Test test test test test test test test test test test test test test test test test test test test test test test test. We can lower the Corporate Tax rate and get it to within shouting distance of our trading partners. Were a better place to do better because of transportation, because of safety, because of security, because of environment and all those things. But there is a point at which you run out of those benefits when you are talking about so much of your income being paid in taxation. I appreciate that point. Its an etch lexcellent one. I kind of lost my place. Consumption tax versus income tax. I come from the state where the author of the book called the fair tax comes from and hes on radio. If i dont ask some question about consumption tax when we have a hearing like this, i get chastised at home. How many of you are familiar with this . Whats your thought or do you have any thought about it at all . Mr. Mazur, start with you. I guess my basic thought about our tax system is that we have a portfolio of taxes. Some are based on income. Some are based on consumption. We have payroll taxes. A portfolio of taxes. Having a consumption tax would make sense. Trading partners has a value added tax. You can imagine having that as part of a portfolio of taxes. A shift from an income tax to consumption tax, thats a huge change. Probably beyond the tolerance of the American Public to address that change. Thats like what every other country does. Anybody else have a comment . Yes, maam. I included support for a consumption tax as part of a portfolio in my written statement. The approach that has been advocated for a number of years as well as a bill introduced would take us a long way in that direction, would match our system with the tax systems of other countries which is how those other countries have managed to significantly reduce their Corporate Taxes and create a system thats more conducive to investment. Most important thing if we make a change like that is how you convert the taxpayer from the old system to the new one. One of the big problems we had in 86 was passive loss. We went back and clawed back and changed the treatment of passive laws and the treatment of investments and the Balance Sheet of a lot of corporations, particularly construction corporations. Transition is critical. Yes, sir. Just to add, even our income tax isnt part of consumption tax. There are many aspects of our income tax. For example, Retirement Savings are not subject to tax. Even what we consider an income tax is really a hybrid of those kinds of things. If we were to move to a consumption tax, the transition is a very important issue. I also think dealing with Income Distribution would be an important aspect. You would have thoi about what rate and what affect that might have. Thank you for your testimony. I guess senator warner is next. I appreciate the panel being here. One of the first hearings on tax reform. Its down to isakson and warner here. We will fix it up. At this point. I thought it was interesting when we talk about this issue, at least the first three panelists quoted star wars, dr. Seuss and greek mythology. Im not sure what that meant, but it did say maybe how challenging this is. I want to make a bit of a comment and ask a question. Here is my worry. I agree very strongly with mr. Mazur that i want to do tax reform. I want to bring our corporate rates much lower. I believe very strongly we need to do repatriation and bring the earnings that are offshore back. But as somebody who spent a couple years trying to put together the simpson bowls plan, i worry whether were going to have the wherewithal to really make the tradeoffs you need to make in terms of broadening the base to really lower the rate. Six or seven years ago, eight years ago when this was the vogue, the bid and ask on corporate was the democrats are more 28, the republicans more at 25. But because the world has not stayed static, i think we have seen many of our industrial competitors lower their corporate rates down closer to 20 and at least aspirationally the administration looks at a rate thats closer to 15. My memory serves correct me if im wrong that the rule of thumb is for every point that you lower the corporate rate, you are talking basically 100 billion a point. So its fairly straight math. Bring it down to 25, you gotta get rid of raise a trillion dollars. Bring it to 15, you have to bring it down two trillion dollars. One thing i dont think my colleagues realize this is where we think we have to get common facts. If you add up all of our state, federal and local taxes combined, america actually ranks as one of the lowest taxed industrial nations in the world. The data i have among oecd nations shows america is at 31st out of 34 nations. You start with a nominally the highest tax rate when you actually look at collections, were 31 out of 34. What i worry this goes to where senator isakson was at. All of the nations that a lot of my friends in business like to refer to that have business or Corporate Taxes in the low te s teens, they all still raise dramatically more revenue than we do. Were at about 24. 5 of gdp. I think its unique i hear a lot of people refer to germany and their great apprenticeship programs. Do you think realistically with so many biases that we have on our tax expenditures, every business is for tax reform until it comes to their tax expenditures, that we can ever get to a rate that would keep us competitive . Lets say for argument sake thats low 20s on the corporate side. By actually broadening the base and lowering the rate. Or will we not have to . Look at what senator isakson said. Look at a carbon tax. Look at some other broadbasedr us to bring down rates to a competitive level and i would argue hopefully on a permanent basis. I have no interest in another shortterm tax holiday without some broadbased new revenue source. We can take it from mr. Mazur on down our start at the other end and go down the list. I will just jump in quick. First, on your 100 billion per point, thats true for the first point. Each point gets progressively more expensive as the base gets broader. Its more than 2 trillion. Thats just on c rates. That doesnt talk about exactly. Second point i think mr. Isakson hit on this is if you want to look like other countries with a low corporate rate, you need another revenue source. It could be evaluated tax like other countries have or something else. You cant just broaden the base dont think we will get to broadening the base. Correct me if im wrong, gentlemen and ladies, please. I think its important to take the steps as far as we can go to get the rate down. It goes back to my answer to the previous question, which is how far do we want to push the rate down. If we want to push the rate down, we have to take on a lot of the tax expenditures. Could we end up saying, lets try as hard as we can on broadening the base and then if we still got a delta that says we want to get to 20, then you could put whatever that delta is, you could put in some form then have to make a hard decision of whether you want to move to a consumption tax. During this process at the present time, i think if you want to push the rate down, you have to give very hard thought to what tax expenditures you are going i doubt then the question is how far can you get it down. Then you have to decide i dont if we could get to 25. The last two comments. I agree. I think it will be very difficult to eliminate enough tax expenditures to bring the rate down as far as we need to bring it down to be competitive. Were a low tax country relative to the rest of the world. I have a chart many my written statement that talks about the difference in the portfolio of taxes that other countries look to. What they do to make up the difference that allows them to put a more attractive corporate rate out there is they have a value added tax as part of their portfolio. Do as much as we can. But then i think at some point were going to have to come back in any event to look at it another tax to add to the list of taxes in order to those value added taxes deal with border adjustment. Senator, i will take this in a slightly different direction because they said everything i would have said. I think this goes to why both bipartisanship and marketing to the American Public is important. Because the only way this gets done is for these difficult issues to actually get sold to the American Public that this is going to raise their standard of living. Anything you do thats basically going to bring down the corporate rate, if you are going to raise taxes on them through a consumption tax or through tax expenditures, that has to be sold as something that is going to be good for them in the long run. Bipartisanship means not reconciliation. Were going to have to move on. I share senator warners view. Senator menendez. Thank you for your testimony. The president s tax proposal and the House Republican blueprint call for the elimination of the state and local Tax Deduction which would hike up taxes on thousands of new jersey and millions of americans. The purpose is to save families from double taxation. Nevertheless, the Trump Administration advocated for its repeal arguing the federal government should not be subsidizing the tax and spending policies of individual states. I find it hard to understand i want to i think you had a little dialogue on this before. If one believes do you believe that its fair to force individuals and families to face double taxation while large multinational corporations are able to avoid such treatment . As i said before, i think that the state and local Tax Deduction is about double taxation as well as about ability to pay and notions of federalism. I think the foreign tax credit is about double taxation as well. It is not listed as a tax expenditure. The state and local Tax Deduction is. I think if we eliminate the state and local Tax Deduction, we have to be worried about some collateral consequences. Obviously, our state governments, were putting more pressure on them to Fund Infrastructure and education. Those issues obviously would suffer if we were to remove the state and local Tax Deduction. So i think it actually could be treated as an Unfunded Mandate except its not on the spending side, its on the tax side. Senator, im concerned about it. Appreciate the question. If one believes that the state and local Tax Deduction subsidizes progressive states, it seems to follow that the foreign tax credit subsidizes european socialism with american tax dollars. I dont think thats a far stretch. I dont know if we get to our logical conclusion of the arguments being presented that we wouldnt be adverse to the idea that Foreign Corporations get deduction and getting it abroad for activities abroad that ultimately i think some of my republican friends would find far more objectionable than what state and local municipalities are doing. Let me ask you this, do you believe that the president should sign a tax reform bill that raises taxes on almost a quarter of all middle class families . I would open that to anybody. Senator, i think that if that was all it did, then probably no. But you have to look at the totality of what the entire bill does. Well, in my focus on this committee, part of what to do is help middle class families afford a home and education and retirement. And while on the campaign trail, the president promised to cut taxes on the middle class, what we see under his plan at least the schematic that we have, is that the top 1 of millionaires and billionaires receive nearly half of all the tax cuts are getting an average of 175,000 back while almost a quarter of middle class families wy ies wo a tax increase. I dont know thats tax exwitneequity at the end of the day. I dont know how you help middle class families in that context. Is it fair to say doing tax reform under regular order is more preferable than reconciliation because of the policy restrictions that come with reconciliation . Anyone who wants to answer that question. Can you elaborate on the weakness of doing tax reform through reconciliation . Well, i think reconciliation, first you need a budget resolution which obviously is somewhat difficult to get as we saw with Health Care Reform. Secondly, once you have a budget resolution in place, the march begins are narrowed and any dispute could cause the bill to fail. Finally, most importantly, i think going to your question is, as i called it in my testimony, i called it a fastian bargain, because you bring in the byrd rule and other protections in reconciliation that could cause you to then have to engage in gimmickry to avoid them. Therefore, we sunset the 2001 and 2003 tax cuts because the byrd rule. Thats an example. We would have to do things to avoid that in the context of something that was run through reconciliation. What i heard consistently from Corporate Leaders across the country in the last two years is give me predictability. I dont know reconciliation does that. One final question. The administration has advocated changing the way the cost of tax legislation is calculated or scored for the purposes of analyzing its impact on the budget. As i think all of you know, different socalled dynamic scoring models produce a wide range of results depending on what the assumptions are. The joint committee on taxation is a nonpartisan highly respected institution that provides members of congress and the general public with objective analysis regarding the costs of tax legislation. Do you agree that congress anded administration should use and respect the nonpartisan joint committee on taxation as the ultimate arbitrator on the cost and impact of tax reform legislation . Mr. Mazur . Senator menendez, as a joint tax alum, of course, i would say that. I think even as a taxpayer, thats the right thing to do. To look at the professional staff of the joint Tax Committee and look at their expertise the way to help congress get to a rational decision. Anyone disagree with that . For the record, i will say those are all no one disagrees. Thank you. Thank you, senator menendez. Thank you. I want to thank all of you for appearing here today. We have i think collectively here people who have served in the last three administrations. Thats a particularly valuable asset to this committee as we continue working to reform the tax code and as many of you have noted, todays tax code is way overly complicated and burdensome. Its not kept pace with changes that we have seen in our economy over the past 30 years, making it a drag on the economy. Im hopeful we can change the code in a way that fosters greater Economic Growth and that benefits all americans. I want to come back to the pass through rate issue. The administrations tax reform framework and the house bl blueprint. This is an area we have been exploring in particular detail. At first blush it sounds simple. Tax the income earned by a pass through business at a separate rate which some have proposed by tied to the Corporate Tax rate. As you dig deeper, there are a number of challenging questions that arise. For example, how do we account for pass through owners who are actively engaged in the business and treat them similarly to an owner of a C Corporation who is also an employee . Should the pass through tax rate for active owners be based on the return on the capital that they have invest in the business or compensation that they pay them services . Recognizing only s corps can play owner employee wages. If so, how should industry and geographic differences be taken into account . How do we create an equitable system that treats them all similarly . Finally, how can a pass through rate take these factors into account in a way that will be d administrable . The bipartisan policy paper reforming the taxation of pass through businesses. I would ask to insert this into the record. I want to put that out there and would welcome your thoughts on the concept. Anybody who would like to take that on. I raise a lot of issues. If you would care to comment. Senator, thanks for the question. Obviously, the argument for parody in rates must take into account that theres a double level tax on C Corporations but also designing a special tax rate on pass throughs is difficult as you alluded to and could be costly and so we would have to figure out a way of constraining it and making sure its not prone to abuse. Differentiating Service Income from capital income has been a nutty issue for all of us over the course of many years. We put our regs in the mid 1990s that subsequently got withdrawn that may actually provide some framework for what you are trying to do. But again, i think its a very, very difficult issue and difficult to constrain. So i think that the report that uriyou are inserting does good job. Its complicated and one that will be difficult to administer going forward. I will look at the 1986 act. 1986, we cut the individual rate to 28 . We set the corporate rate at 34 . Then fully taxed dividends and Capital Gains from corporations at 28 . The result of that disparity was that we drove all sorts of business out of the corporate sector and into the pass through sector. The incredible growth we have seen in s corps, llc, partnership, starred edstarted. If we were to do corporate reform that made being in corporate solution much more attractive, i think we would see as we did back in the late 80s a migration out of pass through form and into c kcorp form. I would add that if one is going to level the Playing Field by taking eliminating from the code various deductions and preferences, that might be a reason for lowering the rate. The way part they anership work flows out to the owners. Thats true for s corporations, for participanerships, llc. You have to create bass kkets o income. Once you identify that, presumably that would flow through and enjoy the lower rate. As my colleagues have pointed out, to the extent its attributable to services, you will want to figure out a compensation element. The challenge is to figure out that compensation