Been a guest many times at the Tax Policy Center and were always happy to doug has held many hats. He was director of the Congressional Budget Office between 2003 and 2005 and before that worked on the president s Council Economic advisors in early Bush Administration and director of the chief economist for john mccains president ial campaign in 2008. So we will hear maybe a different perspective from doug, but any way im sure you want to hear once more what the destination base flow tax is all about or anything else he wants to talk about. [ applause ] so it is always a pleasure to come to the tax policy sent around i appreciate the chance to talk about this. Im at a little bit of a disadvantage base didnt get a chance to hear everything that preceded me so im probably going to repeat things and i apologize in advance. But i wanted to talk broadly about the prospects for tax reform beginning with echoing what pam said, theres a consensus that it has to change, we need to have tax reform. I think theres a near consensus that were in a unusual political moment where it could happen in 2017 and what does it take to get that done and where do we stand in that . Unfortunately we have a relatively limited data on tax reform in the United States to go back and look at the empirical evidence to get it done. We dont do this often. If you look back to the 1986 reform, the way i think about it is it really began in the mid 1970s like di arguing that th u. S. Individual and income taxes were so bad they were damaging the economy but also the s prospects of average americans and the person on maine street would benefit enormously in the way we did business and our tax systems. That went on for essentially a decade and that attempt to sell that reached fruition with president reagan running for reelection promising do tax reforms so a big political commitment. He won 49 states so thats a pretty big margin of victory even by trumpan standards. The process began with the treasury one, must have been name bid the cbo folks, treasury one was a bold, almost pure, not quite, headed toward a haguesimon income tax, it got modified quickly, died several deaths, got radically rewritten over a beer in the senate and ultimately made it across the finish line, so a decade long process to produce the Tax Reform Act of 1986 which then unwound relatively quickly and i think one of the things to think about is not just what does it take to get tax reform, the other question is how do you keep it if you get to a system more efficient how do you keep that in place . So where are we in the 2017 effort . One of things that i think is fair to say about the house blueprint is that it is a bold, almost pure but not actually pure toward a consumed income tax or consumption tax and is sort of a similar starting point for the debate. I would argue that theres a very different set of factors in other ways. This is not the bipartisan effort we saw with Bradley Gephardt efforts, this has largely been driven by republicans with very little support from the other side of the aisle. Its also true while washington has become the largest floating tax policy seminary and hoappiet moment in my professional career for that. We havent had the vast education that has led the average american that gee we have to fix the income tax, i think were a long way from that, as an aside we did some polling an focus groups rolling up to dave camps effort just to see what the consumers of tax reform were thinking about and as it turned out if you asked them the day after tax tiling day on april 16th, tax reform was about eighth on the list of priorities. There was not a lot of appetite for it and in the focus groups we learned there were two words you couldnt use and they with tax and reform, literally. They heard this is a trick youre going to raise my taxes. So theres very little on the ground faith in the process. So i think were in a different place in 2017 for sure. Having said that, i think the same dynamic is important in 2017 as was true in 1986 and that is this comes down to white house leadership. Only the president can make the sale to the average american that this is indeed what will make America Great again, have the economy perform better, raise wages, improve economic fortunes the primary promise he made to them in running the election and where the white house comes down in this, what they choose to support is the crucial decision i really think. Obviously we dont really know at the moment. The house has been out sort of talking about its blueprint quite a while, were not sure where the white house in general is going to come down on that, but thats the key dynamic. I think the other thing thats matter of my judgment but really think its true that if the forces that dislike the house blueprint and the border adjustment provision in particular conspire to kill it in its infancy tax reform doesnt happen. It is absolutely imperative the house goes forward with something, it dictates it has start in the house. They ended up with a blueprint because they looked at what dave camp went through, were going to throw away the adherence to an income tax and go to a tax flow base, and dedicate this to raising the pace of the Economic Growth and growth in the United States and to go back and start over at this point is probably unrealistic and as a matter of process it may not end up being the house blueprint at the end of the day, the white house can shape it and the senate is going of its roll but its going to start there or were not going to get something in 2018, thats a fair concern about how things are going. I know everyone has talked about border adjustment and the whole thing a million times. I just want to say a couple of things about the sort of political economy thats surrounded this discussion. First as a technical matter, i think a lot of the assertions and discussion about the border adjustment are misplaced. Number one because border adjustment is not on end. Its a means to an end and the idea were talking about tax reform and what the dollar should be is crazy, tax reform is about nueutralizing the tangible and intangible investments of dicfferent lies and locations as means to an end go, it is a important one that protects the integrity of the base production abroad an eliminates the price shifting gains in a territorial system. Its not the only way to do that, we saw base erosion rules, you take your flavor, in the camp world, there are alternative ways to go at this, but i would say as a matter of thinking about the real decision it is not can i have the house plan or without the border adjustment, the real choice that face it is Business Community is can i have the house plan with border adjustment or with some other way to protect the integrity of the house base, maybe you want camp option c, now you have a choice between something that divides the Business Community contentious and raises a trillions dollars and something that divides and is contentious, so in thinking about the economics underneath it the claim should not be the dollar is going to appreciate by 25 or 33 or whatever it might be. What we know is that the house forum would change, affect the location of the investment the fundamentals, those impacts would take time. They would affect things like the Real Estate Exchange rate and thus the current account and i have no idea the magnitude and pace which that all would happen. Theres another thing called border adjustment which simply says that other things being the same confidence in the dollar, Interest Rates all sorts of things the dollar will be 25 higher than it otherwise would be because of the presence of this provision, thats a solid claim, you cant come to any other conclusion, i think allen says but thats durch than saying i know what the dollar will be, i have no clue what it will be and neither does any firm for or against the provision, lots of things influence the dollar. Its simply the economics of a compensating differential. The other thing quite clear to me in the course of this debate is that the Business Community when you sit and talk with some of them they really want the u. S. Economy to perform better. They really want the pace of growth to be faster would like to have better opportunities to compete internationally but dont want to have to change their Business Model to get it. There will in fact be changes in Business Models, the house blueprint would move for in favor production to a system thats neutral. Thats not a neutral change, so in the grand reality of tax reform there will be winners and losers as there always will be, and what were just beginning to see is the debate about those winners and losers and theyre focused on the border adjustment provision at the moment but theres a long list of thing to fight about and they have just begun, ive been surprised the little debate of the Interest Rate i suspect that will get a lot of attention and will cause the same debate that caused the 1986 debate to die, but hopefully we will get a tax code less interfering in international competitiveness, tax code that cements with a single tax, not a low v. A. T. Tax, but a single tax, better innovation and growth in the United States. Those are all desirable outcomes and thats what we need to get, which provisions we have i think we should have less adherence to so when i look at this moment i think its true that this is a chance to get a tax code that we desperately need, one thats ready for the 21st century and allows our economy to perform better. Im always struck by the fact in a from the post war to 2007 gdp per capita grew at an average rate fast enough that the standard of living doubled every 35 years and under current projections it will double roughly every 75 years and that difference between the capacity of one working career thus where it takes two careers to see that happen is a real devaluation of what has been the American Dream and the promise we have made to leave the next generation a stronger economy, so this is the moment when that trajectory could be changed a substantial way, i think getting the house to move forward and make a commitment to what it wants and settle and sell this to the American People is crucial an well see how this plays out. I want to say i think its premature to take the comments out of the senate about the house plan asso sort of a death people have their opinion about it but if you were to imagine the president fully embracing the pblueprint and say i want this, its really going to be hard for a senator to say i really want to give you this, but cheap labor, so i think its going to be more malleable because if the president gets on board pushing something the capacity to push something in the house and senate is enormous. I think thats the key, so we can go back and talk about details of how were going to tax Financial Firm or whatever, but i think the real issue is the political economy of getting this moving and seeing what the white house is going to support and that this is an important year for everyone who cares about tax policy which is important for the economy for the capacity to improve the economic out look, so thank you for the chance to be here. [ applause ] we have a few questions. As the moderator im going to take the liberty to ask the first. This hasnt arisen all morning. Weve been talking about details how these plans work and how the border adjustments work and what brought to mind this i gave a presentation of tax reform in new zealand and somebody asked how could americans accept this . How much of a concern is that, the distribution of the benefits and what can be done to achieve the goals you want to do and make it more beneficial to average americans . Thats a really hard question. I would say a couple of Different Things about this. This is me talking, im not speaking on behalf of the House Republicans or anyone, but my take on the reason they ended up doing Something Like this is they did watch the camp effort which was lets do what we think we need to do, get the corporate rate down, move to a territorial system, a neutral fashion and just decided it was overconstrained and could not produce what they wanted, so they said put that there, thats not the way to go. Lets go to this thing which has been discussed for a long Time Beginning going back to blueprints, meade commission, lets just make a dramatic tax reform and committed themselves to relative neutrality, sometimes they say budget neutrality and thats the set of constraints so its important to recognize i dont think there was a lot of explicit thinking about the distribution tables because they thought that was over constraining the problem at the beginning, second thing, it looks to me, again other people might disagree that theres been almost an exclusive focus on cash flow, border adjustment, expensing all those things, very little discussion of whats going on over on the individual side with the exception of the sole proprietors, come compliance issues there, so i dont think theres the same commitment to the carve outs they have, they have identified tax preferences for mortgage interests or income tax credits and education, retirement things like that. And so it would be possible to look at those distribution tables from the individual side. It maybe be that the senate has a much bigger impact on the individual side, i dont know and the last thing i would say is that you cant solve all problems with tax reform so you better figure out what your primary problem is and to my eye at least our primary problem is inadequate trend growth characterized by poor productivity performance and harming the real average of americans and the biggest impact you can have is to improve that so if you can do that with those tables thats a tradeoff i at least would be willing to make. Okay. Thank you. So, im interested in the reality question here. So we have heard a lot of concerns about the cash flow tax and youre saying you may not even get through the house if they feel like theyre going to get beat up in the senate. The question is what are the variance that could do it . Theoretically you could say well, some sort of labor credit, wage credit that would then make it wto compliant or think of a v. A. T. , a more traditional v. A. T. And use the money at a lower rate to reduce Corporate Income tax and deal with distributional issues. I ask you that because it doesnt seem like border adjustment is going to get through. And so, what would be the likely variance that might get through . Let me be clear how i think about it. I dont worry as much, maybe it was john worried about being btud you take a vote and get hung up by the senate. Im worried about the basic dynamic and that is there are winners and losers, its divisive, members go home and beaten up on both sides and eventually say they its too hard, forget it the only thing changes that is the house. In addition to those forces beating them up, they have got their sticconstituents saying h the president said were going do it. Thats the dynamic i think is important. Having said that, i dont think theres a realistic future for anything labelled a v. A. T. Thats just politically too toxic, cant be done. [ inaudible question ] i think they should change the name. We had one tba, could probably get that one through, but this is our approach to having a v. A. T. Weve done it with flat taxes and you know i think so i think this is the realistic one. I dont think theres another i really dont think theres a chance for another big restart to get through the house. I think if theres going to be something that comes out, looks different that sticks to a Corporation Income tax base instead of a cash flow is going to have to happen in the senate. This is hour proposal, theyre going. Before the next question i want to remind the online audience to please submit your questions to event at urban. Org. Limit tax reform to corporate or to business however you want to view it. Would it have better or worse chances . I think its hard for the president to get behind that having promised tax cuts for average americans on the campaign trail. That looks like a big renig, so i dont think that helps in some small areas it might be helpful, but i dont think in the big picture. Maybe i misread the evidence of history, but i think you cannot under estimate the importance of the white house, air cover for the hill and the coverage they have to spend to get this done and i dont see that without someone on the individual side. Rick newman yahoo finance. Is it possible to get this done in 2017 and if it goes into 2018 there any harm in that . What if it goes beyond 2018 . Its possible, you can lose a lot of money getting something done in the senate. Theres just not enough floor time for the agenda they have. Thats another reason why i worry about if it gets pushed off the laden house, whatever, it just does doesnt happen because the number of things the senate has to do funding the government between 2017, 2018, confirming the Supreme Court justice, border security, principal and infrastructure plan, increased military spending, change the caps on the budget control act. I can go on and theres just the scarcest thing is senate floor time, so it could very nelwell hit the august target which is what they hope is the end game. I expect them to come back from the august recess and have work to do, i dont think its a good idea to start running into 2018. Tax reform will have winners and losers, always does, last thing you want is running adds in your district or state, everyone is going to be cognizant of that and the pressure will be on to get it wrapped up and know where they stand at the end of 2017. What do you believe the dynamics should be. [ inaudible ] what do you think the dynamics would be if they do this reconciliation with the idea this may unravel in ten years in the political politics dont change and maybe we should do this half way and not get rid of everything, get rid of all the business processes that people set up to comply and all a sudden things back to where we were .