and president truman didn't necessarily seek out entertainers or well-known people, yet he cultivated some relationships with them, especially jack benning. he had a good friendship with. this is a clip with him. ♪ [ playing "happy birthday" ] [ laughter ] ♪ [ applause ] american history tv, all weekend, every weekend, on c-span3. the senate finance committee hosted former assistant treasury secretaries last month to discuss the decisions and challenges involved in crafting tax legislation. officials from the clinton, george w. bush, and obama administrations answered senators' questions and made their tax policy recommendations.

the committee will come to order. welcome, everyone, to our first hearing of the day, where we will discuss the ongoing effort to reform our nation's tax code. we have a distinguished panel of bipartisan experts before us today to help shed some light on issues surrounding tax reform, and i look forward to a productive discussion and appreciate your attendance. and you're here a bit earlier than our normal meeting times. in 1984, president reagan called for a reform of the tax code.

he laid out three main goals for tax reform -- fairness, efficiency, and simplicity. those three goals are as relevant today as they were a generation ago. for our current efforts, i'm going to add a fourth goal -- american competitiveness. this goal is essential in today's global economy as we must also consider what is happening outside our borders. when discussing tax policy or legislation, it's very easy to find one's self heading down byzantine complexity, but i think we would do well to keep focused and frequently remind ourselves on these basic -- or of these basic principles. therefore, i'll repeat them -- fairness, efficiency, simplicity, and american competitiveness. the tax reform act of 1986 is generally considered to be a great success. however, one question people

should ask themselves is, if the law we passed in 1986 was such a success, why did it disintegrate so quickly? obviously, there are a number of competing interests out there with many of them focused on narrow provisions or benefits in the tax code. some of these interests have employed efficient lobbyists to make compelling cases for changes, while others have elected efficient legislators who have done the same. that's one reason for the more or less constant change we've seen to the tax code since 1986. another reason might be that the theoretical underpinnings of the 1986 bill weren't as sound as many assumed. for one thing, the 1986 reform was a shift towards pure taxation of income, but in the last couple of decades, there has been that increasing awareness of the efficiency of

taxing savings and investment lightly or not at all, and instead, basing the tax system on consumption. and indeed, a number of subsequent changes to the tax code would be described as a shift away from taxing income toward taxing consumption. this helps to explain things like decreased tax rights on capital gains and dividends, more rapid depreciation schedules, and more qualified retirement plan options. many of the major reform proposals we've seen in recent years, including the house's federal way blueprint, would take us further in that direction. and while some of these changes have been very good, the piecemeal fashion in which they have happened was not consistent with simplicity. and many of the changes have been based, or have been bad, in my opinion. another way of looking at the unraveling of the 1986 tax reform law is that it had a sound theoretical basis at the

time but technological changes in the intervening decades have required us to make changes in the years since. for example, the tax base is far more mobile today than it was in 1986, and a mobile tax base is inherently less reliable. making efforts to heavily tax highly mobile assets an exercise in futility. whatever the case, we know that the myriad changes to the tax code in the past three decades have left us with a status quo that is simply unsustainable. american families, individuals, and businesses collectively spend hundreds of billions of dollars a year, not to mention countless hours simply trying to comply with our tax code. tepid growth rates for the u.s. economy have seemingly become the new normal for some. america's multinational

businesses find it difficult to compete abroad and are often targets for acquisition by foreign companies. all of this should be very unacceptable to every member of the senate. senator wyden was correct when he recently described the current tax code as a "rotting economic carcass." there is no longer any question as to whether we should reform the tax code. the only question remain are how and when. for this reason, we are engaged in a long-term effort to fix these problems, and in my view, the momentum in favor of comprehensive tax reform is stronger now than at any point since the 1986 reform was signed into law. i know republicans, both on this committee and elsewhere, are united in our commitment to fix our broken tax system, and efforts in both chambers of congress and on both sides of pennsylvania avenue are ongoing.

my sincere hope, which i have repeated numerous times, is that our democratic colleagues will be willing to join in this effort. tax reform should not have to be a partisan exercise. indeed, the negative impact of the status quo falls on republican and democrat voters alike, so we should all be willing to work towards solutions. i know that many of my colleagues on the other side of the aisle recognize the need for reform. however, much of the democratic leadership's rhetoric on this issue has been less than encouraging. we've heard condemnations and claims about tax plans that do not yet exist. we've heard demands sometimes stated as preconditions to any bipartisan cooperation for concessions that are unrelated to tax reform. and on a similar note, we've heard demands that republicans make significant procedural concessions for moving a tax reform bill as a prerequisite

for any bipartisan engagement on the substance of potential legislation. i won't belabor this issue too much at this point. i'll simply say that historically speaking, this is not how we've worked on bipartisan tax policy, and i hope that the statement we've heard from some of the senate democratic leaders discouraging bipartisan efforts on tax reform do not reflect the views of all of our democratic colleagues. today we have a panel of four very skilled experts that represent both parties. they are all former assistant secretaries of treasury for tax policy. they've been on the front lines of tax policy for some time, and i am certain that their insights can help us today as we work to address both the shortcomings of our current tax system as well as the divisions that could hamper our tax reform efforts. and with that, i'm very pleased to turn to my colleague and

partner, senator wyden. >> thank you, mr. chairman. and on this side, we very much would like to work in a bipartisan way and have a true partnership on this issue for a tax code that gives all americans the chance to get ahead. i want to begin by saying that everyone here wishes senator mccain a full and speedy recovery. john mccain is about as tough as anybody around. and with cindy, his wife, in his corner, we're all counting on him being back with us soon. mr. chairman and colleagues, it is hard to imagine a member of congress, democrat or republican, who would stand up before a crowd at a business or town hall meeting at home and say i am a big fan of the tax system that's on the books. insanely complicated, riddled

with sweetheart deals, and plagued by the inversion virus. i just don't see a lot of members of congress out there stumping for business as usual tax policy. what is needed is bipartisan tax reform that focuses on progressivity and helping the middle class, cleaning out the flagrant tax loopholes, fiscal responsibility, and giving all americans the chance to get ahead. now, those were all key principles of what happened three decades ago when democrats and republicans got together for major bipartisan tax reform. unfortunately, in the first months of this administration, the majority party hasn't shown any concrete evidence in this kind of approach.

before his confirmation, senator mnuchin embraced what has come to be known as the mnuchin rule -- no absolute tax cut for the wealthy. i think it would be fair to say that stirred a lot of interest on our side of the aisle, but it wasn't very long before secretary mnuchin and the trump economic team made a full-scale retreat from the principle. now, the administration has a one-page plan of tax reform bullet points. there is a lot of detail about how the fortunate few get their taxes cut, not much detail about how relief is going to go to the middle class. and we all remember when henry ford said, look, i want to be successful. for me to be successful, working people have to have the money to buy my cars. so, it's all about the working class.

and in fact, under the trump plan, independent analyses said millions of working americans were in line for a tax increase. furthermore, in the last few weeks, the treasury department has begun to wipe out tax rules designed to crack down on corporate inversions, protect jobs and close state tax loopholes. but without a plan waiting in the wings to replace those rules, that means that the treasury department risks a new outbreak of the inversion virus, an outbreak that would put more jobs at risk and condone tax avoidance. here in the congress, there are widely circulated pictures of a meeting of a group called the big six. big blowup in the "wall street journal," comprised entirely of republican senators, represe representatives and trump officials, and it says these folks are going to do the tax

overhaul. now republican members have already telegraphed a plan to transplant the trump tax care breaks for the wealthy into a big, regressive tax cut later this year. and majority leadership in the senate has said repeatedly in the media that they plan to move tax legislation with the same my way or the highway approach. we all know that's reconciliation, that's been used and clearly has not turned out well on health care. it's hard to look at the concrete evidence, concrete evidence, and find proof that the majority party wants real democratic involvement in tax reform. and i would just say to my colleagues, you go back and read these histories in the '80s, and by this time in 1986, democrats and republicans were hip deep into going back and forth about

how you would do bipartisan tax reform. now, anybody can write a bill that slashes tax rates for the fortunate few and the biggest corporations, and you might even be able to get enough support to get it enacted into law, particularly if you use a partisan-only approach. i would just say as we launch this, that's not a good way to get the certainty and predictability that's really needed to create good-paying jobs and expand opportunity. it might be a good way to create tax windfalls for the fortunate few, but it is not a good way to grow our economy and respond to the numbers that we saw just last week that showed that wage growth is flat. the jobs numbers weren't bad, but wage growth was flat.

and having middle class people with money to buy cars and get education and child care and houses, that's how you make an economy hum. mr. chairman, i'll close with this. you and i have talked about this often, and you and your staff folks know that i have spent hundreds of hours, literally, to produce what are still the only two bipartisan, comprehensive federal tax reform bills since 1986. one was with our former colleague, senator gregg, who mitch mcconnell looked to on economic issues, and most recently with our friend who sat down there, senator dan coats, now at the office of the dni. they gave everybody a chance to get ahead. they were built around progressivity, progressivity, and tax reform that puts growth

first by putting money into the pockets of wage-earning americans. it's lasting and bipartisan, and i'm interested in hearing from our witnesses who can talk to us about the lessons of the past in terms of finding common ground and moving ahead. and last point i just want to make deals with health care. obviously, there were major developments last night. i hope after it has become clear that the partisan approach, trying to just jam a bill through that raises premiums, hurts those with pre-existing conditions, slashes medicaid -- it has now failed twice. so, i would hope as we start this tax reform discussion this morning, we say, one, using a partisan approach for the major

issues of our time, health care and tax reform, is a prescription for trouble. it's a prescription for gridlock. it's a prescription that will make it harder to solve the problems that the american people sent us here for. and i'll just close, mr. chairman, because you have a long history, and we joke a lot about it, going all the way back to senator kennedy. so, you have a long history of working in a bipartisan way on this side of the aisle, we'd like to bring that kind of focus both to health care and tax reform in the days ahead. thank you. >> well, thank you, senator. today we have the distinct pleasure of welcoming four former assistant secretaries of treasury for tax policy to our committee. i want to thank you all for agreeing to appear here today and for being willing to talk about such an important topic. first, we will hear from

mr. jonathan talisman, founding partner of capital tax partners. mr. talisman served as the assistant secretary for tax policy for the u.s. treasury department during the clinton administration. previously, mr. talisman had also served at the treasury as the deputy assistant secretary for tax policy and the tax legislative council. before joining the treasury department, mr. talisman served from 1995 to 1997 as the chief democratic tax counsel of the senate finance committee under senator moynihan, and from 1992 to 1995 as legislation counsel to the joint committee on taxation. prior to his tenure in government, mr. talisman worked in the office of strauss, howard and field from 1984 to 1982 where he specialized in transactional tax planning. mr. talisman currently serves on the board of advisers to the tax

policy center, in which chair of the formation of tax policy committee, american bar association tax session. he also currently serves as an adjunct tax professor at georgetown university law center where he teaches tax policy. mr. talisman holds a bachelor's degree from the university of virginia and a injujuris doctor from the school of law. next up is pamela olson, deputy tax leader and was national tax services leader of pwc. prior to joining pwc, ms. olson led the washington tax practice and served as assistant policy for tax policy at the u.s. department of treasury from 2002 to 2004. ms. olson has also previously served as a senior economic adviser to two presidential

campaigns and as federal tax adviser to the national commission on economic growth and tax reform. ms. olson has also held positions with the chief counsel's office of the irs as special assistant to the chief counsel, attorney adviser in the legislation and regulations division, and trial attorney in san diego district counsel in 2000 and 2001. ms. olson was the first woman to serve as chair of the american bar association's section on taxation. ms. olson received her ba, mba and jd from the university of minnesota. third, we will hear from mr. eric solomon, the co-director of the national tax department of ernst & young in washington, d.c. mr. solomon formerly served at the treasury department and internal revenue service, holding various roles in the office of tax policy, at treasury from 1999 to 2009, in both the clinton and george w.

bush administrations. he was assistant secretary for tax policy from 2006 through 2009, and the irs -- at the irs, he headed the corporate tax division in the office of chief counsel from 1990 to 1995. before his government service, he practiced in law firms in new york city, was partner at drinker, biddle and reid in philadelphia. mr. solomon is a member of the executive committee of the tax section of the new york state bar association and has been an officer of the american bar association section of taxation and teaches corporate taxation in the llm program at georgetown university. he is a graduate of princeton university, the university of reunion law school and received his llm in taxation from new york university. and finally, we will hear from

mr. mark j. maze yomazur, rober posen director of the brooking tax policy center. from 2012 until early this year, mr. mazur served as assistant for tax policy at the department of treasury. prior to this service, mr. mazur served in the federal government for 27 years in various positions, including policy economist at the congressional joint committee on taxation, senior economist at the president's council of economic advisers, chief economist and senior policy adviser and director of policy at the department of energy. as acting administrator of the energy information administration, director of research and analysis and statistics at the irs, and deputy assistant secretary for tax analysis in the office of tax policy. before entering public service, mr. mazur was an assistant

professor at heinz college at carnegie mellon university. he has a bachelor's degree from michigan state university as well as a master's and doctorate degrees from stanford university. in talisman, please kick us off with your opening remarks, and we'll go from there. >> thank you. chairman hatch, ranking member wyden and distinguished members of the committee, thank you for inviting me to discuss tax reform once again with my colleagues and friends. i am appearing here on my own behalf. several of us appeared on a similar panel six years ago at a hearing entitled "how did we get here?" given the consensus for tax reform, this hearing might be entitled, "why are we still here?" but in all seriousness, significant progress has been made in the interim. first, the fiscal cliff agreement largely fixed the encroachment of the amt and prevented it from morphing from a class tax to a mass tax.

similarly, in 2011, we had well over 100 structural extenders, and these were fixed in the p.a.t.h. act by permanent extensions or for five years. in addition, over the last five years, both tax writing committees have conducted a thorough examination of the principal tax reform options that exist, including numerous hearings, bipartisan working groups, and comprehensive reform bills by committee members. i believe it is time for congress to heed the instructions that yoda gave to luke -- do or do not. there is no try. let me briefly explore some of the remaining impetuses for reform and impediments that remain. competitiveness and growth. as has been well discussed, the united states has the highest statutory corporate tax rate among our major trading partners. broadening the base and lowering the rate would improve productivity, reduce distortions

and attract foreign direct investment. also, our worldwide international tax system is out of step with the rest of the world, which generally has adopted some form of territorial system. this combination often causes u.s. businesses to be at a competitive disadvantage in foreign markets and creates a lock-out problem for redeployment of foreign earnings. other countries are taking significant steps to attract headquarters, ip ownership and other cross-border investment. we must respond soon to these global tax dwefeevelopments to d a detrimental effect to our economy and u.s. tax receipts in general. efficiency, broadening the corporate tax base could improve the efficiency and neutrality of our tax system. however, we must, we must recognize that many tax expenditures are longtime and desired features of our system embedded in the fabric of our economy. whether to retain them should be based on whether the purpose is

still valid, whether the expenditure is efficient, and what the potential economic and social dislocations would be if it were eliminated. also in seeking offsets, policymakers must be careful to avoid reform that do more harm than good, such as revenue proposals that limit ordinary and necessary business expenses. as i have written in tax notes, a case in point, are proposed limits imposed on the deductibility of business interests for the debt bias. this would overstate negative income and act as a tax expenditure. a better solution would be chairman hatch's proposal for a form of corporate integration. fiscal responsibility and long-term deficits. cbo director keith hall has said to put debt on a sustainable path, lawmakers would have to increase revenues, substantially reduce outlays, or adopt some combination thereof. obviously, policymakers must keep this in mind in crafting

tax reform. income inequality and a shrinking middle class. the issue of rising inequality and the descending of the middle class is a critical issue that should be addressed as a part of tax reform. this is not a partisan issue. in the campaign, president trump talked about a hollowed out middle class and a system rigged against average americans. economists warn that it may be slowing overall economic growth. glen hubbard, senior economic adviser in the bush administration, suggests that the pro growth agenda may not be sufficient to generate inclusion and mass prosperity. one positive step would be adoption of legislation proposed by senators brown and bennett to expand the eitc for childless workers and to strengthen the child credit for families with young children. finally, fairness. the fairness of the tax code is highly subjective, but it will be critical to the success of tax reform, that it be perceived

by the general public as fair. let me turn to the impediments. so, obviously, there's a strong consensus in favor of tax reform. why hasn't it happened? well, it's hard. health care reform affects only 17% of gdp. tax reform affects 100% of gdp. and while agreement exists that tax reform is needed, there's no clear consensus as to approach. it will be important to agree on the goals and intended benefits of tax reform, and then the president and policymakers must market those goals to the american public. the success of the '86 act was largely attributable to the efforts of president reagan and chairman ross initially in selling it to the american public. rossi asked them to write to stand up for fairness and lower taxes. he received more than 75 letters and one package with a wooden 2x4 with instructions to use it on any interfering lobbyist.

engaging and educating the public is essential to build support and minimize blowback. bipartisanship is also important to develop major legislation that does not divide the american public and is lasting. while partisan approach to tax reform seems easier to accomplish, the truth is, it creates numerous impediments that will be difficult to overcome. for example, use of budget reconciliation can be a fastan bargain, invoking the byrd rule. they are not yet unified in their vision. a dispute exists regarding the form of base erosion in a shift to a territorial system. the business community must find a way to come together. i'd like to close with two final thoughts. first, do not worry about solving all perceived problems at once. incremental progress will be a significant accomplishment. debates over more fundamental reform should not delay or

preclude meaningful reforms to improve the code. second, be careful not to worsen or inhibit our ability to address our impending long-term problems. hopefully, if this happens again in six years, i'll be retired. i stand ready to assist the committee in any way that i can, and i would be happy to answer any questions that you might have. >> thank you so much. ms. olson, we'll take your testimony. >> thank you. good morning, chairman hatch, ranking member wyden, and distinguished members of the committee. i appreciate the opportunity to appear this morning. i'm tempted to say what he said and leave it at that. i'm here on my behalf, not on behalf of pwc or any client and views i express are my own. the late treasury secretary william simon observed, the nation should have a tax system that looks like someone designed it on purpose. unfortunately, the tax system we have leaves much to be desired. we've already heard a lot about that this morning.

tax reform is just one of a number of critical issues facing the country, but reforming the tax system is foundational to fixing many of the problems we face. tax reform would set the stage for stronger economic growth, more jobs, higher wages, and a more broadly shared prosperity. it is critical that the committee's effort at tax reform succeed. no one doubts that tax reform is hard, so hard that it has its own hashtag -- #trih. a better indicator is that it has been 31 years since congress last enacted comprehensive tax reform. before highlighting a few points from my written statement, which is focused on business tax reform, i want to note that there is a need to make the tax code simpler for individuals and families seeking to save for education and retirement and less burdensome for entrepreneurs seeking to start and grow their own businesses. families and small businesses in particular spend far too much time on paperwork and recordkeeping to comply with the intricacies of the internal

revenue code. there will always be concerns about whether benefits and special provisions have been targeted appropriately to the intended recipients. the concerns inevitably lead to intricate details that complicate compliance. moreover, they often lead to drawing lines that may be entirely rational and justifiable in the abstract but that in the real world lead to differential treatment that adversely affects individuals' perception of whether the tax system is fair. to the maximum extent possible, congress should resist the urge to write narrow, targeted rules in favor of broadly applicable provisions. with respect to business tax reform, it is important to keep in mind, as i think we've already heard this morning, that opportunities for investment are increasingly global and the competition for investment is fierce. every decision to invest elsewhere makes more logical the next decision to invest elsewhere, as the locust of

activity shifts to other locations. the u.s. market remains globally attractive, but that is despite our tax system, which impedes investment, not because of it. by failing to address the features of our tax system that discourage investment here, we will leave investments on the sideline. moreover, if we broaden the base in ways that make u.s. investment less rewarding, we will lose investments to other jurisdictions. with that in mind, congress should aim for comprehensive tax reform as opposed to temporary tax cuts, which will require careful consideration of competing interests and of the country's pressing fiscal concerns. congress should aim for reform that is sustainable. to be sustainable, tax reform must produce sufficient ref thank you to cover the cost of what congress agrees to spend, and it must result in a system that attracts and retains the business investment needed for the economy to grow. a system that leaves an unlevel playing field that continues to discourage capital investment

and business formation in this country is an inherently unsustainable system. the elements of a well-designed tax system include a tax rate competitive with the rest of the world and an international tax system that creates a level playing field and eliminates barriers to domestic reinvestment. with respect to revenue neutrality, congress should focus on base-broadening measures that close loopholes or eliminate provisions that distort investment decisions as distinguished from measures that would have the effect of increasing the cost of capital and discouraging investment in the united states. with respect to international, the need to protect our tax base is self-evident. however, all antibased erosion measures are not created equal and the unintended consequences of those rules could be significant. the best antibase erosion measure is a well-designed system, starting with a low rate that attracts investment and reduces the incentive to avoid

the tax system. the world is changing rapidly. i don't think we can any longer afford to look at tax reform as a once-in-a-generation exercise. once reformed, the united states must maintain a tax code that promotes economic growth and improves the well-being of all americans, which will require each succeeding congress to examine the tax system and build on prior reforms. so, to quote dr. seuss, "the time has come, the time is now." thank you again for the opportunity to testify. i would be pleased to answer questions the members may have. >> thank you. mr. solomon? >> mr. chairman, senator wyden and distinguished members of the committee, thank you for the opportunity to testify today on tax reform. i'm here today speaking on my own behalf. for many years, policymakers have expressed a desire to reform the internal revenue code. much has changed since the last major overhaul in the tax reform act of 1986.

all of us recognize that updating the code is a necessity. we hope we are at a climax in this effort and that in the coming months we will see the enactment of significant reform. in march 2011, i had the privilege of testifying before this committee about tax reform. as i stated in my testimony then, the primary purpose of the federal tax system is to collect the revenues needed to fund the government. we would all agree that the goals of an optimal tax system would include promoting economic growth, minimizing distortions, and supporting the competitive position of american businesses around the globe. in addition, our tax system should be as simple as possible for all americans. it should also be fair and stable. it should also be administrable for individual and business taxpayers as well as for the internal revenue service. our current tax system is suboptimal in achieving these goals. we live in a constantly changing world. economic, social, and political developments, including

accelerating advancements in technology are changing our nation and its role in world affairs and the global economy. as the global economy evolves, we need to re-evaluate our tax laws to ensure they are responsive to current and anticipated domestic and global conditions. we must also recognize that our tax system does not operate in a vacuum. it is one of many tax systems around the world. and as other countries revise their tax systems, we must respond as necessary to ensure that our tax system is in the best possible position to facilitate outbound and inbound investment and maximize the welfare of the american people. numerous tax bills have been enacted since 1986. the internal revenue code is a patchwork of provisions serving a wide variety of purposes. as the code grows and the regulatory and administrative guidance interpreting and implementing the code also grows, our enormously complex tax system becomes even harder for taxpayers to understand and

for the irs to administer. there is a pressing need for tax reform. we need tax reform to promote economic growth. we need reform to reduce complexity. we need to fix a system that taxes some taxpayers at high effective rates but others at much lower effective rates because of special provisions. we need to reform to address the incentives to use debt, rather than equity. we also need tax reform to address our inadequate international tax system, which creates a lock-out effect that encourages corporate taxpayers to keep their foreign earnings offshore because those earnings will not be subject to tax until they are repatriated. this repatriation tax does not exist in other countries. moreover, we need tax reform to reduce the incentive for american businesses to move their activities offshore. the debate about tax reform has been ongoing for over a decade. extensive groundwork has been laid by the work of policymakers such as yourselves, academics, taxpayers and practitioners. it is now essential to take the

next step and enact reform that, among other things, reduces tax rates, eliminates various preferences, simplifies the law, modernizes the international tax system, and helps american workers and families. if possible, these reforms should be permanent. all of this should be achieved in a fiscally responsible manner. everyone is aware of the long-term fiscal challenges our nation faces as spending, especially mandatory spending, continues to increase. we need to reform our tax system in a manner that does not disadvantage us in addressing our long-term budget imbalances. there are a number of important issues that need to be addressed in crafting a bill. these issues are described in my written testimony. they include, for example, whether reform should be revenue-neutral, how much tax rates can be reduced, what deductions, credits and other provisions should be eliminated, how cost recovery should be handled, whether interest deduction should be limited,

whether border adjustment should be adopted, what base erosion rules are needed and how to deal with pass-through entities. the list of issues that must be addressed may appear to be daunting. nevertheless, it is important to enact legislation as quickly as possible that will end uncertainty and benefit american businesses, workers, and families. there will necessarily be compromises along the way, but the most important objective is to enact tax reform that moves the tax law in the proper direction. there is a window of opportunity now, and it is important to act before that window shuts. in march 2011, i closed my testimony before this committee by referring to the story in greek mythology about the fifth labor of hercules. his task was to clean the ogean stables which have not been cleaned in more than 30 years. more than 30 years have passed since the tax reform act of 1986. we need to complete the herculean task of reforming our internal revenue code.

thank you for the opportunity to testify today. >> well, thank you very much. we will now turn to mr. mazur. >> chairman hatch, ranking member wyden, members of the committee, thank you for inviting me here to testify today and to discuss issues surrounding broad-based tax reform. the views that i express are my own, should not be attributed to the tax policy center, the urban institute, brookings institution, their board or their funders. what i wanted to do today is put some guardrails around the tax reform effort, guardrails that are necessary to have a serious conversation about making the tax system more efficient, more effective, fairer, and simpler. the first guardrail is ensuring that the federal tax system generates adequate revenue to pay for the goods and services that the americans demand from their federal government. today the federal tax system raises around $3.3 trillion a year. that's about 17% or 18% of gross domestic product, and this leaves us with a federal budget deficit of about $500 billion per year. and given demographic strentren expenditures will increase with

the retirement of baby boomers. so we're serious about getting our fiscal house in order. realistical realistically, higher revenues need to be on the agenda. last time we balanced the budget, fiscal year '98 to 2001, revenues were in the 19% to 20% of gdp range. a second guardrail is fairness of the tax system. economists have a term called horizontal equity. that means similarly situated people are treated similarly. generally, this means the source of income shouldn't determine the tax rate, unless there's a compelling reason to do so. so, construction workers should be taxed the same as the owner of a construction firm if their incomes are about the same. a teacher should be taxed about the same as a farmer with similar incomes, and a lawyer at a partnership law firm should be taxed the same as a legislator with similar incomes. to violate this notion of fairness brings into question the overall fairness of the tax system. a third guardrail is not version of fairness, what economists call vertical equity. that simply means those with the

greatest ability to pay taxes should bear a proportionately larger share, financial share, of the responsibilities of government. this concept is associated with the progressive tax system where the average effective tax rate increases with income. the overall federal tax system today is mildly progressive, and individual income tax is fairly progressive. this relationship holds through most of the income distribution, though at the very, very top of the income distribution, say the top 0.01% of the income distribution, they actually pay lower tax rates than those with slightly lower incomes. a fourth guardrail is simplicity. there is a sense among taxpayers that the tax code is too complex for ordinary americans to understand and this is evidence by the robust tax preparation and software industries. a lot of the existing complexity just reflects the increasingly complex world in which we live. individuals and businesses can enter into almost a limitless number of transactions. these possibilities reflect economic and social complexity, globalization and longstanding

efforts at financial engineering. however, we all have been complicit in the growing complexity. over the past three decades, increasing amounts of social policy had been driven through the tax code. every one of these provisions might be an efficient way to deliver benefits to particular taxpayers, but every one carries with it eligible rules, benefit calculations, and these can overwhelm taxpayers with their complexity. so, with these guard rails in mind, we can think about undertaking tax reform. previous reform efforts have taught us three lessons -- one, tax reform is technically difficult. there's a lot of moving pieces that need to be looked at together. second, tax reform is even more difficult politically. when taking truer form, broader the base, lower the rate variety, key constituencies often break along demographic or industry lines, not partisan lines. and this leads to a third lesson, which is that bipartisan tax reform may prove to be durable reform. and this committee's long

tradition of bipartisan legislating bodes well for playing a leading role in developing a durable consensus on tax reform. and there are some targets of opportunity for tax reform. perhaps the largest is business tax reform, and my colleagues on the panel have talked a lot about this. if we look back at the camp plan or the obama administration plan for business tax reform, there's a lot of overlap there and a lot of good ideas on what you could do going forward on business tax reform, and there are a lot of smaller opportunities where tax reform progress can be made. these include tax incentives for education, which could be comprehensively overviewed and simplified in a revenue-neutral way that would make them more effective. there is also changes to income inclusion rules for debt forgiveness associated with student loan debt that could be addressed. every one of you has students in your states that have been victimized by unscrupulous schools, and this really cries out for an equitable solution. and finally, increased access to cash accounting. another opportunity for low-hanging fruit, where on the business side of the ledger, you

could take steps to improve the tax system. so, to sum up, the country would surely benefit from tax reform. tax reform is politically hard, but the benefits of doing it can be substantial. three, tax reform should not make our medium and long-run fiscal situation worse. and four, there are big and small opportunities for undertaking bipartisan reform. thank you for your attention. i'd be happy to answer any questions you may have. >> thank you all. this is an excellent panel, and we appreciate your walking us through some of the history that's so important. i'm going to start with a question that i think goes right to the heart of the debate. i'd just like to hear your thoughts, get you on the record. the tax code is insanely complicated, yet, determining the centerpiece of bipartisan tax reform should not be. the centerpiece needs to be

creating opportunities for working families in america to get ahead, especially policies that help increase their take-home pay so that they can make those kinds of purchases that drive an economy, for the consumer's responsible for 70% of the activity. i want to just zip down the row, start with you, mr. mazur, to get your thoughts on the importance of focusing on the middle class and their opportunities to get ahead as a centerpiece. >> thank you, senator wyden. focusing on the middle class is really what you want to do. you want to make sure that folks who are in the middle of the income distribution feel that the tax system is fair and that they're getting fair amounts of return on their taxes paid. a larger issue, though, i think is ensuring that there are adequate jobs and wage growth in the economy, and that may --

>> that's why i linked the two. >> yep. >> wage growth, more jobs, and the middle class driving it. >> and so, if you want to look at that, probably the area of business tax reform is the one that you could do the best -- make the best progress. >> okay. mr. solomon. >> tax reform would help all americans, including the middle class. i think as mr. mazur has pointed out, economic growth from a better system will create jobs and opportunities. also the fact that there will be fewer distortions that will make economic decisions more neutral and will help the economy and all americans. also, simplification i think will be important to reduce compliance burdens. also, simplification will help americans understand the benefits that are available to them through the tax code. for example, all the various education incentives are very hard to understand. simplifying them, perhaps combining them, would be extremely useful. one other point is we have a

voluntary compliance system, and having a fair, more understandable system will promote confidence in the fairness of our system. >> ms. olson, the importance of the middle class as the centerpiece of tax reform. >> yes, i think that tax reform is all about creating a stronger economy and a stronger economy is going to generate more jobs, it's going to generate rising wages, it's going to generate a more broadly shared prosperity. so, if we can get the foundations right for tax reform to increase investment, that's going to get us where we want to go. it's going to get us more jobs, higher wages. >> good. mr. talisman. >> senator wyden, i agree with the notion that tax reform should be judged by how it increases our standard of living for the middle class and others. i think that, obviously, corporate reform must also be judged by whether it increases job and wage growth. and i think, as i testified in

my written testimony, i think that we also have to make sure that we increase opportunity for people at the low end and in the middle at the outset, because those will save us money in the long run. >> i think that last point's important. one of the areas i've been very interested in, and i know bob casey and sherrod brown have been very interested in, is we double the earned income tax credit, and we were able to get republicans in support of that. so, that's a good, good point. question for you, mr. talisman. maybe we'll pull you into this as well, mr. mazur. the trump plan purposes a special 15% tax rate for partnerships and what are limited liability corporations. i have a lot of concern about this. the 15% special rate could create a massive, new tax shelter that would allow the wealthy to funnel their money through sham partnerships and limited liability corporations. now, the administration's

nominee -- and we'll be hearing from him -- mr. cotter has testified that this so-called rate parity could be accomplished quite simply by taking the amount of taxpayers' schedule "c" income and schedule "e" income, and multiply that by 15%, and somehow, this is going to be some hocus pocus. now, what do you think of this? is this going to create a big loophole? >> well, it would be good for me. because we're in pass-through form. but seriously, i think it could be costly and prone to abuse. i think you obviously do not want to provide, allow taxpayers to convert service income into this special pass-through rate income. and so, it will be necessary to separate service income from capital income. we have in the past provided through regulations various ways

of doing that. those should be looked at. they're in the -- with the payroll tax area as well as in the passive loss area, and i think another thing that could be looked at is maybe converting providing some sort of payroll tax credit to pass-through, rather than looking at a rate reduction, which would encourage job growth. >> very good. i think looking at the order of our colleagues, i think it goes next to senator casey and then to senator isakson, in order of appearance. senator casey. >> thank you very much. i wanted to start by saying that each of you have given the country substantial public service in the positions you held in the united states government, and then you are continuing that service with testimony like this, because it's critically important that as we take the time to consider ideas about how to reform the

code and also undertake an effort to put in place a good process, having your experience brought to bear on that is very helpful. so, thank you for that continuing service. i guess i'll start with mr. talisman, and maybe i'll jump over to mr. mazur as well. as you know, the white house put forth a proposal, a brief -- i guess it was a one-page proposal, an outline. and one of the features of that was to repeal, except for three, all deductions. i guess they exempted charitable home interest and retirement. so, i guess most would consider that a repeal of above-the-line deductions. i wanted to ask -- maybe i'll ask the whole panel. it might be easier just to go from left to right, starting with you, mr. talisman, about

what do you believe the impact of that would be, if you had enacted a tax reform bill that would repeal above-the-line deductions, for example, deductions like state and local tax deduction? >> senator casey, the state and local tax deduction was put in place and kept in place because of notions of federalism, the ability to pay, and also to prevent double taxation. we actually provide a federal tax credit. nobody views that as a tax expenditure. and it also provides double taxation relief. eliminating the state and local tax deduction could be viewed as an unfunded mandate, in my opinion, because it will raise -- it will make it more difficult for states to raise revenue. so, i think that we also have to look at the collateral consequences of getting rid of the state and local tax deduction. it also has an effect indirectly

on the charitable deduction as well as other itemized deductions. >> mm-hmm. ms. olson? >> i think that this is proof that the effort to simplify the internal revenue code is incredibly difficult. i do think that all of the itemized deductions should be on the table for consideration. one of the things that the treasury department looked at when i was the assistant secretary was they planned to get rid of the alternative minimum tax by, among other things, putting both a floor and a ceiling on state and local tax deductions. it would have a progressive effect on the income tax because if the deductions skew towards the upper end of the income spectrum. so, i think it's a complicated question. i think there's a lot of things to look at in connection with it. but in addition to the points that jon made, i think it is important to look at the

positive aspects of limiting it in some fashion as well. >> thank you. >> senator casey, i'd like to approach a question from a slightly different direction. one of the objectives of tax reform is to lower rates, lower rates on individuals and broaden the base. so, all of this is all part of a larger fabric, and in order to determine which deductions that you might want to -- one might want to eliminate, one has to figure out how much one can lower the rates. so, and the lower the rate, the more desirable. so, it would be necessary to put all this together and go through on a deduction-by-deduction basis and decide whether or not the benefits that it brings are worth the additional complexity that it adds to the code. so unfortunately, as pam points out, it is a very difficult process that would require both determining how much we can lower the rates and also looking at the value of each of the particular deductions. for example, as you know, the home mortgage interest deduction is to promote housing, the

charitable deduction to promote charitable contributions. but i think it would require the analysis that combines both of those elements. >> thank you. mr. mazur? >> senator casey, as you pointed out, the trump administration tax plan was basically a one-page outline. the tax policy center did an analysis of what we know and don't know about the trump tax plan, and basically, what the takeaways of that are, one, that it cuts taxes a lot, by trillions of dollars over the budget window. second, the benefits are tilted to a high-income individuals. and even though some of the deductions, like the state and local deduction -- state and local tax deduction, are taken out, the benefits of those are tilted more to the middle, not the very tip-top of the income distribution. and third, that a significant fraction of families would actually see a tax increase under that plan, either those who had large deductions that were taken away and they weren't compensated for by rates that lowered enough to reduce their

taxes overall. but we've done some analysis on that. we look forward to seeing some more detail from the administration. >> great. thanks very much. >> senator isakson. >> thank you, senator cantwell. let me follow up on what ranking member wyden asked. he asked about what would be most beneficial -- if i remember correctly, and somebody please correct me if i heard this wrong -- what would be most beneficial and helpful to the middle class. is that not correct? i think every one of you in whole or in part, beginning with mr. mazur, talked about the corporate tax or the business tax or corporations. that tax rate that business pays is going to have the ultimate greatest effect on the middle class because that's the money from which they make that they employ people, expand a business, et cetera. ironically, i was at a dinner last night with two of the major corporations in the united states. they're competitors, both in the same business. it was not a private meeting or a violation of any of the antitrust laws. i can assure you of that. it was a question we were learning from them what they thought about tax reform if it comes before the senate. and both of them in the course

of the conversation said that the effective tax rate they paid in the united states was 34%. they have one major foreign-based competitor whose effective tax rate is 19%. rate. you are getting to the point where the tax is the differential on the investment the competitors would make one to another, and in the end that would determine where that money is going to go as far as middle class is concerned. are we at a point where we have to look at our competitiveness as a nation and look specifically at the tax code to make that differential more fair, mr. mazur? >> senator isakson, if you look at the corporate states tax system, we have an effective tax rate that is in the middle of our trading parters, and that makes it possible to get the rate down to the middle of our trading partners.

we are never going to get to the lowest tax rate in the world, and with some serious thought about doing tax reform we could lower the corporate tax rate and get it down within many shouting distances of our parters. >> >> we're 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. it's an excellent 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 he's on radio. if i don't ask some questions about consumption tax when we have a hearing like this, i get chastised at home. how many of you are familiar with this? what's 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, that's a huge change. probably beyond the tolerance of the american public to address that change. that's like what every other country does. >> anybody else have a comment? yes, ma'am. >> 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 that's 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 isn't 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 think 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. this is one of the first hearings we are having on tax reform, and it's a little disturbing that it's down to john isakson and warner and they are the only members still 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. i'm 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 we're 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 that's closer to 15. my memory serves -- correct me if i'm 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 it's 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 $2 trillion. one thing i don't 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, we're 31st out of 34 nations. 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 teens, they all still raise dramatically more revenue than we do. we're at about 24.5% of gdp. i think it's unique -- i hear a lot of people refer to germany and their great apprenticeship programs and what have you.

they raised 35 to 36% of their gdp. 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? let's say for argument sake that's 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 broad-based revenue raiser that will allow us to bring down rates to a competitive level and i would argue hopefully on a permanent basis. i have no interest in another short-term tax holiday without some broad-based 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, that's true for the first point. each point gets progressively more expensive as the base gets broader. it's more than 2 trillion. >> that's just on c rates. that doesn't 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 can't just broaden the base -- >> don't think we will get to broadening the base. correct me if i'm wrong, gentlemen and ladies, please. >> i think it's 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, let's 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 don't 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. we're 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 we're 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 that's 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. >> we're going to have to move on. i share senator warner's 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 it's 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, we're 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 it's not on the spending side, it's on the tax side. senator, i'm 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 don't think that's a far stretch. i don't know if we get to our

logical conclusion of the arguments being presented that we wouldn't 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 would see a tax increase. i don't know that's tax equity at the end of the day. i don't 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. that's 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 don't 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 so-called dynamic scoring models produce a wide range of results depending on what the assumptions are. the joint committee on taxation is a non-partisan 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 non-partisan 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, that's 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. that's a particularly valuable asset to this committee as we continue working to reform the tax code and as many of you have noted, today's tax code is way overly complicated and burdensome. it's not kept pace with changes that we have seen in our economy over the past 30 years, making it a drag on the economy. i'm 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 administration's tax reform framework and the house 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 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 there's 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 it's 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 it's a very, very difficult issue and difficult to constrain. >> so i think that the report that you are inserting does a good job. it's 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, started in 1986. 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 corp 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 partnership works, it flows out to the owners. that's true for s corporations, for partnerships, llc.

you have to create baskets of income. once you identify that, presumably that would flow through and enjoy the lower rate. as my colleagues have pointed out, to the extent it's attributable to services, you will want to figure out a compensation element. the challenge is to figure out that compensation element. either you could use a reasonable compensation approach, but reasonable compensation approach as we all know is extremely difficult to administer. it may require some sort of formula. for example, to treat a certain percentage of the income as being compensation income or to figure out some -- what capital contribution the owner has made and to the extent of that

earnings on the capital contribution can enjoy the lower rate and the rest might be subject to the higher rate attributable compensation. this is very difficult to figure out exactly how that compensation almost would be calculated. i think that's the nub of the issue. >> mr. chairman, i have another question. i'm out of time. i will submit it for the record. it has to do with the gig economy and the tax rules that apply. we will have to take a new look at that. we have a bill that does that. submit that for the record. >> thank you, mr. chairman. this has been terrific. i enjoyed the testimony from all four of you. you are all for experts from

various administrations and yet you find consensus on the fact that not only is the code broken but on how to fix it. as i listen to you and look at your testimony, i am reminded of the fact that this is not new. let me quote, your efforts are timely, particularly in light of the changing global landscape. we must be aware of this. she said that six years ago. at this same hearing where three of the four of you were present and all of you said something similar. it's not just a question of finding common ground today. i think you have been on this for quite a while as this basic proposition that we need to broaden the base, we need to lower the rate, we need a simpler system, a fair system. the devil is in the details, the details are important. senator thune mentioned one. if you have a lower corporate rate and the individual rate is high, that causes unfairness. the prescription to deal with it and -- mr. soloman talked about some of the issues. it's not just that they're difficult philosophically to find.

it's that once you find them, the compliance is going to be a huge problem. let me ask, do you all agree with that? >> absolutely. >> we have our work cut out for us. we need your help on that. i want to go back to something that senator widen said about wage growth. this is really important. we have talked about this as -- we noted for years, maybe even decades since the '86 act, we don't focus enough on why. a lot has to do with the very real problems in our current economy which is slight growth and better job numbers in the last several months when you take them in aggregate. wages are flat. maybe even declining on average. this is one way to provide some economic growth but also wage

growth. kevin hassett says, 1% increase in corporate tax rates, wages decrease 1%. he has good studies around that. 2009 study, famous cbo study i referred to a lot by william randolph says 70% is on workers. you higher pay, better benefits if you can deal with the fact that the united states has a corporate rate higher. a professor who testified said 67% of the burden of our high corporate tax rate and the way we tax on a worldwide basis falls on workers. you want to get wages up, which all of us do, this is a great opportunity to do it. so i know trih tax reform is hard i assume is what you are referring to. how about trim? tax reform is mandatory. we have to do it. let me ask quickly if i could

about a specific interest and that's interest deductibility. that along with the pass through issue has been a tough one for us. can someone tell me, maybe you mr. soloman, is the preference over equity financing versus debt financing an economic policy issue that you think is important to address? if so, what would you do about it in the tax code? >> certainly in the code today, usa all know, there's a difference in the treatment between dividends and the payment of interest. it does create distortion because having additional debt in our system encourages companies to take on debt and it may affect the relative portion of debt they would undertake and could affect financial

stability. that's an example of a distortion that you would pay attention to. >> what would do you about it? senator hatch and his team have been talking about actually making dividends deductible. another way is to -- as the house bill does, limit deductibility of interest. any thoughts on that from the panel? >> well, i testified in my testimony that i thought corporate integration that is going after interest deductibility based on my discussions with capital intensive businesses, interest deductibility is more important than most other issues. i actually somewhat disagree with my colleague here. i believe that the debt bias hasn't led to overleveraging based on the research i have

seen recently. in the non-financial sector. we have to demonstrate that the discorporation is actually having negative economic consequence. >> i agree. i think that the -- a better approach would be to go in the direction of corporation integration. there are a lot of businesses that depend on debt financing, because they don't have access to the equity market. those are some of the things that need to be taken into account if you think about doing an interest limitation. a lot of other countries have put limitations on interest deductibility. there's a theme out there internationally of doing that. i think that the limitations that other countries have put on interest deductibility are not so severe that they actually impede companies from getting the financing they need or being able to deduct the expenses associated with it. >> my time expired. if you wouldn't mind, give me your views in writing and you want to follow-up, follow-up. i want to talk about the sweet spot and the best tax policy to address that.

>> it's an important area. >> welcome. we appreciate your being here today. we appreciate your service to our country and your continuing service to our country simply by your presence today. my colleagues have heard me ask four questions with respect to tax reform proposals. i've been asking the same four questions for a while. i will probably take them to my grave. it may take that long before we do tax reform. we will see. hopefully not. i ask, is it fair? does it foster economic growth? does it simplify the tax code or make it even more complex? what is its fiscal impact? those are the four questions i ask. one of the questions i have asked here today -- it's less a

tax reform question though but it's one we need your input on. we under fund the irs. we ask them to do more than is humanly possible. we change the tax code and we expect them with not enough people, money, technology, to somehow be able to make it all work. any advice for what we should do? >> sure. one of the ways i like to think about the internal revenue service, it's like a giant credit card company. what they do is -- >> we like credit card companies in delaware. >> exactly. you know how that works. they bill people. they make collections. they go after people who don't pay. under funding the irs is like under funding your accounts receivable. no rational business would do that. >> that's a great line. i'm going to use it. >> it's not copyrighted. the numbers show that if the irs gets an extra $1,000, they will bring back an extra $4,000 or $5,000 in revenue. it pays for itself and then some. >> thanks. anyone else? pile on. go ahead.

>> the irs, of course, as we all know collects revenues that are needed to fund our government. it's very important that the irs have the capability both in services and enforcement to collect revenues called for bit law in a fair and efficient manner. >> others. >> i agree with all of that. i'm thinking back to -- this involved a credit card company that senator portman used to tell stories about when he was part of the irs restructuring commission or the group that looked at restructuring the irs. the service that you expect. american express doesn't come back two years later and say, about that bill. we need to fund the irs to make sure that they have the technology that they need and to make sure particularly with all of the identity theft and cyber security issues that they're able to safeguard the information they collect. it's really important to make sure they are adequately funded. >> thank you. >> agreeing about the one out of

four. we fund the irs, we can reduce the tax gap, reducing the tax gap i think actually helps with the perception of fairness of the code. what happened obviously in '86, one of the things we did was we shut down loopholes. we are putting additional responsibilities on the irs without increasing their funding. one example of that is healthcare reform. we have run a lot of health care reform through the service. we haven't increased their funding, we have cut their funding. >> that's a good point. let me -- i ask a lot of question or no questions. i would be happy with a yes or no on this, if you will. do you think the administration has a responsibility here to put out a rigorous, well thought out offering -- opening offer on tax reform, something beyond what i think are rather vague, general principals? please. >> yes. >> thank you. >> yeah. i think it's essential, because

i think it's essential that the president and other leaders who want to push for tax reform market whatever they are trying to market to the american people and demonstrate that it's going to increase our standard of living, especially for middle class. >> thank you. others. >> i think the treasury department has enormous resources that could offer a lot in the consideration of tax reform. >> thank you. anyone else? >> it's just important that i think that both the congress and administration work together and it's bipartisan as possible to achieve tax reform. >> how important is tax reform that doesn't further balloon our nation's deficit? i just saw a news report last week that said budget deficit which would hit $1.4 trillion close to ten years ago during the bottom of the great recession went down, down, down, bottomed out at $400 billion.

last year was up to 575. the administration so far is heading for adding another 100 plus billion dollars for the current fiscal year. we could be looking at $700 billion. people don't talk about that anymore. the idea is cutting taxes by another couple of trillion dollars, is that something we should proceed to without much thought? anyone? >> obviously, i think you need to be concerned about the medium and long run fiscal situation. unpaid for tax cuts that make the situation worse is just like digging the hole deeper. >> thanks. others. >> as i said in my testimony, if our tax reform should be achieved in a fiscally responsible manner. we all recognize that spending is going to continue to increase, including mandatory spending. we need to do reform. but we have to do it in a way

that doesn't disadvantage us. >> briefly, if you would. >> i addressed this in my written statement as well. to my mind, we need to look at both sides, the spending side as well as the revenue side. clearly spending is growing out of control. we need to take a hard look at it. we have to be fiscally responsible. whatever congress agrees to spend, we have to fund. tax reform has to be sustainable. that means in part generating enough revenue to cover what we agree to spend. >> yes, sir. >> i agree. >> i would say, these folks are brilliant. aren't they? >> yes, they are. >> we should bring you back. >> i thank my colleague. we will have to move in order to get everybody in before 11:00. senator cassidy. >> thank you for being here. highly mobile intangibles. microsoft can move licenses and they don't pay tax. we see a lot of issues. but other dozen it as well. u.s. multinationals using

international rules. how do we handle this? is it a matter of lowering the corporate rate so it doesn't profit them to move overseas? if we can't because you mentioned we have to -- it's expensive to lower the corporate tax rate, can we get it down to ireland's? maybe not. how do we balance this highly mobile intangible and the ability of folks to move it overseas? down the row, if you will. >> i think that obviously there are approaches being looked at in the international tax reform regarding the structure of a minimum tax that could help address those issues. we do have to look at our transfer pricing and cost sharing rules to make sure they work appropriately. i think the chairman had a care and stick approach to encourage ip to be redomesticated into the united states and taxed at a rate that would give us the first rate of taxation and not give ireland the first rate of

taxation. >> the first and best i think anti-base erosion measure is well designed tax system. if the tax system is well designed, it's going to attract income back to the country and eliminate a lot of the issue. that's got to start with a rate that's competitive with the rest of the world. that doesn't have to mean ireland's 12.5%. but we have to get somewhere in the ballpark. right now we're at the top of the heap. that's the first thing. the second thing that i think we should look at is consumption tax base because consumption tax base is what other countries use to ensure they're taxing a share of the value that's delivered in goods and services. >> let me interrupt. consumption tax -- i can't help but note that when we're prosperous than every country which has a consumption tax. if we speak about taking care of the working middle class, they're the ones who pay a greater percent in a consumption tax. you could hold them harmless by a rebate. i have to note that folks in

our -- lower class have more disposable income because of the absence of a consumption tax. i just note that as you answer. it does seem like we have conflicting goals and priorities. >> there are lots of ways to address the potential regressiveness of a consumption tax. that would include lessening the tax burden. that could be done through an expanded earned income tax. more people off the income tax rolls. i think -- i don't necessarily always agree with economists but i think they are right when they say that a consumption tax base is more conducive to economic growth. >> let me ask one more time. if you look at a consumption tax -- the economist thinks if i lower it here and raise it here, it has no influence on behavior. if i go and something is 20%

higher than it was or whatever you pick it to be, i ma know the buy it. even though i have more money here. it seems as if we see that countries like china and germany have a consumption tax, they have a higher rate of savings which they promote, export-based economy. but they don't consume as much. again, the econs would say that it's all the wash. i'm not sure that practically speaking it's a wash from the person looking at the higher price. i digress. >> i would add that a lower rate, corporate rate, it will reduce some incentives. we are going to need base erosion rules. john referred to some of the rules that might be considered. >> you know the technical aspect of this more than me. i'm just learning from you. i'm not trying to challenge to be difficult. it seems like some of the high

tech companies have low effective tax rates. how much lower you can get than 0? they are moving their ip. that's what is lowering their effective tax rate. on their income in the united states, they have a low rate. apple pays zero one year, and ge pays zero. any comment on that? how low can you go? >> gotta be quick. we have a lot of colleagues waiting. >> one comment on that. if you are going to move to something like a territorial system, you need to be considered about base erosion. that's what my colleagues have said. one approach could be to set a global minimum tax. if you have a global minimum tax of 15%, then no matter where the income is earned, they pay at

least 15%. they pay 0 in the cayman islands, 15 in the united states. that's a way to keep a minimum amount of tax. >> thank you. >> thank you. let me thank our witnesses. this is extremely helpful. tax reform in order to be successful must have certain conditions met. one is an open process, transparency. we have been talking about that. this hearing helps us in talking out some of the issues. i want to thank the chairman for convening this hearing. i hope this is how we will proceed with tax reform in an open way with this committee being engaged. secondly, it's got to be fair. which means middle income taxpayers should not pay any more of the costs of our government percentage wise than they are paying today. most members of congress agree on that. we want to make sure this is not an additional burden on middle income families. raise the revenue we say we're goes to raise. we don't add to the deficit.

i have listened to the exchanges as to the desires to reduce the marginal business tax rate. i agree with that. there is distortion as a result of high marginal tax rate. planning is done to avoid the taxes. i listened to the exchanges with other of my colleagues as to how we could get down the business tax rates within the income tax code. senator warner's point about every one of the issues being difficult to achieve is correct. when you have winners and losers, the losers are not going to be quiet. it's very difficult to get that done and to get up to the revenues you need. if you deal with the c rate, 10% reduction is a trillion dollars. if you deal with the -- those who have pass through income or use the individual rates, it's $1.6 trillion to get a 10% rate reduction, which is not easy for us to find real offsets to equal those numbers. which brings me to the exchanges we had with some colleagues.

i'm glad we're talking about it. that's the consumption taxes. i think there is no other way to get competitive marginal business tax rates in this country without bringing different revenues into funding government other than income tax revenues. miss olson i appreciate your statement where you see economists across the political spectrum concluded that consumption base taxes are a more efficient way to raise money. the two major concerns -- we heard it today -- will middle income families pay more, something which i said i wouldn't support. i urge my colleagues to look at the progressive consumption tax that i filed. working with our -- those that do our scoring at the joint tax committee to make sure the middle income families will not pay more than they are paying today. you are correct, there are ways of adjusting other parts of the income tax code to make sure

this is progressive. then there's concern on the other side that we will raise more revenue than we say we're going to raise. that's been an issue i heard from many of my colleagues that it will grow government. one of the conditions is we raise revenue we say we're going to raise. in my progressive consumption tax, we have a way of rebating additional revenues if it's over what we say we are going to raise so, therefore, we will not be a justification to grow government. not an exercise of growing government through tax reform. miss olson, what am i missing here? is there a way of getting this done that's easy within the political system without bringing in consumption to get down business tax rates? i know the old saying about the vat tax and people come out against it.

i do point out as you did, this is a credit invoice method which is different than a value added tax. would you just comment as to whether i'm -- the observations i said are accurate? >> i agree. adding a consumption tax like a value added tax to the portfolio of taxes that we use would go a long way towards making tax reform easier. it would allow us to keep something like our current base and then to lower the rates in a way that would make the u.s. more competitive as a place to invest. as i look out into the future, we've got a rising difference between what we expect to be collecting in revenues and what we expect to be spending. we have to find some way in addition to making tax reform easier to close that gap. a consumption tax seems to be something that's a viable alternative and should be carefully considered by the committee. >> i appreciate that. >> next is senator scott. >> thank you, mr. chairman or mr. ranking member.

mr. mazur, you made a comment about imposing a minimum global tax rate of 15%. how does that work when the company's invert and are no longer american companies? >> so the issue is how do you tax companies where you have the jurisdiction to tax them? in the case of a company that say was -- a u.s. company had been acquired by a foreign -- there's a u.s. entity that is subject to u.s. tax. what you want to ensure is that there are sufficient base erosion rules so that u.s. entity can't ship income abroad and have it subject to no or low tax rates abroad. you need tight base erosion rules. one approach in the case of shifting intangible income --

intangible property income is to have a global minimum tax. no matter where the income is pushed around the world, it is still subject to some minimal rate in the u.s. you need additional tools as well. it's like a belt and suspenders approach to make sure you have enough of a hook on the u.s. operations that you can subject them to tax. >> thank you. next question for miss olson and mr. soloman. south point is a manufacturer's haven. we have boeing and ge. the current system of global taxation seems to be a major impediment to growing jobs in our economy at home. can you talk for just a few seconds -- a few minutes about the improvements that could be made to our national economy if we went to a specific

territorial system and allowed for companies -- large companies to bring home their resources to build plants here and hire more employees here as opposed to the challenge that we face around the world today? >> certainly, thank you, senator scott. two issues are the high rates and then our worldwide system. when put those two issues together, what you end up with is lockout affect that several of us have talked about already in our testimony. we really do need to get rid of the system which i think is the worst of all possible worlds, a system that doesn't raise a lot of revenue because it doesn't -- it doesn't encourage earnings to come back. and that results in income being invested somewhere other than the united states. i think the key here is to look at bringing the corporate rate down to something that's competitive with the rest of the world and then to fix the

international rules so that we don't have the lockout affect. >> thank you. if there is a company from another third country trying to do business in that particular second country, they won't be subject to that, and if both are trying to compete for investment in a particular country a. country that is in the country that does not have a repatriation tax will have an advantage. >> the last minute or so if you walk through me, there's a process of discussing the rate down to 23%.

if we don't end the conversation in tax reform, regulatory reform with making sure that our workers are able to do the work that we are creating, i think we have really short-changed our economy. so my question really is on using the tax code if we aren't absent of the elimination of our credits, would we want to focus on other vehicles to make sure the workforce is prepared for the new opportunities in a world that has been successful at tax reform? >> yeah, i think we have probably focused too much on people going to college, which doesn't necessarily prepare them for the jobs of the future or the jobs that are available today. and so doing more to focus on apprenticeship programs, technical schools, community colleges that prepare people to take jobs and then also

something that focuses on the fact that we need to constantly be retraining because the world is changing so much and the jobs that are out there are changing so much, the skills that are necessary. >> thank you. >> thank you, senator scott. you'll have a lot of us on this side of the aisle interest in the apprenticeship issue. brings up senator mccaskill. >> let me ask a yes or no yes to all four of you since you represent -- all of you represent different parties, two and two, in terms of who you go for. so a lot of us are spending a lot of time yearning for the bipartisanship right now in the u.s. senate. so let me ask a yes or no question, do you believe the bill that restructures or tax code should be bipartisan? >> yes, if you want it to be a durable reform it should be bipartisan. >> it would be preferable if it

were bipartisan. >> what mark and eric said. >> and i included that in my testimony. >> the chairman is not here, but i would say to the chairman, mr. chairman, will we have a hearing on the tax reform bill? will the republicans allow us to have a hearing in the finance committee on the proposal that is going to restructure or tax code. is that going to be possible? do you have any idea as a ranking member, mr. widen? oh, good, here's the chairman. mr. chairman, i'm asking my question again. i'm asking you, mr. chairman, will we have a hearing in the finance committee on the tax reform proposal that you all plan to vote on on the floor of the senate? >> well i would like to. i don't know as of right now. >> wouldn't that be normal order? >> yes and no. it depends on who is running. i have seen democratic times when it was not regular order,

but be that as it may, i would prefer to do hearings if we can. >> that's great to hear, mr. chairman. >> i'm not saying we're going to but would prefer it. >> i'm a new member. and i had this idea that i was coming to this committee to actually consider important items of finance to our government. and there is no more important items of finance to our government than the structure of our tax code. there is nothing that is more impactful on our economy or on businesses and job creation in this country than the tax code. if we cannot have a hearing in the united states senate on the committee on finance, on tax code reform, then i don't know why we have this committee. it doesn't make sense to me. so i am very hopeful, mr. chairman, that there will be a proposal. you said in your opening

statement you hope the democrats want to work on tax reform, you weren't sure that all wanted to work on tax reform, you hope some do. i can assure you, mr. chairman, all the democrats want to work on tax reform. we all want to have a seat at the table. so i'm imploring you to use your influence on senator mcconnell to allow us to have a hearing in this committee. >> well, you would be idiots if you didn't want to work on tax reform. and i know you all do and i intend to see that you do. that's what this hearing is about, by the way. >> but we don't have a proposal, mr. chairman. this is all hypothetical and policy, which is great, i'm glad we're having it, but this is not on a proposal that would actually change the tax code. we have nothing in front of us. in terms of a proposal. nothing from the administration, nothing from the republican majority. it's a far cry from the finance committee hearings that you have sat through for decades in this senate that have looked at the specifics of legislation.

>> well, i'm listening. >> okay, good. i'm so glad you are. let's talk about temporary tax code changes versus permanent. if we go through the partisan exercise of reconciliation, those tax code changes would be temporary. they would only be good for ten years. i would ask any of you to comment on whether or not it would make sense to make major changes around the deductibility of interests or a territorial tax system if the business community knows these are only a ten-year window. >> i would think a permanent set of changes is preferable. that businesses want certainty. they are making long-term decisions. they basically deserve to know what the years are going to be in years 11, 12 and 13. >> certainty is very important. so permanence is needed. >> the more significant the change, the more important something being durable and

sustainable is. >> as an example, if we are doing rate changes that's one thing, but structural reform is a whole nother set of challenges to do on a temporary basis. >> it will have a longer lasting effect if it's lasting reform. >> i agree planning is very difficult if they are not permanent. as you say, structural changes are important to be permanent. >> another good reason we should not be using reconciliation to make major tax structure changes since it is only a temporary change in the tax structure. thank you, mr. chairman. >> mr. chairman, thank you. and i want to thank you and the ranking member for holding this hearing. and i want to thank the witnesses for holding the hearing. and i want to be the second to last to question you. and i will anticipate the questions i will ask you.

perhaps having been asked or a part of your testimony, i'm going to ask anyway. i'm from the state of nevada. and it was hit particularly hard. and i've seen a lot of recovery. but we have a long way to go. and the question is, what is standing in the way of full recovery? and i do believe that a tax reform package, comprehensive or changes in our tax code would go a long way to seeing some of these changes. i want to thank the chairman for holding this hearing. and my discussions with him and with the white house and with the house of representatives is that they do by september 1st want to have something in concept by somewhere around september 1st so that we can have open hearings. i know the tendency from the chairman is to have open hearings so that we can discuss in detail some of the details

some of my friends may have from missouri may have. but back in 1986, one of the key elements of that act, which was the last time we had tax reform, was to broaden the tax base, to reduce tax rates and to simplify reduce tax rates and to simplify the coat. i guess my question for the panelists is, i'll start with you, mr. sullivan, whether or not you believe the three key products, broadening the base, reducing the rates and simplifying the code is still the key moving forward on this proposed movement of tax changes. >> well, i think they are very important. i also think revising our international tax system is a very important part for all the cross-border business activity that occurs and will be increasing over time. >> we talk about these words, broadening the base, simplifying the tax code, easy to say, what

does that mean for the average taxpayer? >> so, for the average taxpayer it may not have an effect because the average taxpayer today is not affected by a lot of the things that are at issue here, so they may not be itemizing tax codes. but if you do great rate expanding, that would take a lot of people out of the itemized income tax range. and that would have a positive effect on them and reduce the record-keeping burden and make the tax code simpler. there are things we can do that would involve broadening the base, lowering the rate, greater simplification average for the taxpayer. >> i don't want this to be an exercise for washington, d.c. i want the average taxpayer to know if we go through the activity and process, if there's

something at the end of the day that works for them, i had a meeting at the white house talking to the treasury secretary. one of the things he mentioned, i can't remember his percentage, 80% or 90%, but he wants that percentage of americans to be able to calculate their own taxes. in other words, it's going to get complicated for some, but for the average american, they should be able to calculate their own taxes. is that a goal that is a worthy goal moving forward? >> simplification is definitely a goal to try to achieve and making americans think that the tax system is fair by understanding what their tax obligation is and being able to fill out their own forms is very important. >> i think i agree with that. one of the important roles of the tax system is like an annual civic ritual we participate in. if you understand what it is, you can appreciate it more. and i think you can use technology to do this. people talk about filing a tax

return on a postcard, my kids have to go to the museum to find a postcard. they would like to file their taxes on an app where everything is downloaded electronically. if you think forward, you can probably have a situation where it is simply to understand the rules and how to comply. >> they get over the hump, it's simplified, we have done a great job. in your opinion, what would you anticipate gdp to be if we have done this right? >> look, we have done a fair amount of analysis on dynamic scoring. you're talking about doing something in a revenue-neutral way to improve incentives a little bit, you should improve the economy a little bit, you're not going to get a giant improvement in the economy. i think one of the things that is a bit unfortunate is people seem to sell dynamic scoring effects as giant effects. they are really not going to be that large. we have a $20 trillion economy, you're not going to move the needle that much. you can move it some. >> can you quantify it at all?

>> when congress passed the path act in 2015, the joint committee did an estimate, the number is about right, with the conventional scoring, it cost $700 billion. with dynamic scoring it was $600 billion. that was doing things like makinging the credit permanent and other incentives permanent that should have an effect. that is 1/6 or 1/7 of the amount. >> mr. chairman, my time has run out. thank you. >> thank you, mr. chairman. mr. chairman, when i was a young congressman, i happened to see tax reform and see it pass in 1981. theand some of the things that were mistakes in the '81 bill were change in a comprehensive tax reform in 1986, i couldn't pass either one of those without bipartisanship.

i would like to ask you all with your experience and your expertise on tax, you want to venture a comment passing it with one party as opposed to bipartisan? >> if you want tax reform to last a long time, you have to pass it in a bipartisan way. >> i think that is obvious. thank you for reaffirming that. may i ask your opinion on, if, what would you say is a realistic target for getting the tax rates down to both corporate and individual and still have some money leftover for a significant infrastructure package?

>> i'm just -- what the obama administration did a business tax reform plan and could find a way to get a long-term revenue neutral way, the tax rate from 38% to 25% and generate a couple billion for infrastructure. that's a seven-point reduction in the corporate rate. on the individual side, i think it goes back to points that eric and pam were making, it basically depends on how bold you want to be on reducing tax expenditures on individual sides to how low the rates can go. >> anybody else want to venture what rate individually, because on the corporate side, as he just mentioned, you would only end up under the obama proposal a couple hundred billion. but we have trillions of dollars

of needs in infrastructure. what would you have to take individual rates to have, let's say a trillion dollars for infrastructure. >> that sounds to me like you're talking about taking rates up if we're going produce money for infrastructure. >> no, no, in tax reform. >> okay, so in tax reform, dave camp's 2014 tax reform act took the corporate rate down to 25%. it took top individual rate down to 35%. and earmarked some revenue from repatriotization for offshore earnings for use in infrastructure spending. i just want to note that there is an awful lot of capital that would be invested that is offshore. some of it is u.s. corporate cash, there is also a lot of other funds available. i was over in asia last week, and heard an awful lot about

capital available for investment in the united states. in particular with an interest in investing an infrastructure in the united states. so if we can get our tax system reformed, we may need some more treaties and need to address some issues in the tax code that are impediments to infrastructure. but i think there's an awful lot of capital around the globe to help with our infrastructure needs here in this country. >> as i mentioned before earlier this morning, how to get the individual rate down depends on what deductions, credits and incentives that you would eliminate. >> that's correct. the tax expenditures. so i'll summarize my comments, my thoughts here, which is why i asked the question of you all, if you get rid of a lot of the tax expenditures, which will allow you to then have the revenue to lower the rates both

corporate and individual, you can design that in a way that you still have revenue left over, over a ten-year period in order to invest in infrastructure. the only way you're going to get to that goal is to do it bipartisan. and that's the bottom line of my comments. thank you. thank you mr. chairman. >> thank you, senator. we want to thank this group of people and experts for taking time to be here with us today and this is their excellent testimony. we're grateful to you. most all of you have been here before the committee a number of times, but we can't tell you what it means to us. coming up on c-span 3, lawmakers discuss what needs to be done to find the fbi a new headquarters. later, the threat of lone wolf

terrorism on counterterrorism. at 6:00 p.m. eastern, a discussion on ways to improve medicare. tonight on c-span, a conversation with transportation secretary, elaine chao. she sat down with c-span to discuss her goals and prior work as peace corps director. watch tonight at 8:00 p.m. herein on c-span. saturday on american hist y history, we are live from sposvania. you will hear about important battles, sunday at 6:00 p.m. on american artifacts, american presidents, life portraits.

we have the presidential portraits in west branch, iowa. at president lyndon b. johnson's exhibit -- >> he was always on the telephone. he had a telephone installed in his bathroom and he would talk to people and bring them in there and talk to them in the bathroom. he also recorded telephone conversations, which he had. those were supposed to be not open to the public until 50 years after he died. >> at 7:00 p.m. on the presidency, harry truman and celebrities, david clark looks back on the president's relationship with celebrity athletes, politicians and entertainers. >> truman didn't seek out well known people. he cultivated relationships with them. this is a clip -- ♪

[ laughter ] [ applause ] >> american history tv all weekend, every weekend on c-span 3. the fbi search for a new headquarters location has come to a halt. the general services administration pulled the plug because the projects uncertainty drove down the potential value of the fbi's value with bidders. they canceled the proposal without notifying congress. this week, they head a hearing with the fbi and gsa on the future of the fbi headquarters.