be militarily defeated without being treated in the homebase and so this fight eventually has to go over the iraqi border not odd. [inaudible] >> you don't really expect to defeat them? >> but there are ground forces. [inaudible] >> we have are the spoken about playing the role and i'm not suggesting that we have an optimally configured ground force in the region but i'm equally clear that injecting western boots on the ground would not be the solution. that would not deliver the solution. >> try as they may leave lead us on to this. >> thank you, mr. chairman on this point. this analysis is being done with whatever you hope to achieve with airstrikes. and of course we are talking about this in recent years and so what are your plans for this situation? >> it also remains to be seen as far as a political transition in the regime to a government which has legitimately. [inaudible] at the outcome that we see is not going to be it easy to deliver and we recognize that. in the meantime it is easy to challenge. and they have, not the way we were, they may have and i was still speeding towards baghdad and they were stopped and they were forced to change their tactics more as a terrorist organization rather than a conventional military force because of their vulnerability and their lack of any counter capability and there is no doubt that airstrikes have degraded not only the military capability that has presented them from carrying out and then had a debilitating effect on their occupation of that the territory. that is not the same as saying that if we do a bit more air strike we will eventually surrender. of course we won't. but i don't think that justice could destroy them on the ground. i don't think that they would be able to clear background without having the benefit of a solid campaign before they went in. >> when you talk about this what are you talking about? >> we have a long-term strategy to train and equip a moderate syrian opposition and i would be the first to recognize that that is approving the painstaking process because that has to be the way that we go. there are two different dynamics the battle between the islam and the intimate fundamentalist and then the battle between the regime. we have always say is that what we don't look for is to repeat the mistake that was made in iraq of dismantling the entire structure and leaving nothing in its place. >> if the regime collapses isn't that precisely what we said would happen enact. would be and that is not the desired outcome. it is a political change at the top of the regime create a situation where the basic infrastructure of the state can be preserved with political legitimacy that is shared. >> are they running the risk that they would collapse leaving a void as far as taking on isil significantly was? >> a political strategy is to work with other players and hopefully in the nuclear deal world increasing the iranians to find a solution that allows a transition from the existing leadership to a new leadership and eventually a transition to a democratic syria and that is much to be preferred to a collapse of the regime. but i recognize that there is a risk of something happening and that is our intention, that is our desired outcome but clearly the regime is under pressure with a significant number there. [inaudible] [inaudible] >> i've asked her several times about this. [inaudible] and who we were able to assist. [inaudible] >> i think that that is a little harsh. last am are we delivered a considerable operation designed to rescue and so i think that we get into where we saw specific interventions that could be helpful. you have asked me about those that have been captured by isis. we have little clarity about what has happened to them. from what we do know we cannot be very optimistic. we know that many women who have been captured have been effectively enslaved and may be killed. [inaudible] >> just to be clear we do not control this and the kurds are very clear about what they will do and what they will not do. they very much want to liberate kurdish population and what they are prepared to do beyond that ends were of the government of iraq and syria we can and we do work with them and we have very good relations with them but they are right frank about the limits on what activity they are choosing to engage in. [inaudible] >> insisting on the 26th of june 2 in immediate decision by the british government to restrict travel advice and you change the position on the ninth of july. can you tell us the reason for that we not. >> yes intelligence. as we invited more and more people and as they uncovered more of the picture around this attack, the picture that we have developed made us more concerned that there was a attack against western interests was likely. >> i took the decision to change travel advice which is determined on any major travel advice and i take the ultimate decision personally. in this case i did discuss it with the prime minister because we were very much aware and conscious of the fact that this would have a significant impact on the tunisian economy and we have made clear that we want to support everyone in every way possible but we have to put the security in place to give our service is the number one priority. >> i understand that, but other countries in tunisia have not taken the same position and they aren't still having tourists at this time. why is it that we have intelligence which gives us the view that we need to evacuate all the british people and that other countries don't. >> i think that the spanish change this and another of other countries haven't changed. i know that sweden has also changed as well and i think maybe the netherlands. the simple answer is that the germans and the other countries only arrived in tunisia yesterday to are doing the work that we started doing in the immediate aftermath of the attack. very clearly they get regular updates and we have to look at the scale of the threat and we have to make a judgment on the balance of threats and mitigation, whether or not we can continue to advise what is sensible to travel to a particular destination. we very much hope that a combination of actions are taking taken to deal with the network behind this attack and that they are taking to reinforce the native security will allow us to revisit that in due course. >> this is honestly publicly and privately very distant hunting and clearly have terrible indications for the economy. can you discuss this with the tunisian and i understand this. >> i had a meeting with the prime minister in brussels and he was invited to attend the foreign affairs council in brussels yesterday. the two nations must obviously have been disappointed but i have to say that the prime minister very gracious we again said yesterday that he recognized this and he respected the decision that we had made and that tunisia's response was not to talk about it but to work with it in which we would be able to review that. and so we have an extremely constructive relationship with two nations in the working level of the security and intelligence agencies and we have found them willing to engage as we are very keen. >> have you given any consideration with the tunisian government to try to help them through this difficult time? >> yes we are providing technical assist them to their security, but to help them with the investigation, as you would expect, and to help them build their capacity more generally to ensure that they are situation is in full compliance which enables us to share intelligence with them and we have undertaken these assets to gather intelligence that will be abused and we are also working on a package of this recognizing that the tunisian economy has been significantly impacted and i think that they announced yesterday that they are working toward temporary increases to the eu which will provide an immediate and welcome relief to the tunisian exchange challenges [inaudible] >> it's part of the discussions of you have had in regards to some of these. [inaudible] president obama as well. how do you deal that israel could be made to be persuaded to be constructed and how do you feel as well that the international community should say that it's gotten international combination. >> i think they have heard that last message including this, this government is a friend of israel and we are a staunch supporter of the ride to defend themselves. that we are also understanding that what they are doing is unacceptable. and we have consistently asked them to engage with the needs of the population in a much more proactive way and yes, i went to israel last thursday and got a clear and didn't message and the prime minister was not please with this in vienna. i suggested that there was no ballistically deliverable nuclear deal that they would not have endorsed. and so i think that the reality is that there is a last chance of derailing the steel by lobbying action in the u.s. so as long as we are in that 60 day window congress has to consider the deal and i think that you will see his real maintaining this position and lobbying very aggressively mainly in the u.s. and also elsewhere. once that fails, i would expect them as they usually do to be pragmatic and to engage to try to make the best and that means making sure that the commitment they have entered into and then that delivery is properly enforced and i hope in time we can persuade the israelis the possibility of a dividend and this can be partisan. i fully understand the israelis are skeptical about this. they see this and they repeatedly denied that israel has a right to exist which funds organized terrorist organizations that would attack israel and israeli systems and interest bear and i said to the prime minister that frankly. [inaudible] which we have been practicing for the last decade has not delivered a cessation of that iranian behavior and going on doing more of it is expecting to get a different result, it is frankly not good to happen. we need to do something different and we need to be prepared to take a little bit of risk in engaging more with them to see if we can in this interest to moderate in the region. >> enqueue for your initial remarks. the foreign affairs situation you mentioned the eu extensively and you said that the partners would feel it would be unrecognizable and we don't need to be fundamentally challenged and surely that should be an encouragement to be bold about the changes in the type of changes that we want. that is my first question. the second question is i don't think the common lump is mentioned once in these remarks replacing it, putting it back. are there issues that need to be addressed as well remap. >> the record will show that i did mention the commonwealth in my remarks and that was one of the overlapping circles they gave us a unique footprint in the world. and as we head to the government meeting this year in the election of a new secretary general of the commonwealth this is an important moment to think about this and restating the purpose in the direction of the commonwealth going for it. it is an organization in my view in need of some attention and it operates in this environment for organization and it is unique among them and i think it is arguable that in some respects it's a proper directional course. .. that is a reflection of what's in in what in their eyes is britain's role in keeping the eu focused on a three open market outward looking agenda and an important part of our reform is making sure that going forward, it doesn't succumb to temptation to become inward looking focused on how to protect the social model when in fact the only real way is to be competitive in the globalizing economy. that has to be the number one challenge in the european union and that is that the heart of what will be the renegotiation of the state of the objectives of the union union that we are seeking. >> of course on the absolutely important part of our agenda small in number and population but a very solemn obligation and commitment that we have filled out in the white paper. >> [inaudible] >> when it comes to our approach which doesn't take into account to continue to almost take on the evidence of those roles to take both sides. why is it that we can't get this right to this changing approach and lack of analysis doesn't inspire confidence. >> that is a gross misrepresentation of the situation. what happened is the situation on the ground has changed. when we were first looking at the situation in syria it was a civil war with opposition groups fighting a regime which was responding with ever more ruthless military means. what happened in the meantime is isis has become a fact on the ground controlling a significant area of territory more extreme. they've become a much more important sector in the conflict on the ground and that is hugely complicated the situation. it was a relatively black-and-white thing in the beginning. [inaudible] [inaudible] the holding of the establishing of something like the government is usually going to complicated situation. for the record it is still out and at no time was there a proposal in the general sense in fact there was a specific opposition to respond to the use of chemical weapons by the regime to date for the further use of chemical weapons. >> [inaudible] >> can i thank you very much for this initial session we are very grateful to you and look forward to resuming. all in order. the meeting is now president? the presiding officer: the majority leader. mr. mcconnell: it is my understanding that many of our colleagues on the other side who voted against cloture at this particular point wanted to have further time to read the bill. i want everybody to understand the text is filed. it is at the desk. there are detailed summaries available online on the epw committee web site. as everyone knows senator boxer and i and others have been discussing this in great detail. i'm hopeful that by tomorrow we will have cloture on the bill and an opportunity to go forward. let me just say to everybody, i don't think i have -- i know i haven't threatened a saturday session all year, but there will be a saturday session and probably sunday as well. and let me tell you why. we have a chance here to achieve a multiyear bipartisan highway bill. senator inhofe, senator boxer reported out a six-year bill. we paid for the first -- this is a six-year bismbill. we paid for the first. there is not a phony one in there. if we can get this bill over to the house, it is my belief that they will take it up, give the house of representatives an opportunity to express itself on this bill. imagine the scenario if we actually were able to produce a multiyear highway bill and get to the president's desk for signature before the august recess. it's something we could all feel proud of. it has been outstanding outstand -- there has been outstanding in my view bipartisan work on this. and so we need to keep at it. and that will require us most definitely to be here this weekend. madam president let me just while he i have the floor i ask unanimous consent that the senate be in a period of morning business with senators permitted to speak therein for up to ten minutes each. the presiding officer: is there objection? without objection. mr. reid: madam president? the presiding officer: the democratic leader. mr. reid: madam president first of all we all appreciate the work done by senator mcconnell and senator boxer. senator boxer has been tireless on this, as she is on everything. but we have an issue here that i think we need to address. we received this bill, which is more than 1,000 pages about an hour ago. many a going to have a -- i'm going to have a caucus tornlings and by this i hope that we will have an opportunity at that time to have reports from committees of jurisdiction. committees of jurisdiction is more than the environment and public works committee. finance is involved in this. commerce banking and other committees of course are interested. and so we need the opportunity to look at this bill. this is a big big bill, with a lot of different sections in it dealing with a lot of different issues. we're not asking for anything unusual. we just want to be able to read and study the bill and talk about it at a private meeting tomorrow at 12:00. now, if we were doing something that was -- what are you talking about, you mean you want to read it? -- please, i mean, we have pages of quotes from my friends. senator enzi said, "that is what created this enormous outrage across america. and did you read the bill? how can you read the bill if you have not seen anything in it. it's not being given to you. i don't think it's being intended to be given to you until we've to shuffle to the end." lamar alexander here is what he said a couple years ago. "we want to make sure the american people have a chance to read it. they have a chance to know exactly what it costs and they have a chance to know exactly how to fix it. this is not an unreasonable request we don't think. this is the way the senate works. this is our job. when it came to the defense authorization bill, we spent a couple weeks doing that. when it came to no child left behind the education bill, we spent seven weeks doing that. homeland security bill, took self fen weeks fl energy bill in 2002 took eight years. the farm bill took four weeks. so we have a little reading to do, a little work to do. we have john mccain -- but could i also add if we haven't seen it, i don't think we should have time to -- shouldn't we at least have time to examine it? i don't think it would be outage us a to ask to have a bill read that we haven't seen." so i as a number of people in this body, have worked on highway bills in the past. we have worked on these bills and they've taken weeks to get done. we're being presented with something here, madam president that basically says, you take this or leave it. that isn't the way it should work around here. i'm going to do everything i can to move forward on a long-term highway bill. i want to get to done. but we're going to have to look at this and find out what my different committees think what different senators think what people at home think. you know, i have a lot of people at home that are interested in what's in this bill. there is a banking provision. there is pay-fors -- i've looked at them last week, but that's been a moving target also. the ranking member of our finance committee at this stage unless he's lrned something in the last half-hour he doesn't know what the pay-fors are either. in short, we want to be as cooperative as we can. but we're not going to lump into this legislation -- lurch into this legislation without having the chance to read this 1,000 page bill and after having read it to have a discussion within the cause on this bill. we would be in a very difficult position if, as the republican leader said, we're going to work over the weekend, which is fine. i have no problem with that. i've tried that myself a few times. it didn't work so well, but i'm willing to be part of the deal here if we're we're willing need to work the weekend to get this done. i don't know what the house plans to do. but we're planning a lot that the house is going to take this bill. if they did, that would be wonderful. but i have to say tbhaifd on my conversation with the democrats in the house in conversations they've had with republican leadership over there, i don't think there is a chance in the world they're going to take up this bill. they have sent us a bill, a bill that's for five months, with conversations between the white house -- not our white house but the president's white house. -- to come up with a long-term highway bill. so part of that is some consideration of the ex-im bank. i realize how important that is. i have been on this floor talking about how important that is. we have about 45 different countries who who have, as we speak ex-im banks that are working that are taking away all of our business. so it is important we get that done also. but we can't let one get in the way of the other. it is not our fault. democrats' fault that we don't have an ex-im bill. we didn't create the problems with ex-im having gone out of business. so i want to have a highway bill done i want to get ex-im done. but the ex-im problem should not stand in the way of us getting a good strong, robust highway bill. mr. mcconnell: madam president? the presiding officer: the majority leader. mr. mcconnell: my good friend, the democratic leader, was saying as recently as a couple of weeks ago, we need to do a long-term highway bill. well senator boxer and i took him seriously. we've worked hard here to come up with a bipartisan, multiyear paid-for highway bill. the fact that it hasn't been online very long is a good argument and our friends will have an opportunity to read every bit of it, and i hope at that point they will find it attractive to move forward. and as i've said for over, i guess now something like two months this bill is an opportunity for those who support the ex-im bank to offer an amendment on that subject. so it is further complicated in terms of timing by the fact that the house of representatives is leaving a week earlier than week we are. -- a week earlier than wemplet i -- than we are. i can't say with certainty that they will take up a highway bill that doesn't raise the gas tax deduction, but it is a lot more attractive than a six-month extension. that we have to revisit again in december. and so i'm hopeful the house will take a look at what we've done over here on the senate side and find it pretty appealing. and so we would like to work our way through this and we intend to work our way through it, including the weekend to get what we believe is an important accomplishment for the country -- for the country -- over to the house of representatives so they can take a look at it and maybe they will find it appealing as well. mrs. boxer: madam president? if i could say to both leaders -- the presiding officer: the senator from california. mrs. boxer: if i could say to both leaders whom i respect tremendously and agree with leader reid 99.9% of the time, here is the situation we've got a highway trust fund expiring, going bust, going broke. and, yeah, we've dpot to spend some time, you know, we've got a lot of staff, we can divide this up 250 pages four people. we've got a summary we've got a summary of the bill out there for everybody. and we can just say we need four weeks or six weeks to look at the thing. the e.p.w. piece my friend senator inhofe knows, has been out there for three months -- or not that long, at least two months. we haven't changed much in that. so it's been out there. so that's been reviewed. all i want to say is this: if we could just keep the eye on the prize. and i understand that the way we proceed over here is important. that's why i voted "no" not to go to a bill that i wrote with senator mcconnell because i agree with my leader completely. we need a chance to look at it. but i would submit, this isn't the first time we've ever done a highway bill. this is a little different than a health care bill in the sense that it's a highway bill. most of it's very similar. i would say e.p.w. bills off the old bill we had before, and most of the bills track older bills. i don't think it's going to be that hard for us to detail our stay of to read it because here's the problem: if we don't we've got 800,000 construction workers that still are not back to work. we've got seven states that have stopped doing anything. so if we can just keep our eye on the prize, which is businesses being able to do what they want to do -- build -- i had a bridge collapse two days ago. you can't get from california toes a. so i hope tomorrow will be able to join with our friends and vote to proceed. if we don't like the bill, we'll have three more opportunities to vote "no." but i'd love to get on this bill and get moving on it and seeing if we can keep this economy moving in the right direction and not take a chance, as many economists said we will, if we don't do a long-term bill. i yield the floor. mr. mcconnell: will the senator from california yield for a question? mrs. boxer: at yes i. mr. mcconnell: i understanding is that you and chairman inhofe have been discussing with people out in the country who would benefit from this bill. do you have a sense of their enthusiasm for the product that we've been able to come up with here? mrs. boxer: i do. and as i shared with leader reidside today 68 organizations from labor to business to general contractors -- i have the list. as a matter of fact, i ask unanimous consent to place it in the record. the presiding officer: without objection. mrs. boxer: already asking us, begging us, to move forward. the governors association, it is really a broad-based number of organizations that don't agree all the time. i mean shall the building trades isn't often dprea with the chambers of commerce. but they agree on this. mr. mcconnell: -- i would be correct in saying that they are less than enthusiastic about another short-term extension? mrs. boxer: they agree with those of us who have said that's a death by 1,000 cuts. we just can't keep on doing these short-term extensions because i will just say this to you, mr. leader, if you or i went to the bank to get a mortgage and the banker smiled and said, you get that mortgage but it's only for six months or five months, you wouldn't buy the house. no one is going to build a new project or fix a bridge that has multiyear costs if they know the money could run out in five months or short term. mr. mcconnell: would it also be correct i ask the senator from california, if we're fortunate enough to send this multiyear paid-for highway bill over to the house and the same constituent groups whrof -- who have an interest in this would suggest this might be something to take a look at? mrs. boxer: i think there would be huge momentum if we're able to pass this in a bipartisan way. yes, i do. mr. inhofe: madam president? the presiding officer: the senator from oklahoma. mr. inhofe: madam president, i think that -- i've been listening carefully to what concerns people have. i have to remind everyone that it was the 24th of june -- 24th of june -- that we passed this bill out of committee. we've been working on this bill for months before that. and all of us realized that we've gone, the first bill -- the last bill that we had that was a multiyear bill was 2005. it was a five-year bill. and since that expired at the end of 2009, we've had nothing but extensions. those extensions cost 30% off the top just because short-term extensions don't work. we went ahead and we passed a bill and i can recall -- and the reason i'm optimistic that we can get this over to the house, they will sign it, because that wasn't a problem at all when it went to the house last time. we showed them that the cost of the bill is far less. the conservative position -- and this was with 33 members of the house on the t & i committee. so all the republicans, all the democrats on their committee voted for it. those same democrats and republicans over there would support this. i think the reason they came out originally for a shorter-term bill was for it to, to pack it in with some other things they wanted to get passed. but i have yet to talk to the first member of the house who doesn't say if you bring us a multiyear bill, we will sign it. i think that will happen. we're willing to stay here until it does happen. commit on the budget. prior to that, he sevened here as simulations in our center for data analysis. he has served on world economic forum commission to study alternative measures of economic performance. he also specializes in health economics and applied econometrics. please join me in welcoming my colleague paul winfrey. paul. [ applause ]. >> thanks, john. we're pleased and honored to have with us today dr. tkpwaourb qaa. having served on president reagan's task force. he is also part of the flat tax. he has a bachelor from st. louis. please join me in welcoming the doctor. [ applause ]. so thanks. we've got a -- allen and i will engage in a little bit of a discussion here. then we will open it up for questions. but, you know, first of all, i'd like to welcome david to our tax reform talk show. i'm sorry. we don't have a live band to play. but if you want to play some games, like smashing eggs on our foreheads, i'm open. so let's get this thing kicked off. in your book on flat tax you wrote economist and politicians of all persuasions have three main points. one, federal income tax is not simple. two, federal income tax is not costly. three, federal income tax is not fair. can you elaborate on these points for stphus. >> sure. >> for those who may be interested or haven't seen any of the versions of the books bob and i have done. we put it into four pages largely self-explanatory which meets a minimum of regulations. we're 60,000, 70000, 80,000 pages. so anybody who thinks that's simple is missing the point. some of these stories over the years, someeneur, not too complicated takes the tax return to seven different tax offices and gets seven different tax results. so that should be a problem for tax professionals. and then all the difficulties in interpreting things makes for enormous complexity. and then all the various gray lines. every time there is another tax measure to simplify and clean it up, it gets worse. among my favorite phrases was archer, bill archer who kept talking about tearing the income tax by its roots. by the time he got done it was larger, deeper and sucking more water. the problem is it keeps getting worse and worse and worse. what does it cost us? i was invited in 1984 to serve on the american bar association commission on tax payer compliance. we had three former commissioners, some professor, some tax experts. and we produced this report over two years. it was 100 pages long single spaced. we had a staff of experts to help us out. we walked through every single thing we could figure out to figure why there are $300 billion of taxes owed but not paid. it's very hard to prove in any way scientifically what the main cause is. we could all agree on one thing. the lower the rate, the less the noncompliance. the only qualified with no hesitations of the task force was, have lower rates. if you think about costs, what do we have? we have, i don't know how many hundred billion dollars in unreported income because people are trying to avoid taxes by under reporting income or exaggerating deductions. we have tax lawyers tax accountants. my favorite statistic when we wrote the first book in 1983 is the number of people who practice law in new york city versus washington, d.c. and we found in the early '80s that the number in washington had grown so rapidly they caught up with the number in new york city. except the number in washington didn't practice law. they practiced various of advising people on taxes. so we had this massive industry. in silicon valley before the bust, i was talk to go 400 financial planners. all but two or three said with tax rate of 19%, they would have to look for other work. because we had high rates and 50%, basically remember a dollar save in taxsis $2 of producing income. way better to concentrate on saving taxes than producing income. there's some margin where you can choose one from the other. so simplicity, complexity, cost, rates, the whole package. and it's not fair either. if you think about it, we have a wonderful legal system in this country that is gradually evolving. you're not supposed to. legally not supposed to discriminate on the basis of age, sex gender, race religion ethnicity handicap. but tax policy discriminates against every single person by affording each individual different kinds and different amounts of deductions and exemptions and rates. we have a tax code that is the very essence of discrimination which is in the face of the fourteenth amendment. that's a good way to begin discussion. >> it seems like there's a tremendous opportunity cost through the capital that goes into evading and avoiding taxation. it's not just the tax accountants and lawyers and everybody else in d.c. how many folks in here -- probably most people in here work in the tax world. but how many are tax lawyers or accountants or jds and work in the policy world? so not as many as i thought. just david over here.that the graduated marginal income tax rate system today is progressivity. it is marginal rates not average rates. can you go over how it is more ex tablquitable. >> i did have one set of numbers that i did want to bring with me. i did 202 political jurisdictions around the world to see every single one of their income tax systems. here's what i found. 16 have no personal income tax. the oil sheikhs off-shore havens. 45 have a rate of about 36 or 37 we can trace from our books. i've got a desk in my office where you have flags from all the flat tax countries. it's a nice picture. 23 have two rates. 118 have three rates. so -- not only that but they are not the same. they are different everywhere and they change over time. so if someone wants to tell me what's a fair tax, i want to know how you pick out which of these 218 is the fairest. this is just rates. not base, not deductions, not exemptions. so the notion that a particular system is fair and all the others aren't is just a matter of your personal choice at the end of the day or what you can politically get away with and enforce. fairness. the way i like to think about fairness is that you can have a progressive tax on a single uniform rate. so i did the numbers at one point to illustrate this. so let's just take for example and say an individual has $20,000 exemption. so $20,000 of income do you have? zero. then if you go to $40,000, you're paying 10%. and you go all the way up until you're making about a million dollars and pay 19.9999. so you run your way up from zero to just about 20 depending on your level of income. so you can vary the personal allowance, make it higher. that way you would have a greater degree of progressivity. or lower it and make it a smaller degree. but at the end of the day, as long as there's a personal allowance or deduction in there, it is progressive. so the question is what degree of progressivity do you want? well if you decide to have tax rates going all the way to 50%, you canning sure to respond that the congress will because it always has if high income people special treatment because people don't pay 50% tax rates. very few do. so what happens as those rates go up is you end up with a tax code that gives special deductions to start-ups special deduction toss various sectors and industries. and when you talk about fair, through marginal rates you have to deal with the fact that you're in different entities from personal people to professional corporations to business enterprises and the like. so my view of this is it's impossible to consider a flat rate with no deduction where everybody starts the first dollar of income. once you hit the threshold, the flat rate allows you to have a progressive consumption tax. there's a lot packed in there. i'm sure we will talk a lot about it. it goes from consumption tax base. without double taxation. i think that's the beauty of having just two postcards to do it. the reason for two. but on fairness, then under that situation, will treat people pretty much the same pause everybody is taxed the same on their last marginal dollar of income. and everybody, depending on family circumstances, receives the same personal allowance. now you may think you want to give precedence to one group over the other. fine. vote for it openly on the budget and financial transfers. you're on the record of voting for spending money. but if you hide it in the tax code, you're not on the record voting for spending money. it's way more complicated to say you're the equivalent of spending money by providing tax deductions to narrow the tax rates. i think one can make the argument the flat tax or any flat rate system really is about as fair as you get in terms of treating people equally. some people don't want to treat people equally. that's their political view. >> in your book you have this great -- speaking of this in your book you have this great quote on the theory of justice how expenditure tax applied across the broad case base is probably the most equitable base imaginable. john walls i think is safe to say is not necessarily a conservative. and anyway, i thought that was very -- >> ignorance if you don't know what your life is going to be why not everybody have exactly the same tax system they're going to face rather than determine in advance what tax you're going to face. >> you spoke a little bit about consumption base. how it is important to have a consumption base. for folks in the room who maybe aren't as familiar with that, basically a consumption tax is a tax on income spent on consumption. not income saved or invested. can you explain or go into a little bit of detail why having a consumption base is so important? >> basically or the way i have to think about it, you just use the very simple formula, the gross domestic product equals consumption, plus investment and government services, which is small. and then a add exports. so what's investment? it's whatever you do that you invest to make your business activity more productive. and having first year write-off of investment spending gives you the maximum to make that in the first place. and then also changes the tax base to purely consumption. so economists generally across the board agree that you get better performance in the economy by taxing consumption and not taxing new investment. so that's the basic core argument on that. there's always going to be differences as to how much better the economy will perform. will it be 1/10 of 1%, half a percent, 2%? i'm not sure of anybody who says it's negative. we don't know what the scope is, small, middle, large or the coefficient. in the long run if we accumulate capital we get more productive worker wages rise and so forth. and so you do get a benefit over the longer run. so imagine that if you could compound growth at 4% instead of 3% how much more rapidly you would double real income. so it becomes very useful to think in terms of long run rates of growth. and you will get them on a consumption base. >> can you talk why marginal tax rates are so important? >> people work for themselves, not for the government. i know very few people, especially rich people, who sit down these days and say what can i do to reduce the national debt. i'm going to write a check. there's a special office of the treasury where you can send that check to. it's called paying down the national debt. every now and then they get a check. most people work for themselves which is quite fascinating. think of this. you have billionaires, billionaires, who go out of their way to make sure they're not paying ordinary income but carry interest on certain transactions that i think should be taxed a as ordinary income. that's schumer's district and he gets a lot from that to survive for the time being. as the tax rate rises they figured it out very early. by the time they were paying 91% so he quit working the last six months of the year. there's a lot of situation when your tax rate goes up you begin to think a little bit about is it really worth it? now, it may be worth at at 50% on the dollar. the higher the rate the more likely you are to avoid and even evade and so one is and one isn't. and the line between the two is off in a thin judicial decision. so one of the things we discovered in marketing around europe and we discovered this in romania, bulgaria and elsewhere, they used to enjoy high marginal rates of 20 30 40. they made some estimates about the underground economy. and they figured out, well so much is underground. they can buy insurance and get bank loans. they estimated in the first year they had so much revenue. they typically got it in the first nine months. because you had such a response to people coming on board and only paying 10%, 15%, 16%. high marginal rates really create all kinds of problem for all kinds of people. and so the lower the rate the higher the return. and most people, as i say, work for themselves not for the government. >> so there are a lot of congressional staff in the room. one of the issues being debated right now in congress is the highway trust fund. one of the ways the senate and the house have proposed to pay for the shortfall is through additional tax compliance measures which would increase the complexity of the tax code. what would you tell a member of congress looking at additional compliance measures relative to say a overhauling the code altogether? >> well, generally speaking, i would tell them go on a broad base reduces the incidence to avoid or evade taxes. and add simplicity to that and you have less need of compliance. the united states is a pretty good country for people paying taxes. and we get a really good response with lower rates. we get not as good with higher rates. so any measure that will increase complexity is going to make people more unhappy with every expect about taxes. there is a story i like to tell. if you're in a residential neighborhood and there's a lot of small kids and somebody speeds through 60 miles per hour and you catch the license plate, your going to call the police and try to get that person apprehended apprehended. but if everybody else is more or less paying taxes and a neighbor found a way to cut them by half nobody tells the irs or goes and asks how he does it. this is how people respond to the irs. generally speaking, when you sit around a bunch of people at a tax conference irs conference, after hours in the bar, what have you found? you have a lawyer that's found some special thing for you, how are you avoiding the high inheritance tax. we don't talk about let's go march for more compliance. >> saw on the white house website, president obama laid out a series of principles for tax reform. they include one lower marginal rates. two, eliminate unfair tax breaks. three, be part of a deficit reduction effort. four increase job creation. five, remain progressive. >> well, as i said the flat task is a fully integrated, broad based low rate consumption tax that over time to the extent it aids economic growth and reduces noncompliance will generate additional revenue. if we can somehow or another step the congress and president from spending every dollar it gets and 10 cents more, it would over time reduce the deficit that is a faster performing economy and a less rapidly growing government will give you additional revenues. so i say they're all terrific. but governments don't create jobs. they get in the way of job creation. individuals form their own. i wouldn't focus on the deficit reduction part of it. i would just try to freeze spending. because if you try to focus on cutting things you end up with all kinds of people tell you why you shouldn't. but otherwise, i think it's right on the mark. it's just too bad they don't do what they say. >> so basically you are -- so the president's comments don't poison the well on tax reform? >> no, they don't. but i've noticed mrs. senator secretary clinton today is proposing too. i will leave that to later questions and answers. i would just put it this way. she couldn't be more wrong if she tried in raising capital gain rates and in particular holding long-term investments. in silicon valley, nine out of ten feel. we're not interested in long-term preferences. we're interested in getting in and getting out. so the whole notion that somebody is going to sit around and hold things five years to get a lower rate is just plain silly. >> so one of the really significant and sort of inside the beltway accomplishments that congress has had in the last six months is the adoption of the dynamics rule by the congressional budget. you wrote in the past to dispute higher rates is to repaoud date the law of demand which stipulates prices and qualities are inversely related. how do you think or do you think that the new dynamics rule that has been adopted by congress is -- does it help the eventual passage of the flat task or acceptance of the flat tax? >> there are probably 50 different factors that would go into getting it passed. there is going to obviously be a huge debate and quarrel as there already has been on what the degree of response will be. small, medium, large. so we're pretty sure there is going to be some response. i think in this notion of income -- people get rich quicker, they stop working. but i don't think there's any doubt there will be a lot more people working investing and doing things to get richer in the first place. -- it is not overexaggerating the benefit just as a political measure but take some small -- (inaudible). it's just going to have a long term cumulative impact. >> a few minutes for questions. if anybody hosni. there's a microphone -- couple of microphones. just please state your name and a affiliation and then state your comment in the form of a question. >> hi. i'm nick farmer. can you comment on the idea of having a pure consumption tax, sales tax, whatever you want to call it. flat replacing all other taxes, business, corporate personal, payroll tax. and keeping the progressivity of our current system with a rebate to individuals to replace all of the various income transfers that are imbedded in the federal budget. do you think that concept would work well and be much more efficient? >> what you've got of course, is just described the fair tax. and we had governor huckabee two weeks ago. bob hall and i tried to budge him off of it a little bit in favor of the flat tax and didn't get anywhere. i wrote a piece called a friendly case against a fair tax. why it's not as good for america but great for me. i want to give you a couple features of that. in the 1960s, there were 12 europeans countries with a sales tax. by 1980, zero. all fell into value added tax. the reason is value added tax is more of a self enforcing up the chain. so you can collect it. retail sales tax is prone to cheating. i will tell you my early personal story in 1981 i was having dinner at a restaurant in rome. on the way out the cashier said listen, we're not charging a value added tax. but police are outside the restaurant checking the seats. so if we see someone coming up to you, go ahead and check the receipts. one of us will go out the door as fast as we could. i'm sorry, sir, we gave you the wrong receipt. after a while it turns out proprietors get very good at doing this kind of thing. so you're going to lose a whole lot of revenue in that process. retail sales taxes are very hard to enforce across a whole country. now a second matter is we have a retail sales tax in some of the states as well. cap that on and you'll have a fancy rate. but there's a number of other aspects that are kind of small. i'll start with the joke. if i may. i hope all of you have seen the various "star trek" series. my favorite character is the prophet. and i have this book called 216 rules of accusation. rule 183, if i remember, is only fools pay retail. so that was one. the second thing is that i don't know how many of you come from jewish or other immigrant families. but there was always an uncle who said, no, no no i will get it for you wholesale. and you have small set up businesses to become a c corp. or whatever and get your sales tax license from the state. so you don't pay sales tax on your inputs. in the worst economic situation in belgium in 81 there was a proliferation where people were eating at restaurants. they weren't paying tax on the food they consumed. and next is my house is paid off, car is paid off, i have consumer durables. and my kids are in the same situation. there's another aspect of this. when you add a sales tax increase to any state or entity, it goes to cpi, consumer price index. what you end up getting is -- you get a value added tax. you get the equivalent but it looks like income tax and doesn't have any effect on price index and so on. this is just a bunch of things that get in the way and complicate it. you have to know who is eligible for it. how are you going to know that? anyway, what i think is, my biggest fear, if you were to do that the probability would overnight swap one for the other. and the answer would be let's start 3% and see how it works. and when we hit 30 we'll get rid of the personal income tax. no european country has done that. not japan not korea not taiwan. they all start low. they haven't produced income tax. so it's no accident that in europe they spend 50% of gdp and we spend 35%. you end up not with a replacement. it's hard. there are so many programs you need to finance that congress would never agree to an overnight swap. by the way transition, the very first book in 1983 it became a big problem. so we had transition subsequent. the rule varied is five years. so you can have five years to cling to the old system if you have a lot of unused depreciation. do it right away. we figured out 80% of all enterprises would go right away. and at the end of the five years there's not going to be much depreciation worth anything or more. i'm not persuaded not influenced. there was an 80-page review of the national retail tax. there's a lot of problems that they add to it. only if there was 100% simultaneous replacement. otherwise, i would be nervous. >> i was just going to say i just learned that i can move to rome start a business, print fake restaurant receipts and make some money. >> that's why 25% of the country is estimated to be underground. oh, 50% of the entire population between 15 to 24 is unemployed. >> hi. i was wondering if you wouldn't mind going into a little bit of detail contrasting the flat tax with hillary clinton's proposed tax plan and why the flat tax would be better. >> i don't know what a tax plan is because she hasn't spelled it out. she's hinted at what it will be. it will be higher taxes on the weighty. and i think 50% marginal rate over those over a million. let me digress here and throw a little cold water on that. the best-selling economic book in what, 50 years, thomas pickety. he organized a letter signed by 250 french economists in 2012 saying they supported french hollande because he wanted a 75% income tax on those over million. lo and behold, january 1, 2013 he did. and the end of 2014 and he lets it expire. what? a socialist? pickety turns down the french medal of honor. to make matters worse, he resigns from that which he himself founded. he moved where they are open to this stuff. words in theory did not practice. the british labor party was running against cameron. and it showed even even, even, until the last day. they got slaughtered of course. and just a week or two ago, the new leader, whom you've never heard of from the labor party tax issue settled. no more talk bit. 50% marginal rate. we're happy with 45. let the rate go to 18 for corporate. and we may see some rate reductions. out there in the real world, people who have either tried it or are advocating it gave it up. and don't want to talk about it anymore. so there's not much stomach for actually doing this stuff. and i think it's really important to remember why it went down so high. under senator eisenhower, nobody paid it. 92% of the people were paying like 20%. we're talking about a tiny tiny fraction. not a third of the middleclass paying these high rates a that will hit them today. she's talking about high rates of tax and capital gains. it is just a tax. if it's in the form of dividends, it is a tax lawn after tax profits that are distributed. if it's on capital gains it's an after tax gain profit on the higher priced earnings. but in any case as we approach creating a tax base, we need gdp. for those of you who know how that is constructed, you don't have tax in gdp. there is no place for capital gains. you end up in double taxes. so we went out to the lowest rate. now, if you had, say, a 9% rate and another 9% on capital gains then the double tax rate would only be 16% and it would be prohibitive. if you're going to start talk building 39.6% or 50% or california, new york, 60%, and talk about 50% on capital gains i don't know, 25% on dividends, and you earn a million dollars you're paying 75%, 80% marginal tax rates. that's when companies start buying cars for everybody. because sit a deductible expense. and we go back to martini lurches. it's just the wrong way to do it. >> i have a technical question. i think it is a technical question. you mentioned that you figured that 80% of businesses would choose expensing given the option. where did you get that figure. >> this went back to early 1980s. just looking at the nature of investment. for example, we had drawn up depreciation schedules for construction for buildings. imagine you can put up a shopping mall and write the whole thing off in the first year. what they're going to have is all new investment. spending will certainly come under the new tax code. then look at the value of unused depreciation. for some there may be some calculation where you have to think about if you're going to make new investment the benefit of writing it off, versus maybe losing some of the depreciation of your old investment. the people who benefit for those who were absolutely stagnant. not planning much in the way of investment and they're going to slowly depreciate their old on investment. and that was based on our assessment as a small minority. certainly in the tech world there is no case where the depreciation goes to first year write off. since most jobs are created with small business i don't remember the exact number 80%, something like that you're certainly going to to get a better stimulus and jobs growth by having full investment spending. section 179 is basically what we're proposing for the entire tax code. it's across the board section 179 for all new investment. but interestingly enough, if you look at investment and physical plant equipment, we're producing more with us. manufacturing. the output is smaller than it was when it was bigger. so we're getting into a situation where it's almost going to be obvious to anyone that you want to take the expensing route. after five years it's going to be pretty hard to find very many businesses, if anything, in those six seven, eight, nine in terms of writing off the rest of their depreciation. so i think that's the principal benefit. not only that, and i should tell you a little bit how the senior and steven simms were involved in the bill. the democrat family controlled property. 48 separate properties to 48 separate companies. they were all under 48 separate depreciation schedules. you mean i can tie all of these together and put one line on a tax form? i said yes. he said sign me up. that's how we got democrats in 1982, there were more democrats supporting our plan than republicans. as a joke the wall street -- no. it was "the new york times" came out april 15th 1982 and wrote a strong positive endorsement of our flat tax. but anyway, so i have the extra quotation from the "washington post", wall street journal, new york times in 1982. then the story changed later. but i want to make one other point which the questions haven't brought up. economists think more about efficiency. they think about equity too, but they think about efficiency. they took about neutrality and not favoring one industry over another. and as i look back over 34 years of doing this stuff and marketing all over the world, what i would say is that in the united states we may have understated or under played the importance of simplicity. where as when you look at lithuania, latvia and central and eastern europe, they regard simplicity and compliance and understanding and online reporting in the same way they regard low rates conducive to their strong revenue growth. and i think typically among economists we can't stop talking about efficiency. and we don't talk about simplicity. that is ease of understanding. ease of compliance. ease of collection. ease of promotion of the idea that you should pay and low rate and simple -- first book was called low tax, simple tax, flat task. we changed it to flat tax because people couldn't keep three things in their mind. it's the old walk and chew game at the same time. but simplicity is really important. i think any of you who want to get on the band wagon it is important to stress we've got to keep it simple. otherwise, all we're going to have is increase in complexity. >> if folks want to know more, how can they do that? >> the good news is you can get the flat tax book free online. the easiest way is to google my name. you will see in the brief description about me in the first paragraph. the words flat tax are underlined. if you click on that you will go to uber press page where you will see the flat tax book. each chapter can be downloaded and printed free of charge, as many as you would like. print 1,000 and give them to your friends. on my same home page there is a link to my flat tax blog. and what you will find is i private chronicled the history of the flat tax movement all over the world. there are 45 jurisdictions that now have it. and i have written every one, the latest updated lists which i just put up of the 45. and it goes back to 2008. there's 120 posts. so if you really want to follow it go back and read all 120. and you will know the entire history of the glass tax movement all over the world. every time there is a change anywhere i put it up. i usually put an ends-of-year update on it. you will also see a picture of the flat tax book. so if you couldn't find it click on the book. free of charge. it won't look like that because it is the newer hard cover version with introduction explaining how it spread to 25 countries. by the way, just a short note on that why is it the baltic countries went to a simple flat tax? under command and control of communism, the state gave out the money and collected all the revenue. when the wall came down and they needed to go quickly the easiest thing was a short simple thing you could do online. and they needed to collect revenue on the market economy literally in year one. and then some of the countries wanted to follow western europe czech republic and russia and others. after seven or eight years, they went threw in the towel. when russia went to 13% they tripled taxings on real inflation. that's when the bandwagon started all over the world. so i'm still trying to market this big movement in italy. it's my great hope we will see something happen in western europe. anyway, that's how to get it. and the best way to reach me if you're media or you want to talk is e-mail me with questions. and i'll take the time to answer them. but the back of the book, the last chapter has 66 questions and answers. they were the 66 most common questions that we heard over 15 20 years of interviews. they are one to three paragraphs and designed for quick, easy understand of things. if you don't want to read the plan, read the questions and answers and you'll get it. if you come up with a new question, you get bonus points. >> the q&a section of that book is fantastic. i encourage everybody to go out and download a copy or a thousand. >> and give them away on the corner. >> everyone please join me in thanking the doctor. [ applause ]. >> thank you. that was great. and at this time we'll have the next panel come on up. >> so i would like to introduce my colleague david burton. david is a senior fellow in economic policy at the thomas. a roe institute where he focuses on tax matters, security law, entitlements and regulatory administrative law institutes. his career in financial matters include posts partner in the group. vice president forcouncil of new england machinery. manager of the u.s. chamber of tax policy and general council of the small business association. burton received the gd, and apparently you are the only lawyer here from the university of maryland's law school. he also holds a bachelor of arts degree from the university of chicago. please join me in welcoming david to the podium. >> good morning. the purpose of this panel so to discuss the essentials of good tax policy. and we have a very trong panel today with five of the country's leading experts and proponents of fundamental tax reform. each panelist will make a presentation of about ten minutes, and then we'll have questions and answers from the audience. the entire session will last about an hour and 15 minutes. the broad principles of tax reform are something that most informed conservatives and libertarians generally agree about. the economic principles are driven by the findings of the public finance literature the optimal tax literature, and price theory and micro economics. and those principles could be summarized as the tax system should raise the amount of money necessary to fund a limited amount of gov in the least economically destructive way. and in more formal economic terms, in the way that minimizes the deadweight loss or debt burden associated with raising a given amount of money. what this effectively means is a flat rate consumption tax. as you'll hear about in some detail by the panel, there are four types of flat rate consumption tax that have been proposed by conservative politicians over the years. a flat tax is one version of that we just heard about. there's also what is sometimes called the new flat tax, consumed income tax cash flow tax, and that also has been introduced in congress. although not in the current congress, i believe. there's two other methods. one is called a business transfer tax. and the other is of course a national retail sales tax. the best known of which is the fair tax. now the magnitude of economic gains to be head from moving towards any of these approaches is very, very large. steven in particular is going to address this subject. but fundamental tax reform has the ability to positively transform the landscape. it's probably the economic policy program that has the most -- represents the greatest opportunity to improve the standard of living of the the american people and to recreate prosperity in the united states. a second principle is the tax system should have the least negative impact on the core institutions of civil society. that would include the family, but also voluntary associations such as our religious charitable and civic institutions. -- have written and persuasively about the importance of these types of institutions to the success of a free society. and a third is to help preserve the rights of life, liberty and property, and to further the cause of fairness and justice, the tax system should impose no unreasonable burdens on individuals and apply consistently to all americans with special privileges for none. should also respect taxpayer rights to due process. our three papers have been made available to you today. and those of you who are watching either on c-span or on the web cast, the papers are four conservative tax plans with equivalent economic results and examines the various tax proposals. the second is a tamt reform for the 2016 presidential candidates. and it walks through the various design elements anyone must con front. and the third is how congress should reform business taxes and looks in detail at the shoe of taxing businesses and proposes both intermediate and long-term recommendations. all three of these papers are available on our website. let me quickly introduce our speakers. first we have dr. dan mitchell. he's a senior fellow at the cato institute. he was a senior fellow here at the heritage foundation before he lost his way and went to work for the other think tank. he previously worked for senator bob packwood, i believe before he was chairman of the senate finance committee, and he's one of the nation's leading proponents of a flat tax and a tireless advocate for economic freedom. steven is a senior fellow at the tax foundation. he and his colleagues at the fax foundation have created the best and most transparent tax model in the country. prior to joining the tax foundation, he was for many years with the institute of research on the economics of taxation. he was also deputy assistant secretary of economic policy at the treasury department during the reagan administration and worked for both the jc and the kim commission. dr. jason figner is a senior research fellow at. also a professor of economics at georgetown, at john hopkins cool of advanced studies and virginia tech center for economic policy. jason was explaining to me before he came here that his students actually like his courses, so i'm hoping we'll have a similar presentation today. jason served as deputy commissioner of social security and chief economist and associate commissioner for retirement policy at the social security administration. he zeshed asserved as senior economist. he sometimes calls himself a recovering tax attorney. but that means he brings to tax policies discussions of a practical awareness of real world problems with the current tax system. i think it's fair to say no one has done more to improve the public's understanding of fair tax and need for tax reform generally than steve. curtis dubai is senior research at the heritage foundation. previously structured international transactions as part of the accounting firm's transfer approaching group. he also served on the fax foundation where he authored three widely recognized reports. state local tax blurds and state business tax climate index. both curtis and jason are among the very best of their generation of free market tax policy experts. we're going to go in the order that people are seated, and please join me in welcoming dan mitchell. mitchell. >> let's just do this sitting down. i think that might make more sense than people getting up and down. thank you, david, for introducing the panel. and it's good to be back here at heritage. i used to represent the conservative wing of the heritage foundation during my days. i'm glad now that you're upholding that important role. i want to make one basic comment, that i think underscores the importance of everything we're going to be talking about. and you sort of got this of course, from alvin, and you'll hear it later on today as well. but tax rates matter. and while what really frustrates me is politicians understand us when they want to. a lot of times we see politicians, federal state, local level banging their fists saying we need higher taxes on tobacco because we want people to smoke less. i'm a libertarian think tank. i don't think it's government job to try to control our choices. but i give those politicians an a-plus for economics because they're right. the higher the tax you put on something, the less you're going to get of it. you'll also get cigarette smuggling and other negative side effects. but the fundamental point is right. high tax rates discourage what's being taxed. my frustration is many of the same politicians forget the lesson when it comes to taxes on work, saving, investment risk taking entrepreneur ship, the things that help our economy grow the the things that create jobs and make us competitive. so that's really what tax reform, in my find, i try to you know, make it as simple as possible. that's what it is about. we want more growth and prosperity. and you heard alvin just say over and over again, consumption based tax. my job on the panel is to try to explain why that's important. it's important because the current tax system treats income that you sai and invest much much worse than the income you can consume. think about it in this very simple fashion. you make some money. you pay tax on that money. what's left? disposable income. after-tax income. you have two choices of what to do tw the after-tax income. you can consume it right away, or you can consume it in the future. what's consuming in the future? it's saving and investing. now, let's think about how the federal tax system theets though two choices. if you consume your after-tax income right away, the federal government, by and large leaves you alone. yeah we have a federal excise tax on gasoline. we have a federal excise tax on bows and arkansas rowrows, but there's really no federal tax on your income. what happens if you save and invest your income instead? between the capital gains tax the double tax on divot dends and the death tax, it's possible for the sing dollar of income to be taxed over and over enover again. m and you don't have to be a wild eyed supply cider to think if you have even low tax rates, but those impose multiple times that you're going to do something dramatically or significantly affect people's decisions on whether to consume their income today or consume the the income in the future. why does it matter economically? so what? so people want to consume their income faster rather than slower because saving and investing is treated harshly by the tax code. what difference does that make? it makes a big difference. every sing economic theory. we could have a socialist or markist up here. every single economic theory is based on the the notion you have to defer some of today's consumption to finance tomorrow's growth. you have to have call toll formation. and yet our tax system as i just explained, mistreats and abuses the people who save and invest. why? well, because rich people tend to have a lot of saving and investing. that's really it. there's no underlying sensible economic theory behind it. it's something about why we rob banks. that's where. that's why politicians double tax and triple tax and quadruple tax saving and investing. let me try to sum this up with an analogy that i think perhaps makes it very, very clear. imagine if you owned an apple orchard. you're getting into the fall. your apples are ripe. it's time to harvest them. what's the best way to harvest those apples? do you pick them from the tree, or do you chop down the tree? apples are income. the trees are capital. the reason we want a so-called consumption based tax is because we don't want to mistreat capital. but you don't need to think about socialism, marxism, social theorys. think about it this way. if you chop down the tree, or if you harvest apples by sawing off the branches of the tree, what does that do for your long-run prosperity? for your long-run income? you're going to have fewer apples next year. so it doesn't make sense to double and triple and quadruple tax capital. on this one issue the the marxists and socialists are right because they happen to agree with sensible economists. you need it for long run-growth. that's why we should have a tax system that treats all income equally. that means no longer double taxing income that is saved and invested. you want neutrality. not only in the senseover getting rid of the loopholes, but also neutrality in how you earn and how you spend your income. thank you very much. [ applause ] >> david, thank you for putting the panel together and inviteing us here. it's refreshing to see the topic coming back to life after a couple of decades of neglect in this country. i think it's critical that we worry about the truck strkstructure of the tax system and not just about how much we're going to get at one time. this is about what's good for the economy and the country. i have a handout with some charts on it which i'll put up on the tax foundation website later this afternoon. dan has already done a very thorough job of going over the first thing i was going to talk to you about listing four layers of tax on savings and investment and one on income used for immediate consumption. but these extra layers of tax have an adverse effect on the call toll formation and the adverse effect on the capitol formation has adverse effect on wages. dr. burton talked about how economists focus on efficiency. and the reason it's so bad is that it leads to horrible inequities in the fact that you are taking the bottom rungs out of the economic ladder for those who don't yet have enough saving and need to rely on the saving of others to get started and have a place to work. when you cut the capital stock you reduce the labor and when you reduce the productivity of labor you reduce jobs. when people were thinking of putting together the concept of income we now use today they were neglecting the adverse effect on the labor force. now it wasn't unknown, the god father of the income tax, henry simons, admitted it would damage the economy. his current disciples don't want you to remember that. or they have forlgten it. here's what simons said about income taxation. income taxation is broadly an instrument of economic control. a means of mitigating economic inequality. we shall assume the moderation of inequality is an important objective of policy and consider them as devices for affecting it. the case must be rested on the case against inequality on the ethical or esthetic judgment that it reveals a degree and/or kind of inequality that is distinctly evil or unlovely. not particularly scientific. in fact, it is reasonable to expect every gain through taxation will be accompanied by some loss in production. -- upon the size of the national income. with respect to capital accumulation, the con kwenss are certainly significantly adverse. well, the answer solution for the damage he was about to do by putting all these extra layers of tax on savings and investment t. he was going to restore by having them run large perpetual bhuch edge surpluses. how often does that happen? even if it did happen if you're stuck in the 91% bracket you're not saving or investing anyway. so the saving that will go into planned equipment spending in the united states is still not going to occur. as you buy down the national debt, people will use if the reflow of old savings as new consumption. or they'll sell assets to people abroad and let foreigners find capital here. so another idea perhaps the the government would have toed a low cat to certain types of investment and pushing it that way. this is the road to the government taking over far too much of the the government. you're going over the path of argentina and chile and it was not a good idea. and he was very explicit on that. people tend to have forgotten that. david has asked me to give you estimations. but i want to make sure you realize just how bad things are under the current system so that you can see why we're getting the results that we get. another chart i have is a discussion of what would happen if you start saving a thousand dollars a year between age 20 and 70 and had it in a pension as opposed to being immediately taxed on the earnings and the interest. at the end of the period you would end up with 400,000 in the pension and $240 in the ordinary savings account. you've lost two-thirds of the potential income because of the dabble tax on savings. the the initial double layer he was talking ability. let's talk about the corporate layer that dan mentioned. when you add the corporate tax to the tax on dividends and capital gains, you get tax rates prior to the bush tax cuts that were about 48% on the retained earning, and over 60% on the dividend payout, between the corporate tax and the tax on the dividends at the upper ends of the brackets. mr. bush would ruse those to under 45% in both cases. but we now had increase in the individual to operate. we've had an increase in the -- i'm sorry the rate on the capital gains and dividends from 15 up to 20 and then up to 23.8 with a new tax under the affordable care act. when you add the corporate tax to that, we're at almost 15.5%. so we have taken back almost 200% of the tax gains and apparently according to some of the people running, we would like to go higher. well, i'll tell you something, they're not going to get any money out of this. when the passive income tax increase on the affordable care act came in we saw big realizations effect on capital gains and taking an advance of the tax hike, and now we're beginning to see the data from the years after. 2013 was the first year it was effective. and the last time we tried this sort of thing in the the 1986 act, it collapsed for a decade until it was lower again under the clinton administration, of all things, at the insistance of the republican house. you get no revenue from taxing something as fleeting and mobile and as time sensitive as capital gains. and then of course the estate taxes, 40%. now the irs is a bunch of kindly people whoed a the obstruction of the congress were told not to let anybody feel left out. if you give the the money to your grand money instead of your children, they impose two state taxes, they take 40% and then 40% of the remaining 60% and the generation-skipping a trust. and then if you're saving money in your retirement to add to your estate, you're paying the income tax on it, and if you're actually working somewhat after you have begun your retirement and are earning a little bit of money at that time, you have to pay the payroll tax on that as well, and then there are the state taxes. well, this can get to 81% and 84%. and that's at the federal level. and you can get over 90% at the state level. you're basically telling the elderly don't bother working. we don't want you in the labor force no matter how experienced or productive you can be. these are big effects on taxes. the other big effect is on the treatment of depreciation. and when you spend a dollar on a machine today, that's a cost today. that's part of the cost structure. you would think you would define income as the revenue minus the cost of earning it. that's profit. but we don't let you take the appreciation today. we make you write it off over three or five or seven years. the value of the write-off goes down with the inflation and the time value of money. and the government is basically telling you, you're earning a profit before you're really earning a profit. and they tax you on the extra inflated profit. and that raises the cost of equipment a lot the failure to allow expensing is the biggest hit on capital in the tax system, and that's where you get the most bang for the buck if you fix it. and that's why movements towards bonus expensing yields such a high gain for the economy in our modeling. now let me give you an example at 3% inflation a seven-year asset arrives at 80 cents on the dollar. at 5% inflation, a building has a write-off worth 30 cents on the dollar. you have to earn that additional money before that building really has any hope of paying its own way. sh and a big swing in the capital stock means a big swing in wages and job opportunities. so what do we get if we eliminate these four extra layers -- these three extra layers of tax saving investment and simply have a tax consumption, or the equivalent of it over time in your saving be be behavior? well, it's about 12% to 13% on the gdp. we ran something where we went to fall expensing. set a corporate rate at 25. we have individual rates of 15 and 25. i have taken the top rates down and left the 10% rate up. no estate and gift tax. we got a gdp boost after all adjustment, it takes a few years, five to ten years perhaps. gdp is $2 trillion higher. private business equipment and structures are up by 39 p kt. the 39%. we have about 3 million additional jobs. now this would cost money initially on a static basis of about $40 billion4 0$400 billion a year. by the time you got your growth it's under $40 billion a year. i think you could trim a little spending by that amount. it's not too much to ask. in addition, there would be some attempt by people to report more income in the united states, and less income abroad if you have multinational cooperation, and the joint tax committee seems to be guesstimating things on the order of $20 billion or so a year. they don't quite explicitly state what they're doing. so you get a virtual balance after the growth effect from

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