment tax. My concern is really rooted in three questions, does border adjustability and the blueprint pick winners and losers . Who will the tax burden ultimately 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. Currency will adjust the offset the tax. 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 main street ohio, where i represent. One major employer in my district sells coffee, but 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. Nothing has no effect. I think it will be extremely minimal. Okay. But there is an effect. Mr. Lindsey you gave an answer on my third concern, which is wto. To the other witnesses, do you have any experience to know whether this will pass wto . Yes or no . 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 . Yes or no, do you think it will pass wto . I dont think it will based on discussions with lots of trade lawyers. Any other individuals. Yes or no . Will it pass wto . Difficult to know. Its very difficult to know. Mr. Lindsey, im going to come back to you. You said wto is a european based organization. Okay for europeans to do it but not americans. Isnt it true that European Border adjustments do not allow for deduction of labor and if it did, the same thing with our b. A. T. , if we eliminated labor in our b. A. T. Concept, it would be 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, essentially what they did is exactly what the b. A. T. Do, exactly. I know, 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. 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. An American Company thats made a tv. 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 0 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, phasing 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. Youre recognized. Thank you, mr. Chairman. I represent the entire state of south dakota. 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 dakota because we dont have a lot of options. I am very concerned about small retailers. Im concerned about Small Businesses. Thats the life blood of south dakota, but our number one industry is agriculture which supports all the Small Businesses in our state and our families. Mr. Luciano, 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, congresswoman, let me thank you on behalf of adm and the Biodiesel Industry for your personal leadership and for both the bio fuels overall and for the bio to our industry. Thank you. I appreciate that. I think this proposal helps 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 own resources. But i think it can make us more competitive, and 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, by investing in support for the farmer and i think thats what it limits. When i worry very much about losing 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 supplier and we are slowly going into that direction so to me, this has raised how to restore the profitability and the competitiveness of the farmer in the u. S. Im a lifelong farmer and rancher. When i talk about the b. A. T. At other farmers and ranchers i talk about it when our beef leaves the United States, its taxed, hits the border of japan, they add another tariff, to it which makes it unaffordable. And the b. A. T. 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 b. A. T. That potentially they sell their commodity to adm. Adm then sells to another country, keeps more of a profit margin, and doesnt necessarily let it flow down to 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 actually 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 for 115 years, 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 also evaluating what they should do and getting from adm what they should plant, what they should sell. Thank you. Appreciate that. Ms. Sanchez, youre recognized. Thank you, mr. Chairman, and to our witnesses for being here of today. Mr. Chairman, id like to enter into the record Bloomberg News article in which treasury secretary mnuchin 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 consumer. And it has the potential of moving those currencies. Without objection. Thank you. Todays hearing has definitely providing an interesting mix on 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 blindsided everybody last year. I happen to believe that this a 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 illadvised 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 incentivize some of the largest corporate exporters to merge with large importers creating even bigger behemoth 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 proposed 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 benefitting 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 to 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 workforce 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 the 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 deferral 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 of it 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 priorities, including infrastructure, health care, education, require government 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 ensure that we put in place a tax code that spurs the economy in a fiscal way, 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 need to be worried about the erosion of our Human Capital base here. Its a stunning fact that the number of expatriations from the United States has been rising just at a tremendous rate in 2016 we had 5,400 people ex patriot from the United States. Mr. Chairman, for the id like to introduce into the record a recent article from the International Tax clause. 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 headquartered in america and why it should be attractive to move our production facilities here. Thank you. Mr. Chairman, i yield back. Thank you. 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 what 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 200 billion investment in 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. Swiker, you are recognized. 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 on the left 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 supply the nations lettuce crop and we can do a lot more but right now the rest of the world has a financial arbitrage 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 a year exported and reimported into the u. S. It makes no sense. The labor component isnt the driver of that. You 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 at 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 like some of the things that have been discussed today that will allow that to happen. It wont happen on its own. We cant survive as a service economy, the gentleman mentioned 70 of our economy is consumption. It is, but i cant go to the movies and you cant go to a restaurant every day and have the economy be buoyant. We have to make things. But did you have an experience of a product as walmart had been an International Supply chain and skepticism an then found a way to domestically source . Every item that walmart hads been able to repatriot and its an incredible list took an effort from both the supply ear 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 that the way we have done things, the way we have accounted for costs that are in the system, costs like currency and we had that discussion earlier. Currency, most companies is a footnote on the Earnings Statement and say the 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. Our whole thinking is around how much earnings per share can you deliver. We found out that the transportation costs and the time value of money from paying 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. Look. It has everything from currency exposures to environmental costs to moving things. Look. 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 fixated 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 actually have a technology that can change that predictive capacity. There are Technological Solutions that actually will make repatriation of some of these supply chains possible. And im theres so many things. Ms. Clausing, 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 debtwise and the destruction that does for our next generation and why we must actually step up and deal with it. With that i yield back. Ms. Delbene, youre recognized. 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 similarly, we talk about things that we generally talk about physical goods, the movement of something or nexus where something is located, but 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 taxation suggests that the more physical or real something is the less responsive it is to taxes. So if you look, for instance, at 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. But this is one of several things that havent been fully worked out in the 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 the 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, 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. Mr. Rice, see youre recognized. Mr. Lindsey, i have a question for you. 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, can 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 that some of the competitive issues here are misunderstood, in 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. Mr. Luciano made the best case 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, mr. Luciano . 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 5 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 markets their cost, 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 than 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. Curbelo, you are recognized. 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 fare under the 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 ConsumerHousehold 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 happen. 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 challenging 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 balance of my time. 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 devastating. Thank you, mr. Cornell. Thank you mr. Chairman. Thank you. Ms. Chu, you are recognized. 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 automakers that have come in to see me tell me that automakers 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 domestic content. Also, there are studies from the center of Automotive Research 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 me 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 out. 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 thats going to 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 retaliation. The auto sector would be an obvious one to target and retaliatory 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 v. A. T. , you know, that is of course rebaited when they export to another country. We could add a sales tax here and rebate 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, they, spices, melons, tomatoes 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 and b. A. T. 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. Thats my first concern. 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 wave 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 lifetimes. 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. Time has expired. 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 . Common agreement. Heads shaking. 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 fiduciary obligation to your shareholders in america and if you got a holiday and one got onetime injection of cash, is there fiduciary responsibility to give that to your shareholders . 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 est mace was 100 billion a year by ending profit shift. Reclaim my time. So for the democratic witness, you would agree with that, too, correct . Correct. Doing it permanent is the way to go . That is the general consensus . Im sure we disagree on the rate but i agree it should be permanent and holidays 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 is 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 bifurcated 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 repatriated over there, excuse me, retanled 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 . I know youre retail. Doesnt matter . Either way . Okay. Im very concerned because i know uncle sam and uncle sam 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. Mr. Bishop, youre recognized. 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 im sorry they only have three minutes to ask the question. Im from the detroit area, home of the motor city. Autos, 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. Tool and die in our country is on the verge of extinction. We are an arsenal democracy. 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 die industry and full 80 of its Skilled Workforce. In a Magazine Article i have here dated may 15th, mark schmidt president of atlas tool in roseville, michigan, made 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 this process that will address this concern, i would like to know from all of you what we can do to try and 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 that 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 thank you. All the time has expired. Ms. Walorski 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 the u. S. Tax code, indiana dropped to dead last and thats jarring. Mr. Luciano, is there a solution to make the u. S. Competitive and attract investment other than tax reform . I have to do this quick. 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 to us addresses that competitive issue that you are describing. I think allows us to move freely investments to wherever we need to make those investment. That make sense and i would intentionally wish to make it here to improve the competitiveness of the u. S. Its very competitive 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 challenging the u. S. Supremacy. 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. Another research paper, i would like to thank our witnesses today. Youve brought incredible insight to this wellwatched 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 rich knoll, the haines company, haines apparel, very import sensitive who makes the case if we had this tax code in place today his 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 valid concerns we heard today. Were going to continue on that track and please be advised that members of 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. Adjourned. Tonight on cspan3, American History tv in prime time. Conversations with africanamerican women leaders, including president ial medal of freedom recipient. American history tv, in prime time, begins at 8 00 p. M. On cspan3. On sunday, author and journalist matt taibbi will be our guest. If you grow up looking at thousands and thousands of faces, until one day you see that one face that you feel was put on earth just for you and you thats instantly you fall in love in that moment, you know, for me trump was like that except it was the opposite. When i first saw him on the campaign trail i thought, you know, this is a person whose unique, horrible, amazing, terrible characteristics put on earth for me to appreciation or unappreciate or whatever the verb is. Because i really had been spending a lot of the last ten to 12 years without knowing it preparing for donald trump to happen. Mr. Taibbi is a contributor to Rolling Stone magazine and author of several books including smells like dead elephants. The great derangement a terrifying true story of war, politics and religion. Griftopia. And his most recent book, insane clown president dispatches from the 2016 circus. During our live threehour conversation, well take your calls, tweets and facebook questions on mr. Taibbis literary career. Watch in depth with author and journalist matt taibbi live noon to 3 00 p. M. Eastern sunday. Cspan where history unfolds daily. In 1979, cspan was created as a Public Service by americas Cable Television companies. And is brought to you today by your cable or satellite provider. General john raymond is commander of air force space command. He testified before a House Armed Services subcommittee on u. S. Military assets in space. Alabama congressman mike rogers chairs the hearing. Hearing of fiscal year 2018 priorities and National Security space enterprise. Honored to have the panel of expert witnesses leaders in the