You can find this and more at cspan csp c. Org. Thoughts on over hauling the tax toad. Code. Good afternoon. On behalf of our president jim deadmit, welcome to the Heritage Foundation, it is our pleasure to announce congressman rothsman, hes a graduate of the university of illinois and earned a law degree at the Illinois Institute of technology, the congressman is a member of the house ways and Means Committee where he serves as chairman as the panels subcommittee on tax policy. We are fortunate to have the congressman with us today because in this role he will no doubt be playing an Important Role in the effort to develop, debate and pass fundamental tax reforms. Reforms should fuel job creation and deliver opportunity for all americans, simplify the tax code in order to make it fair and less burdensome, and should refocus the Internal Revenue knew service on its customers the american people. Fundamental tax reform consistent with these goals. Ladies and gentlemen please join me of welcoming our guest to the lectern, mr. Congressman [ applause ] thank you. Its great to be with you today and thank you very much for the honor of spending time at the Heritage Foundation, im joined by my wife elizabeth and she was telling stories that 30 years ago when she came they were servi servi serving coors beer, in 2015 i went to china, if you were an american policymaker and you go to china you get a bunch of briefings before you go and people tell you how great china is and they tell you about the infrastructure about state owned enterprises, tell you all these different things, so i went to china and i came back and i came to a different conclusion, the conclusion i came to was weve got challenges and they have got troubles. So what are chinas troubles quickly . Number one they have got a demographic problem, onechild policy is out of sync, boys raised by two parents, grandparents and fathers and sons know that doesnt end particularly well with a culture like that, a corrupt military that takes 100,000 tootoo get one chinese star, they have bitten off more they can chew in the south china sea. The only thing worse is the prospect of a nuclear peninsula with kim jungun acting with aggressive personality. Their economic rights are out of sync, i flew back and i landed in chicagoland and im at Ohare Airport and having one of those pope kiss the tarmac kind of moments thinking this place is great. I love this country and we have so much opportunity here its simply amazing. Okay, so whats the nature of what we have going on . But what are the challenges that we have . Here is the nature of part of what we have going on we have an economic millu that rest less and aggressive, we have an economic culture in this country completely unique. If somebody tries something and fails, we dont characterize them as losers, we say oh, how charming how nice for you youre in the fifth paragraph of your feature story. We love the idea that somebody goes out tries something, fails, tries something, fails, tries something, fails and ultimately succeeds. These are all to our benefit but ive said we have a challenge. What are some of ochallenges . We are here to talk about one of them, our tax code. Our tax code is not working for us anymore. Our tax code was created in 1986 as we all know. And weve got an opportunity now to reflect back on that. And let me just sort of go a freeze frame discussion. The election in november nationally the monday after the election in november we came out the to the house of representatives obviously and i interacted with a number of democratic colleagues. They were truhunder struck, thunder struck, they couldnt believe they had lost the election to donald trump. They were thunder struck. Almost to the point of disorientation. When something jarring like that happens to you, whats the smart thing to do . Reflect . Contemplate . And move forward . In my opinion democrats are not reflecting theyre reacting, doubling down, thats their problem, not our problem right now, but it is a word to us in other words, its what to avoid. We need to reflect on the fact that our tax code is not working for us anymore. My home state of illinois is an example of avoidance behavior that gets completely out of control so by avoiding one problem after another problem after another problem after a period of time illinois has fallen into this economic crisis that everybody here is familiar with. Lets not do that. Lets recognize the nature of the debate right now. Lets reflect on it and look at it as an opportunity. To go back to 1986, and to put in context, the bears won the super bowl, Ferris Beuller was out. Those are the happy things, sadly that was the year of the trinobl, and challenger disaster. Thats the duration of our current tax code. What has happened in the past 30 years from an economic point of view . The entire Digital Economy none of which existed back in 1986, the Global Nature has fundamentally shifted all the way around. There has been a fundamental shift in terms of integration all across the spectrum so now we have got to reflect back and say this is our time. Now, i am absolutely convinced that we are at a national Inflection Point as it relates to tax reform. We are at a national Inflection Point. What do i mean by that . Is i think there are three key things driving this. First is, theres no nobody that is defending the status quo, nobody. Theres no voice, no person, no entity out there today saying you know what the u. S. Tax code is great just leave it alone. Nobody. Theres people obvious live that like some elements of the tax code clearly, but nobody in its entirety is communicating that they like it the way it is. What are some of the things they dont like about it . They dont like the complexity. Think about this. I have an expectation and a desire in for simplicity that rivals all of your for simplicity, you can act like youre above me youre not, so think about this i have an expectation, not a hope, i have an expectation that i can go on my iphone click on my airlines app using two thumbs by the way, click on a flight, a seat, an eticket and get a boarding pass sent to me on this device within a twinkling of an eye, i dont want to be on the phone, waiting in line, you get my point. We have a real interest in simplicity, so the fact that nobody is defending the status quo and simplicity is part of that. The second reason i think were at a national Inflection Point is the fact that the shine is completely off the penny of the Internal Revenue service, completely off the penny. Not just competency issues but the malevolence of the targeting and civil asset forfeitures. Let me take you back to a story to have last congress because its poignant and drives the debate about the enforcement agency. There was a couple named mr. And mrs. Sours Dairy Farmers from maryland and got into the market business which is a cash business, started making deposits of cash and were told by their bank teller, hey, you know, its a big hassle when you come in h here with cash because when you do we have to make a report the federal government would you mind just not coming up with 10,000 at a time because thats the threshold. Would you mind coming in with less money . Mr. And mrs. Sours nicest couple ever said sure, well that was a bad idea because thats a felony. They were structuring their deposits so as to avoid a reporting requirement. To collapse this story down in the interest of time the irs got wind of this and essentially went in and shut down mr. And mrs. Sours option, the likes of which stuck them in the midst of a novel, they could not figure out whats going on, the bank said you cannot do anything, your deposits are being seized by the Internal Revenue service and over a period of time interestingly on a bipartisan ba bas bas bas basis we were able to get a public apologize which was like birthing a calf by the way and we were able to change of the statutes and rules and been able to return some of this money to similarly situated people. We have the tax code 20 years ago may have enjoyed a reputation of tough but fair, pay your taxes dont mess around with those guys and everything is okay. They dont have that reputation today. And as a result i think thats driving part of the national Inflection Point on tax reform. Then the third reason i think were at a national en Inflection Point is the base erosion of the u. S. Economy is really, really significant. And for us to sit back and basically ring our hands and get fretful and anxious about it and not come up with an action plan is really foolish in my view. Its not as if there havent been attempts on both sides of the yooaisle to get this done. Base erosion rules youre familiar with some of these, patent boxes, earning strippings and this this and the other thick none of which we could turn the crank on to make them particularly satisfying. The Obama Administration came up with their approach which was really, really concerning, upsetting 40 years of treasury doctrine so to speak and rulemaking, and thats not going to be particularly nimble and i think the analogy i came up with is Pretty Simple its like look we are trying to fix this leaky basement and patching here and patching there and patching there and finally it just dons on you you have to move away from this model entirely, and i think thats really where we are so some of these inversions, Harris International leaving georgia going to the uk, Restaurant Brands burger king going from florida to canada. Interestingly in many of these cases these are companies that are going where . Theyre not necessarily going to a quote tax haven. These are companies that are going to places going to close allies and Close Friends in our commercial architecture so to speak so what we have got to do is say how is it we make this a more attractive jurisdiction. I had a chance to immediate its like a seinfeld episode. I met him on a trip to j jerusalem. He spent nine years in the goolog and i heard a story contributed to him and during the course of the breakfast i wanted to ask him tell me, is this story true, here is what i heard . I heard that when he was a refuse ninick he heard of ronal reagans speech where he calls out the soviet union as the evil empire and the story i heard was it had a profound impact on him. And everybody in the goo llog bh prisoners and guards alike. Why . Because the notion that the american president was calling something what it was was basically for them a fo foreshadowing of the beginning of the end. He goes congressman the story is even better than that. When i had a visit with president reagan in the oval office he described this and told president reagan at that point reagan apparently called in his staff because he wanted his staff to hear this sherranski probably the staffers that said dont put it in the speech its too controversial. So where are we . This is the value of naming things and the value and recognizing where we are. We have got a tax code that doesnt work. We have an inversion problem that is going to continue and it will exacerbate itself notwithstanding all these attempts to try to mitigate against it, so now here we come and weve got a blueprint and i would argue that we have essentially a collapsing window of opportunity right now to get this done. And, you have got a speaker of the house in paul ryan who is going to create as much legislative space as possible. You know, he would actually rather be chairman of the ways and Means Committee, lets be honest and toward that end hes going to create as much space and opportunity as entirely possible. Tax reform however is not for the faint of heart, so when i first got on the committee i called james baker of james baker fame because everyone is talking about tax reform and i thought im going to call one person in the middle of it all james baker, so he gets on the phone with me and was very generous with his time at anecdotes and perspectives but at the end of the phone call he said something i havent forgotten. He said peter remember, this was Ronald Reagans number one domestic prior to in his second term, he used everything he had as ronald reagan, used every tool he had at the white house, he used every tool at the treasury department. We had bipartisan, powerful advocates an sponsors on capitol hill and collapsed three times and almost didnt happen. Gotta run, see ya, click. So when i say this is not for the faint of heart this is not for the faint of heart so the eb and flow of this discussion is going to continue and were going to hear so and so says this today so and so says that today but the name of the game in terms of framing this up is to recognize that the status quo is simply unsustainable. So youre familiar with the blueprint. Youre familiar with this document and its a proposal and its essentially an invitation all across the country for people to engage and one of the things that we learned from the passage of the Affordable Care act is how not to do this. If people feel jammed like nobody is listening, if they feel like they dont have an opportunity to get their word in or express themselves then the system, the process will actually seize up and collapse in on itself. But similarly you can talk yourself to death. You can contemplate yourself to death around also create an environment where decisions are not made so i am really pleased at the pace at which chairman brady has been moving things the blueprint was articulated in july. Again, a great deal of momentum beginning in november. Obviously with the election and then moving forward its been the point of a focal point of conversation not just at our retreat but obviously with the Trump Administration and particularly with the public at large. I want suburban chicago and suburban chicago there are any number of first, second, Third Generation companies that are small sub chapter S Manufacturing companies and one thing i have heard time and time again from them is the difficulty they have from an International Point of view and this is where the blueprint is trying to speak directly to that, so we have all stipulated we want to enhance a Manufacturing Base in this country, we all recognize we need to this be revenue neutral with the past six years with the budgets that the house has passed we have litigated and persuaded the country that debt is a serious issue and 20 trillion of debt is a serious issue. We have tried to shed ourselves from the static scoring that defies logic but said lets look at this on a dynamic basis so make sure we get a real world investigation and its our burden that it is a real world evaluation and its not pixy dust. My prediction is this that the more people that look at different alternatives the more they explore and chew on different choices i think theyll come down and say the elements and the architecture and the structure of the blueprint is the best way to go, so the back story quickly on bord border adjustability is something we really need to focus in on, as we all know largely every other in the world has adjusted its border. When border adjustability was allowed with regard to the trading scene, thats fairly demittimus, overtime like a lot of other tax liabilities the vat has grown so the adjustment then which is a disadvantage to us has grown as well. So as we know the United States is the only country of significance that has a double tax essentially. On the one hand we tax and the cost of a manufactured good in the United States is cooked into the income tax, and then its also taxed as it goes into a foreign jurisdiction and by contrast the foreign jurisdiction they have their tax removed and not taxed when it comes in here, so these things are all when youre the biggest strongest economy in the world you can endure a lot of pain and missteps and i think we have been able to endure those things in the pass and muscle through them but im telling you those days are gone and what we need to do is head these signals, theyre not leaving on a Natural Disaster this is not as if its a hurricane, a flood orca tastfy that cant be mitigated. These are all rules that have been created and if they are rules that can be created they are rules that can be recreated. Let me close by making one point and thats this, there is a disposition and i think an attitude i think that we need to embody. And one of the Church Fathers of the fourth sen hurcentury was s ambrose, he said we dont impose on the world, we propose a more excellent way. We dont impose, we propose a more excellent way, so i think the blueprint is a proposal. The blueprint is a concept that says lets recognize that the status quo is not working for us, lets recognizing that we need to move, we need to move quickly, but we dont want to trip all over ourselves but by the same token need to make decisions so im upbeat about this. I think theres a real real opportunity for us to move forward on this and i think a year from now were going to be celebrating this Tax Reform Act and most importantly celebrating the type of growth that americans are really, really hungry for, so thank you very much and i would be happy to try and answer easy question that is make me look good. No. Happy to try to respond to anything. Thank you very much. [ applause ] questions . Yes, sir. Congressman, those two and three and four generation businesses in your district also by the tax which destroyed jobs and allocates capital will that repeal the. [ inaudible ] yes, sir. That is one of the thresholds, absolute foundations is the repeal of the death tax. Yes, sir . Congressman, you mentioned in the beginning of your speech talking about structuring, how thats a crime. Are you telling us that Congress Actually is going to address the criminal code that governs how people actually make deposits within an income tax bill . No. Because that to my are two separate issues. I agree with you. So theres a separate piece of legislation moved in the house got close in the senate that would deal with the structuring issue as it relates to the Internal Revenue code. That would not be part of tax reform. Ill be advocating that and reintroducing it but your point is that these are two separate things. The reason i brought it to everyones attention is the nature of that application of the statute was to aggressive. I told officials, in private conversations i said youre like the inspector in le miss. Question. Congressman, thanks for your talk. Im wondering on the adjustability how this town divides in factions. Working for a Manufacturing Company based in the United States we look at this and see a great opportunity for finally the best place to serve our customers, what do you think about others that are looking at adjustability and concerned about well, we overly rely on imports or others, how is that going to be resolved . I had a discussion with a ceo about this and he laid out his concerns and i said nobody wants those terrible things to happen, so lets move forward on this basis. First of all we think the currencies are going to adjust and youre familiar with that. Some of the opponents said currency is never going to adjust now they have shifted and said were concerned about the timing of the currency okay thats different. Let us work with you on transition rules but i kind of turned the discussion back on the executive and i said, how is it now that we have a tax code that puts you in a situation where so many of your suppliers are overseas . Lets fix that. So help us in terms of transition, help us in terms of understanding the nature of the contracts that you have and work with the committee to give us to type of input so that we can get, so you have stronger more robust and dynamic supply lines. He didnt walk away and say oh, peter, great im all for you, but in terms of our disposition and our attitude, we want to be having significant input from retailers in particular for others who have expressed concerns because i am of the view that the more open we are to try to mitigate their situations and them understanding i understand that a ceo needs to be thinking in terms a public ceo needs to be thinking in terms of 13 weeks, so every 13 weeks hes got to be answering to wall street, to boards, to outside groups and shareholder price. We think we can help with that, but that said, you want your policymakers to be thinking beyond 13 weeks. You want your policymakers to recognize generational shifts and generational opportunities and i think thats the obligation that we have. We think that we can mitigate. We think we can help and but you actually want us to be thinking much further out than one quarter at a time. Yes, sir . While were on the subject of the border tax and thinking beyond 13 weeks i think a lot of the uncertainty and the nerves about wherever you fall on this issue comes with the uncertainty of the timeframe you just said a year from now well all be celebrating the Great Success of the tax perform and the speaker said he wants to get this going by august, but will ways and means be marking this up and when does the house hope to pass it and send it to the other branches of government . I wont give you a straight answer on that so let me duck and weave. The best response i can give you is the eb and flow of the timing, so youve got a blueprint that gets published the summer time last summer, then its gotten a lot of attention obviously since the election and then what chairman brady has been doing is gathering members together to say all right we really need to be thinking through the retirement piece of this. We need to be thinking through the education piece of this, we need to be thinking through passthroughs all of these subsequent issues and i tell you ive been very, very encouraged by the caliber of that discussion. Because ive been in a number of these discussions. The fact that our members are wellinformed an have opinions, theyre willing to share those opinions and then its a matter of trying to wean all these things down then some of these things will be drafted by staff given to joint tax, we will get the feedback and all a sudden we may say oh, we didnt know that was the implication of that. Do you follow me . So theres a give and take here thats healthy and dynamic and chairman brady is doing an incredibly great job of trying to get everybody involved in this. Yes, maam. Thank you for taking my question. So going to health care a little bit in terms of tax reform, Big Health Care tax being looked on the is capping the exclusion on employer sponsored insurance, so how does capping esi fit in the over all plan or vision for fixing a leaky basement if you will . All of these things interact and not mutually exclusive, so you have a series of choices, how about the cost of Health Insurance in particular, so its contemporaneous with the tax reform debate. They interact and touch at some point and separate at others, but those are the types of things that you dont want to necessarily do in a vacuum and you want to make sure that you have a clear understanding all the way around and particularly what are the other cost pressures in terms of the applies of employerbased coverage . Yes, sir . You said keep it simple so im going to try, with one of the pillars as simp plisty do you have any tax at the same rate in terms of duplicity in general . Here is what we proposed the nature of your question. Youre sensitive to this, so theres been a lot of discussion in the past few years about hey do Corporate Tax reform then come back and deal with individuals as passthroughs later. Thats completely unsatisfying for a will the o of reasons so we have proposed to say lets lower the ccorp. Rate down to 20 what we proposed and for the first time move down the business rate of the passthroughs to 25 . So you would move both down at the same proportion so theres not that theres a disadvantage there and this is the job of the committee, whats the safe harbor for the passthrough about what is business income . You can imagine there will be a lot of pressure to move it over into the 25 rate as posed to the 33 rate. So we dont want to leave that decision in the hands of the irs who i just so roundly criticized five minutes ago, but and at the same time we need to create a clear rule, clear definitions and so forth and thats just good hard work of us trying to put that together an with that proposal, open that up for discussion but were still very much in the mode of trying to come up with those definitions that we could propose and get feedback on. Thank you. Yes, sir . The proposal in 2014 included a bank tax, just wondering thats not part of your plan at all . No, zero, zero. Here is the interesting thing. Dave camp did a good job of driving the discussion on tax reform, and we learned a lot of things from the camp draft. It was a veriar very arduous ex one that bound the camp draft discussions, relative neutrality based on a basis, so all of these proposed changes and discussion points then there was the distributional neutrality, people went where is the oompf, wheres the 4 or whatever . We couldnt get there, so we have built on that knowledge, which is why we made the decision to move forward dynamic scoring to say okay lets look at this in a real life context, make sure it makes sense and modelled and so forth so its robust but the drive for the bank tax discussion was essentially just driving towards rev a revenue and not necessarily a under lying force behind it. One question just as a total opinion handicap whatever, what do you think wto is going to do with the way the border adjustable look, so here is the way i think it gets framed up. Its not a theres a threepart test. Wto has a threepart test essentially, one is it a financial contribution to a business . No, its not. Second is it a National Preference . No, its not, third is it a export the vat off is not how is taking our tax off . I realize that is not easy for me to say here at the 30podium t there is a fairness issue here that would suggest to me we basically were moving towards a consumption tax. We are mirroring what the rest of the world is doing and we are essentially saying we are asserting a right to be treated in the same fashion as the rest of the world is. We think that we have that right and we think that when it all comes down to it we will be exonerated on that. I want to thank the Heritage Foundation very much just for the opportunity to be here. I look forward to our paths crossing. Let me tell you one other quick story in closing. I had an Old Sunday School teacher who i went to lunch with about 15 years ago. He is a really wealthy guy. During the course of the lunch i asked him a question. I said what is it like to be that rich . I said i am willing to learn. I said dont you feel like everybody approaching you is just manipulating you and hustling you . Doesnt it just feel bad . He said something to me that day was formative for me. It shaped me. And this is what he said. He said, peter, i choose not to be cynical. He said guard your heart against cynicism. He said if they are manipulating me that is their problem not my problem. Nothing good comes from a cynical heart. I know that i am in this zip code which is the heart of cynicism. And yet there is a buoyancy, an opportunity to have a transformative moment. I encourage you to look at this Inflection Point and to be thinking about what these possibilities are. I think there is a real brightness. Thank you to the Heritage Foundation for this fine forum this afternoon. Thank you. [ applause ] the conservative Political Action conference began this morning. Vice president mike pence will address the gathering this evening. Live coverage begins at 7 00 eastern. You will be able to watch this on c shf span. Tomorrow morning President Trump at cpac at 1010 00 eastern. Also live on c span. 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. Officials with the group that represents federal employees testified at a Senate GovernmentAffairs Subcommittee regarding ways to improve the federal w k workforce. They talked about the hiring process and impact of the Trump Administrations federal hiring freeze