tv Key Capitol Hill Hearings CSPAN April 13, 2015 5:00pm-7:01pm EDT
those we serve. and one of the parts of doing that is to be honest and to say we do have a tight situation here. we're going to have to make some tough choices but not brutal choices. we could find $17 billion a year out of all of this money that we spend without doing anything but eliminateing fraud, waste, and abuse, duplication, unwise spending. we don't have to savage children or the military to do this. but it's hard work and every time you talk about reducing this program or that program a group shows up and pushes back. well that's why we're here. as my wife says to me when i complain don't blame me; you asked for the job. that's what we asked for, to be in the united states senate. and make these tough choices. so i hope in the hours that are
ahead that we'll be able to have some amendments -- and there are several that would fix this thing like that -- that would be able to allow the doctors to get the pay they're entitled to -- and they are entitled to it -- but at the same time not add to the debt. i thank the chair would yield the floor and note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:
the presiding officer: the senator from oregon -- excuse me. excuse me, i've been on break too long. senator, my good friend from alabama. mr. sessions: mr. president, i would ask that the quorum call be dispensed with. the presiding officer: without objection. mr. sessions: i would just add that this isn't just my opinion that -- about these cost overruns in the legislation. here is a "wall street journal"
article a few days ago. "two-thirds of $214 billion cost would be financed through higher deficits." that's the headline, subheadline on that. the headline is, "senate wrangles over medicare payment fix." so i don't think there's any real doubt about that. it goes on to say in the article -- quote -- "the deal reached by house leaders would shift some of those costs on to medicare beneficiaries." so some of the medicare benefits benefits, like part-c are not part of trust fund money. it's not paid for when you have that withholding from your paycheck. and people with higher incomes probably ought to pay a higher percentage of the costs that they can reasonably afford if they have a higher income when they go see a doctor. i think we could use that. but some -- but at any rate, this bill would shift some costs
to medicare beneficiaries. while providers such as hospitals would shoulder some costs. so they're paying for some of these costs by having reduction in payments to hospitals who are hurting this year. quote -- "the rest would be financed through higher deficits." no doubt about that. "forbes" magazine, a comment here by stan collender "the procedural choices congress is making all favor increasing the deficit rather than at least requiring it not to get any worse." the s.g.r. -- that's the physicians' payment -- says -- this is what it says -- quote -- "the s.g.r. change without a full i yield the offset is projected to add an average of around $14 billion
a year to the deficit." the "fiscal times," headline -- "medicare doc fix may be no fix at all." paul winfrey economic policy expert at the heritage foundation said this -- quote -- "rather than a permanent replacement of the sustainable growth rate" -- we've been promised that this would be a permanent replacement replacement -- quote -- "it is much more likely that the house doc fix will be a shorter-term patch requiring another series of patchwork legislation just nine years from now." they also conclude in this article, the permanent fix --
quote -- "would add $141 billion to the deficit over the first 10 years and would go as high as $500 billion over two decades as previously reported here." but i did want to emphasize it's really not $141 billion over 10 years. it's $174 billion because when you add up $141 billion in debt in additional debt, over 10 years you pay interest on that because you borrowed that money and you pay interest. and when you count the interest that's paid, the increased interest it's $174 billion added to the total deficit of america. and, colleagues, our interest payment on our debt is staggering. the highway bill is about $40 billion to $50 billion a year. aid to education is $100 billion a year, for example. the interest we pay annually on the current $18 trillion debt
in spite of the fact we have some of the lowest interest rates we've ever had is $220 billion-plus last year. the congressional budget office, however, colleagues, says that 10 years from now with interest rates projected to return to the mean and with the debt -- deficits every year out for 10 years, we would be over $900 billion in interest in one year. just in 10 years we go from $200 billion to $900-plus billion. this is why the congressional budget office director, chosen by our democratic colleagues, mr. he will elmendorf dr. elmendorf a very capable, wise man has said we are on an unsustainable path. this is the path to fiscal destruction. it's not responsible. and so day after day week after week we in congress are going to
have to start saying "no." "no, we don't have the money." do you not understand? we can't keep digging the whole deeper. we're supposed to be trying to figure out a way to reduce deficits and balance the budget, not to pass more legislation that's going to cost more money than we have to spend on it. and the only way we're going to be able to honor that legislation is to borrow more. that's what we're doing. so i would just say that i don't think there's any doubt about what i've said. if somebody can come down and prove that this bill is paid for for, i'll shake their hand and i'll be happy because i want to do the doctors' fix and i want to be sure that we do it in a responsible financial way. if not we'll have legislation amendments that will be offered that i think can fix it and require that we come up with the money in a proper way do the assistance we need to provide to our doctors and not add to the
mr. cornyn: mr. president? the presiding officer: the senator from texas. mr. cornyn: mr. president i ask that the quorum call be rescinded. the presiding officer: without objection. morning business is now closed. under the previous order the senate will proceed to executive session to consider the following nomination which the clerk will report. the clerk: nomination, the judiciary, alfred h. bennett of texas to be united states district judge for the southern district of texas. mr. cornyn: i yield back all remaining time. the presiding officer: without objection. all time is yielded back. mr. cornyn: i'd ask for the yeas and nays. the presiding officer: is there a sufficient second? there appears to be a sufficient second. the clerk will now call the roll.
the presiding officer: have all senators voted? any senator wishing to change their vote? if not on this vote the ayes are 95, the nays are zero, the nomination is confirmed. under the previous order the motion to reconsider is considered made and laid upon the table. the president will be immediately notified of the senate's action and the senate will resume legislative session. mr. mcconnell: mr. president? the presiding officer: the senate majority leader. mr. mcconnell: could we have order in the senate. the presiding officer: the senate will be in order. mr. mcconnell: i ask unanimous consent the senate be in a period of morning business with senators permitted to speak therein for ten minutes each. the presiding officer: without objection. mr. mcconnell: i ask unanimous consent that the judiciary committee be discharged from further consideration and the senate now proceed to s. res. 131. the presiding officer: the clerk will report. the clerk: senate resolution 131
designating april 5 2015, as gold star wives day. the presiding officer: is there objection to proceeding to the measure? without objection the committee is discharged. the senate will proceed. mr. mcconnell: i ask unanimous consent the resolution be agreed to, the preamble be agreed to and the motion to reconsider be laid upon the table. the presiding officer: without objection. mr. mcconnell: now mr. president, i ask unanimous consent that the senate proceed to the immediate consideration of s. res. 133 submitted earlier today. the presiding officer: the clerk will report. the clerk: senate resolution 133 supporting the goals and ideals of national public health week. the presiding officer: is there objection to proceeding to the measure? without objection, the senate will proceed. mr. mcconnell: i further ask that the resolution be agreed to, the preamble be agreed to and the motions to reconsider be considered made and laid upon the table with no intervening action or debate. the presiding officer: without objection. mr. mcconnell: as in executive session i ask unanimous consent that the injunction of secrecy be removed from the following
treaty transmitted to the senate on april 13, 2015 by the president of the united states -- protocol amending the tax convention with japan a treaty document number 114-1 i further ask that the treaty be considered as read the first time referred with the accompanying papers to the committee on foreign relations and ordered printed and the president's message be printed in the record. the presiding officer: without objection. mr. mcconnell: now mr. president, i ask unanimous consent that when the senate completes its business it adjourn until 10:00 a.m., tuesday, april 14, following the prayer and pledge, the journal be approved, the journal of proceedings be approved to date be hawaii proved to date, the time for the two leaders reserved for their use later in the day. following leader remarks, the senate will be in a period of morning business with senators permitted to speak therein for ten minutes each i further ask that the senate recess from 10:30 a.m. until 11:30 a.m. for
the all-senators breaching and recess again from 12:30 to 2:15 to allow for the weekly conference meetings. the presiding officer: is there objection? without objection. mr. mcconnell: if there is no further business, i ask that it stand under the previous order. the presiding officer: the senate stands adjourned >> the senate has gambled up for the day. earlier members confirmed district court judge for the southern district of texas'. we could see senators work in a number of items including anti- human trafficking bill and medicare payments to doctors
the trafficking bill was pending on the floor for weeks after several procedural votes failed to advance the measure's. follow the senate live. >> tonight on the communicators' policy director from have you on the importance of spectrum for the government and the public. >> the last two administrations have both written presidential memorandum's on spectrum. when i 1st started inspector management i came out of the marine corps after being artillery officer. i did i did not know anything about spectrum. most people i met and sometimes i worked with did not understand much about spectrum. now everyone realizes part of our daily lives completely rely on it. our ability to communicate. >> tonight at 8:00 o'clock eastern on c-span2.
>> tomorrow the house judiciary committee holds a hearing on immigration and customs enforcement. testimony from the director of ice. you can watch her comments live. also tomorrow events the 150th anniversary of president lincoln's assassination. john wealth both enter the presidential box at ford's theater in washington dc and shall pres. lincoln. the president lincoln. the president was carried across the street to the peterson house where he died the following morning. tuesday night live as historians and actors detail the events of the night. we will hear remarks from interior secretary at a
replay ceremony. live coverage underway wednesday at 7:15 a.m. eastern here on c-span2. >> this weekend the c-span cities tour as partnered with comcast. >> may or may not have been searching for the government of maternal youth. a lot of people has said he was out for additional property for the king of spain and colonization attempts which is very decidedly true. we do now that he came ashore after searching for good harbor took on water and would. this area presents one of the few freshwater springs in the area around 30 degrees eight minutes and is also the location of the 1565 1st settlement of san augustine 42 42 years before
the settlement of jamestown and 55 55 years before the pilgrims landed in plymouth rock. >> the hotel was built by henry morrison flagler. a man who is very little known outside of the state of florida but he was one of the wealthiest men in america. he he essentially had been a cofounder of standard oil with john d rockefeller a man who always wanted to undertake some great enterprise. as it turned out florida was it. he realized he needed to on the railroad between jacksonville and saint augustine to ensure that guests can get to his hotel conveniently. so clearly the dream was
beginning to grow. a man who had big dreams and he was a visionary. >> watch all of our events saturday at noon eastern on c-span2 book tv and sunday afternoon at 2:00 o'clock on american history tv. it's. >> the cato institute held a a discussion on the challenges and implications of tax reform and ways to broaden the tax base. panelists what does some of the reform plans laid out by the 2016 presidential candidates. [inaudible conversations] >> well, good afternoon. thank you for coming to the cato institute briefing. i am peter russo, director of congressional affairs and then pleased to host this event. in january in january we initiated another effort to give tax reform deal done. no easy task.
the the last five years have seen a bewildering variety of tax proposals. simpson bowles and none of which cost the finish line. many economists urged something more radical. the flat tax the fair tax the national sales tax and the x tax for example. for decades there has been a a constant hype to find new things are activities. regard to seeing gas tax, cigarette tax and for a short time so the tax now ideas for a carbon tax and the value added tax look at the surface. nary a stone has been left unturned. one can't help wish that energy were diverted to something more productive. high taxes and high taxes and increased complexity are only a symptom of a larger problem's. demands for more spending in one area and successful
resistance has been largely unsuccessful. for the for the most part this year's budget appears to be an achievement. without much-needed reform to entitlements this achievement will be short-lived. in addition to controlling spending it is essentially get the economy growing. many of our current woes would be alleviated by robust economic growth. i should not have to sell the benefits of this. millions of people returning to the workforce roles and taking themselves off food stamps. stamps. however, it does not appear that this particular makes is about to come to any agreement. an opportunity to discuss considerations are on. the assembled panel will dial-in on an important aspect of tax reform. reform. what his income? what is currently taxed? reforms are necessary to reduce complexity and
prevent taxes from being an economic impediment. to my left is daniel mitchell specializing in fiscal policy, particularly tax reform international tax competition and the economic burden of tax pending. senior fellow at the heritage foundation and an economist. published in numerous outlets. appeared on all the major networks and is an internationally known expert phd in economics. senior fellow and economic policy at the heritage foundation focusing on tax matters securities, law, entitlements. general counsel at the national small business association for two years before joining heritage room
in 2013. he previously was chief financial ofc. and general counsel of the startup alliance for retired prosperity, a conservative to have a conservative alternative's. a doctorate from the university of maryland and holds a a bachelor of arts degree in economics from the university of chicago. finally senior research fellow at george mason university. his his research focuses on social security, federal tax policy federal budget policy on policy proposals. the the "washington post", "wall street journal", new york times command others. he earned his ba from the university of michigan ann arbor and his phd in public a ministration policy from virginia tech. each will speak in turn after which we will open it up to q&a. [applause] >> thank you, peter. tax reform often times
especially when people are talking about radical plans such as the flat tax people think, well, it is all about the tax rate. a system with high tax rate or at tax system based on one low rate. today's panel is looking at another big part of tax reform understanding the definition of taxable income and in particular looking at two competing. some of how to tax n come. i have a couple of powerpoint slides that will help make this issue more understandable. and as i said, the issue of tax rates for those of us who want certain types of tax reform, we think it is important to have a low marginal tax rate on breaking behavior because presumably those are good things in our society and when you have a high tax rate you discourage people
from being productive. i i have an image i found on the internet. i think this really boils down to the essence of supply-side economics. i agree with politicians when they say we need higher taxes on tobacco because that will give people the smokeless. i don't agree we should control people's private people's private lives by agree on the underlying economic analysis. when you tax something more you get less of it. a fire taxes on cigarettes will lead to a smoking won't higher taxes on work lead to less work? or for that matter higher taxes on saving and investment. the issue of tax rates is very important. our topic today is not a challenge for tax reform but what i think is the real challenge.
if you look at some of the proposals out there going all the way back to the 1980s so much of what really happens only are talking and debating about tax reform is this fundamental discussion over whether or not we're taxing all income, taxing it zero times, one time, times, one time, or more than one time. as the bottom bullet.suggests, one of the major issues is how you deal with the tax burden on income that is saved and invested. there david and jason will both be talking about some of the specifics but i am trying to focus on the underlying the arabs so we can get our minds around with the real debate is about. let's look let's look at what i think it is a fight over. two competing tax basis. probably lots of them.
in the big picture there are two. basically undergirds our current system and certainly is the tax taxpayers the joint community on taxation and gal when they analyze the tax system. the tax base basically assumes there should be double taxation. government should tax income. you can attach that to the consumption base. at its at its essence is simply whether or not you should treat income equally whether consumed today or in the future. as just another way of saying saving and investment it is an important issue because right now we don't have that neutrality. why? because we oppose all this double taxation, triple taxation on income saved and
invested. a consumption base tax is not understood and does not mean attacks left at the cash register. yes, it is a consumption base tax. yes the value added tax is a consumption a consumption base tax, but so is the flat tax. basically you are willing to from moving to a consumption base tax. your either taxing people when they 1st in the income or when they consume the income. if you get rid of double taxation you have by definition a consumption base tax. when when you look at the flat tax versus the national sales tax they are basically different sides of the same point. they both have the consumption base. base. the only difference is the collection. something like a national sales tax taxes are your
income one time at one low rate when you spend it. the bottom bullet.is the important thing neither of them have double taxation which is pervasive in the current system. you will be able to read the start but it shows the difference between a consumption base tax and the hayes simon tax. sort of what our current system is. the top three boxes you income, you pay tax and you have after-tax income. what are the things you can do? consume it consumer today or in the future. if you consumer today the government pretty much leaves you alone. what if what if you consume that income in the future?
that is the right side. between the capitol gains tax, corporate income tax double tax on dividends, it is possible for that single dollar of income to be taxed over and over and over again which means there is not that neutrality between current consumption and future consumption which means that there is a tax penalty for attacks bias in the system. why is that a bad idea? it's a bad idea because every economic the arm even socialism: system, every economic. he agrees capitol formation is a key the long-run growth and higher living standards. why do workers get paid? because they produce. what determines how much workers produce? a lot of it depends on the quality and quantity of the machinery and equipment technology that they work with. when you with. when you impose extra layers of tax on saving and investing you are creating a tax bias against capital and are therefore reducing the capitol stock in the country, hurting the economy and of course ultimately hurting workers because they
will not earn as much. it makes no sense to impose a tax bias unproductive behavior, especially protect a behavior in the form of saving and investing's. the socialists and the marxists, don't get me wrong, wrong they have crazy ideas. the government should do the saving and investing but they agree capital formation is key to long-run growth and higher living standards. i think i think this image sums up the difference between a consumption -based and a a simon is based. if you want to harvest apples what is the smart way to do it? do you pick the apples of the tree? do you chop down the tree? if you are taxing capitol your chopping down the tree or at least sign off the branches depending on the degree to which you tax capital. in a smart intelligent system your trying to maximize income
and prosperity for an economy in the long run you want to pick the apples only the branches and the tree so that you get another crop of apple's next year apples next year and the year after that any after that. whereas the mindset not only do we want to tax the apple but let's at least solve some of the branches. branches. why? i'm not sure other than here is the political challenge. this is why. two reasons. first, class warfare. who has a lot of saving and investing? rich people by definition. that defines why you rich. if we decide that we don't like rich people for political reasons or decide that they are the easiest target and we are trying to extract revenue from the productive sector of the economy you impose taxes on capitol. a lot of times rich people have a lot of capitol that might not be easily
accessible if you are simply imposing a high a high personal income tax rate. that is one reason why. the other reason is just ignorance. how ignorance. how many of us have seen warren buffett make his silly claim that he paid a higher tax rate than he does? the only reason he can make that claim is because he wants us to forget that any capitol income he is receiving has already been taxed at the corporate level and not to mention the fact that the income is taxed before he 1st invested in some income-producing asset not to mention the fact it will be subject to a death tax. if you some big focus on one tax and ignore all the other , and a lot of people i genuinely don't think it is malice they just don't understand the difference. a rich person got a capitol gain, therefore we should tax it.
well, the only reason you got a capitol gain which only came about because you took your after-tax income and invested it. they go up in value because of an expectation in the marketplace that we will generate more income in the future. whether you do it for looking or backward looking at the form of double taxation. part of the purpose of this panel we want people to understand the double taxation exists. there is no ambiguity about it. double taxation. there is a consumption-based system. they. they would simply argue that it is justified for reasons of revenue collection, redistribution, or something like that. they agree with the notion that there is double taxation, warren buffett is being double or triple or quadruple taxed. so with that i we will go ahead and stop and turn the
floor over. .. you haven't made the money until you have gotten the cost of your machine back back in one additional dollar. this is the basic core idea underlying the fact that capital expenditures should be deductible like other business expenditures. we see that in section 179 for small business expensing that it should be applicable to all
taxes. let me try to explain reasons why and mentioned that investment is key to productivity and increasing real wages of ordinary people. we see that all over the world in many different cases but in the united states tax policy the last time we did anything concerning moving towards expensing was 1981 with the economic recovery tax act under president reagan. something called accelerated recovery tax system which was a 60 -- substantial move towards expensing because businesses can deduct their capital expenses more rapidly. as a result of that you saw investment i make while in our history and that laid the foundation for a very extended period of strong economic growth in one of the most robust dynamic recoveries that outlasted the reagan administration. so this is a real-world society. it will have a tremendous positive impact on the american
people. in more formal terms when you delay and the production of capital expenses potentially 39 years under the current system you raise the cost of capital. it means the business has to earn more money pre-tax in order to justify investments. and as a result you get less productivity growth, less incorporation of new technologies and lower real wages that you would otherwise get traded if you have a flat tax environment or the current tax system he moved to expensing sales-tax similarly by simply not taxing as consumption the purchase of a machine. either system gets you to that result. a couple of other things. therethere is a secondary
consideration. the current system plays favorites. it picks winners and losers. by giving some types of investment relatively accelerated deductions expensing and others as long as 39 years so you have two questions. one is do you want to broaden the capital side and make it deeper and the other question is where does that flow? i current tax system distorts a tremendously and leads to a less efficient capital stock was also has a adverse effect. in any of these plants flat tax leave or be of anything that moves towards expensing solves that problem as well. let me just briefly touch on one other question. we hear a lot about loading the basin broadening the base and that is good but consumption tax is broader than the current tax system. in the business sector we got rid of most of the true junk in
1986 and 86 tax reform act. if you get rid of things that are not trading capital investments correctly there's only enough base brothers on the corporate site to drop their rates to 2% maybe three. the problem we face today is we are an outlier. we have been appropriate levels of business taxation compared to virtually every other country. we have the highest corporate rate and we have among the very worst investment and then we also are the only major industrialized country that taxes its businesses on income earned everywhere in the world instead of just income earned in the united states. so when you combine those three things in a number of other things you realize we basically have a serious problem. we are making the united states among the least attractive places from a tax perspective to do business in the industrialized world.
we see that. our businesses are no longer competitive as they once were and we need to repair that damage. so with that let me move to the international. the u.s. taxes u.s. corporations on income earned throughout the world. now we also provide a credit for foreign taxes paid by that credit is limited to the u.s. tax rate times the foreign source income. smiley face not that simple. this income is divided up into series of patches based on the type of thing, and what country it was earned in. then you have a complex series of rules allocating income and expenses between the united states and abroad for the purposes of determining whether income was earned within the u.s. or abroad which is necessary for purposes of the foreign tax credit and other reasons. the long and short of it is we tax us-based businesses on there and come throughout the world so
one way to avoid that is to merge with a foreign corporation corporation. if you merge with a foreign corporation the new combined entity is only going to be subject to attacks under u.s. source income. as long as we do that we are basically driving corporate headquarters functions outside of the united states so when you see anheuser-busch merging with -- is really simple to decide the new corporate headquarters is going to be in europe and asked the people of st. louis how that's working out for them. when chrysler and mercedes merged even in the old days the new corporate headquarters was in germany, not in the united states and so on down the line. the only way we are going to prevent this tremendous push to move corporate headquarters from the united states to abroad and in effect control businesses abroad is to move to a
territorial system that taxes u.s. businesses on u.s. source income. and having a corporate headquarters has a number of positive effects. obviously it has the higher paid corporate functions in the united states abroad but it's also true in empirical matters that u.s. businesses tend to sell more goods made in the u.s. to their foreign subs than of the businesses run offshore. so somewhat counterintuitively is better for u.s. exports to have a territorial system. i guess the last point i would like to make on the international side is that the u.s. multinationals have become fairly good gaming the current system. it doesn't raise that much money. it almost goes into the category of fiction and that's because they are able to manipulate intercompany pricing, the pricing of intangibles such as
trademarks royalties and other copyrights and patents and so on and so forth and lastly interest interest. whether they borrow abroad or borrow in the united states so they can basically increase their foreign tax credit beyond what the radically -- and drive down the effective tax rate on foreign source income so moving to a correct system territorial system that no longer in courage is these inversions would probably not cost any money so we have a system that is basically having all these adverse economic effects on the competitors of us-based businesses but isn't raising any or very little money. if you address intangible questions and answers to the allocation questions you can do that and not lose any money. and in terms of how to do that
former chairman of the ways & means committee chairman camp had a number of proposals that will solve the issue so these are somewhat difficult problems but they are solvable problems and what that the united states back into the mainstream. that's what we need to do. we need to move our business tax system to a more competitive tax system. we need to reduce our corporate and pass-through rates. we need to move towards expensing of capital expenses rather than a system and move to a territorial end of quarter adjusted axiom in with that i will turn it over to jason. >> thanks david. good afternoon guys. there's an old joke that if you lined up of economists and the one you would not get his exclusion that we are actually
up here and a lot of agreement on tax policy on what's wrong with taxes, the tax system individual and corporate income tax, what needs to be done about it and it puts us in an odd spot. my two colleagues have said most everything so i'm going to bat cleanup and bring the runners home and get some points that they touched upon andrea besides the importance of a tax policy and tax base talking about tax reform. we are also getting into the start of the presidential election season if you will end with that candidates come out with their various tax plans their misinformation on what taxes do and don't do who pays taxes and who doesn't answer my new good time to review important issues about tax base and -- tax bases as we get into the season of the presidential election cycle. with that i want to highlight what david and dan said about how economists generally prefer a broader tax base with lower
marginal rates. this is very important because it really is the tax rate that drives the decision of the margin. the margin or we decide whether or not to work that extra hour whether or not it's too expensive to invest in extra dollar whether because taxes are so high they would decide not to work at all. you will hear some discussions about corporate taxes and whether or not we have the highest tax rate. we do. some will say our effective tax rate is lower but the effective tax rates we have so many gimmicks that would allow to game the system that it does and and -- disincentivized is some behaviors and incentivizes others. again it's not the effective rate that drives the decision, it's the margin so you have to focus on the margin and lowering the corporate tax rate at the same time broadening the base. also the question comes with individual and corporate and what do we mean by tax expenditure? you might've heard a few years ago for covered up all the corporate and individual tax expenditures we could raise
$1.320 that would take care of her deficit and we are all set. tax expenditures aren't all and it's important to point this out. certain preferences are like government spending and others actually aren't. begin to give an example the exclusion of an employer-provided contribution for medical insurance premium they are not taxed and we are not taxed on the benefit. that might be considered a tax expenditure that increases expenditure on health care but the preferential treatment of capital gains offset some of the double taxation of both my colleagues talked about the existence of capital gains are taxed at the corporate corporate level and individual level. taxation of capital gains is an important tax issue and hence
it's not a tax expenditure. certain administrations presidential ministers and some likeness and some like this that ministers have called it a tax expenditure and others like president bush happen. if you look at on these documents for the budget and it was the tax expenditure budget it changes from administration to so it's not consistent. it's based on one's political perceptions on what they think a tax expenditure is. david mentioned the tax reform act of 86 and how a lot of junk was taken out. it's important to know that's true. the tax reform act of 19 to his considered the best and also the worst tax reform in u.s. history. we have today more exemptions in the tax code than we did before we pass keyword is six. the lesson is once we start lowering rates we still have the public choice but more people come to capitol hill give me an exclusion for this activity and wind up the base broadening gets narrower and narrower. turning to corporate tax because
we might have a chance to do corporate tax reform even under this president this president a past election cycle has called for lowering the corporate tax rate to 20%. other candidates have gone to 25 but that might be an area for compromise if it happens before the election. the united states corporate tax that severely distorts the allocation of resources. the tax code hampers for job creation and appease potential economic growth and potential tax revenue. again my colleagues mentioned this as well. many developed countries are reducing their corporate tax rates and restructuring their income tax code to make them simpler to the united states federal government appears to be taking the opposite approach. i will note that some states in the united states have also lowered corporate tax rates and offer tax packages to attract businesses and investments. foreign competitors are doing that as well. high corporate tax rate increase uncertainty and costs for american business.
this drives competitive profit-seeking corporations to minimize their tax exposure and defer income overseas to lower tax countries and as david mentioned for some to reincorporate outside the u.s. but. even where some u.s. companies take out debt in order to pay dividends to shareholders in order to maintain income overseas to avoid bring it back to the high u.s. tax rate that unless the message reforms as tax system and lowers its rate our country will fall further behind in global competitiveness. begin with their tax rates higher u.s. corporations must turn their accounting departments and a profit maximizing centers. david mentioned the idea of transfer pricing. companies need complex financial engineering tactics to minimize revenue losses using taxco preferences and this is why we are so interested in broadening the base and lowering the tax rate. their various rates tax liabilities and improve their competitiveness. exhaustive economic research
proves this most basic effect or the more you tax capital or labor the less you get. it also makes clear that incentives matter so corporate tax rate on both. u.s. tax code is excessively complex and brittle with loopholes. tax respect treat similar decisions which damages the economy or the current tax system's treatment of corporate capital investment is emblematic of these problems. something david mentioned as well. shifting to full expensing allowed businesses to write off expenditures whatever and even ground for capital investments. it would also greatly simplify the tax code increase investment and reduce the ability of industries to gain benefits. one thing we should not do and i don't know my colleagues mentioned this as we should not raise taxes. that's just going to make matters worse. we should raise them at all. u.s. corporate taxes among the highest in this increases businesses flight to lower --
taking their tax dollars with them. there is research to support the negative consequences. research by economist kristina from her former chairperson of almonds advisers and david romer suggests tax increase of 1% of gdp reduced output over the next three years by nearly 3%. further according to research by jeffrey miron macroeconomic and microeconomics suggests that higher taxes slow economic growth leaving the scope for revenue gains so we are looking at the ideas we can lower rates and get into some of these loopholes we could raise revenue and david mentioned that as well. and it costs us nothing in the long run. it's important to keep in mind talking about taxes there's a corporate corporate tax isn't part a tax on labor. while the joint committee on taxation changed their assumptions on the corporate tax which now stands at 75% of the taxes paid by owners of capital
and workers there 25% is important to point out that this is a change to congressional budget office working paper pointed out at one point that 70% of the burden falls on labor so we are trying to increase taxes on corporations and all we are doing is passing that along to workers in the long run or consumers. regardless of one's view on corporate income tax one of the keys to successful reform is to move away from a spending system that depends upon easily manipulated income income tax system that contacts or form should lower brought midazolam innate loopholes and this will increase stability and economic growth. my time is short and i want to leave time for questions but i want to point out something that dan mentioned that are important important. warren buffett pays a lower tax rate than a secretary or that became a political issue but again it belies the importance of the income tax and the corporate income tax and who bears it so to put it in math
the statutory corporate tax rate is 35%. if the business has 1 dollar profit that it wants to distribute to shareholders it is first taxed 35% on that 1 dollar dollar. that leaves 65% to retain profit to the shareholder. we now have a capital gains tax rate of 20%. if you are in the higher income brackets 20%. that means your effective tax rate is over 50% if you are in the highest tax bracket so where are we taxing capital 50%. to take into account we are taxed at the corporate level. one thing we might to discuss is whether we should get rid of the corporate income tax altogether and start taxing income although seems the capital gains will be tax ordinary rates and we would have no corporate income tax at all. that would increase the savings and investment and makes the tax code more efficient and businesses more profitable to invest in the united states.
thanks, guys. spin not all right so i wanted to entertain as many questions as possible so state your question in the form of a question. >> all this just assumes that taxing consumption is completely a good thing and that it obviously is better on a consumption tax then taxing income. i don't dispute that but there's a bias in all these they think and all these consumption taxes that you are biasing against people consuming so you have sort of switched the bias in favor you know, now we are not biased to get investment but now
we are essentially being biased against consumption. my suggestion which i've made today on a couple of times it that you should tax the undeveloped value of the land. the georgia tax in which i don't think there is a bias one way or the other and my question to you is why do i never hear about this tax that's so superior and it would be politically much easier to get because there are going to be lots of people who don't want bias against consumption. they are going to go crazy if they ever try to get a consumption tax. >> i think i've read that in a couple small committees in pennsylvania that take that approach but i've never heard of the state province or country doing it so i confess i've never looked into it but i want to disagree a bit with your premise. a consumption tax is simply an income tax with income properly
defined i.e. no double taxation and that is why he said a flat tax has the same tax base as a national sales tax. they differ only in the sense that you don't have these extra layers of tax on income saved and invested so you are getting rid of a bias but then you have neutrality. of course at the end of the day i think it was adam smith who reminded us the purpose of all production ultimately is consumption. that is why we live and work and we want to consume things and enjoy life. to me that brings us back into the point jason was making about we should have a smaller tax burden not a higher tax burden because whether you are looking at it from the point of earned income or from the perspective of what is your incentive to consume income after tax rate is high, in other words if you're driving a bigger wedge between the pre-tax income in your post-tax consumption that is what is doing the damage. he wants to make sure the marginal tax rate on consumption
income productive behavior have free want to phrase it you want that tax burden to be as low as possible. >> let me mention one quick thing. income tax taxes to consumption like a consumption tax taxes consumption and if you think about it if you want to spend $100 tomorrow how much do you have to earn? thank you of a 50% tax rate enough to earn $200 so the income tax is in effect the consumption tax. it also taxes savings and investment again. so it's not as if consumption somehow off the hook. >> it's very important that people generally understand it. maybe if dan talked about simons in the liberal definition of
income but if you go back and read it there definition is consumption plus changes work. that's one way to think of it that the court then you are doing is to have to earn pre-tax to spend money today and we have a 50% tax. if you make $200 you spend $100. if you want to consume in the future they also tax that consumption plus whatever you earn by deferring it. so that is the difference. it's not the tax treatment of consumption. it's the tax treatment of future consumption. >> something for you to think about is you start thinking about the concepts of performer better tax system there are two principles that economist try to apply when thinking about what is a fair tax code and fairness is in the either the holder but one concept is the ability to pay. trying to figure out who has the
ability to pay a tax and the reason a consumption tax is important is the fact that you are going out and in putting dollars down assuming you do it with the cash and you don't have to but you are making a choice to consume something suggesting now have the ability to pay where other measures like hague simons which looks a capital gains and tax appreciated unrealized capital gains you might have the ability to pay it if you don't have the cash flow. one of the things to look at and property taxes or value of land is not just the ability to pay is important but is there a cash flow on a transaction basis that allows someone to have the ability to pay. just to keep that in mind. >> i'm happy to hear about the tax reform concept and simplification but when you look attacks reform you have to look at expenditures and when you look at issues like subsidizing companies and corporations and it looks like and i was told by
a government official that more men are getting new subsidies and they are spending a lot of taxpayer money to get women and minorities to get these subsidies. then i asked what if they got rid of the subsidies to these companies would it be fair and he said it would be fair than the way it is now. when you look at making life life equal of taxes and expenditures don't you think a simplification process would be easy because more women start businesses use their own credit card and they get the small business loans that are complicated because there's a process and they don't have the time. do you think simplifying the tax reform and cutting back expenditures and spending less is a safer way to go? >> off the front simplification is hugely important to anything we can do to make the tax code simpler reduces compliance cost. when the studies i did assess compliance cost are a trillion dollars a year and the time it takes to figure out how to get a loan and how to pay for it when investments to make if we decide
to basically make ethanol a tax advantage when you start business doing ethanol production. we should definitely try to find ways to broaden the base by getting to these loopholes that allow us to lower the rate and it's important to point out that not all tax expenditures are loopholes. some are designed in attacks over the lower the rate is the less valuable the exclusions are in the first place so that's very important. >> i obviously agree tax reform and expenditure reform hold out the promise of making life simpler although simplicity -- there's an old joke that barack obama said at the timeline flat tax, he is a two-run reform plan plan. what did you make last year? 's second line -- but all joking aside one of the advantages of the conference of tax reform plans if you get rid of the depreciation schedules of today's tax code like david was talking about and replace it
with expensing that's vastly simpler. if you get rid of the capital gains tax is vastly simpler. turns out a lot of the good things that should be done to eliminate double taxation and move toward a cash flow based tax system gets rid of some of the most complicated provisions of the tax code. you have a simple territorial tax system that gets rid of the complications that david talk about. by the way i want to mention worldwide taxation. a lot of you are seeing stories about companies taking $2 trillion offshore. why are they doing that? >> are doing that because we were policy called deferral that enables companies to delay this second layer of tax that goes by a worldwide tax system. you get rid of worldwide taxation new move to territorial taxation guess what? companies no longer have any incentive to hold money overseas. they will have the ability to automatically and quickly
deployed that money to whatever it will generate the most value for the economy. the complications that we have rf function of a bad policy and bad policy that we have gives us the weaker economic reform. there is a win-win situation when you do a good policy. >> also add i'm sure dan is not advocating for just the repeal or deferral but advocating changing into a territorial tax code. so the corporation get a higher tax base coming in. >> one last thought on the complexity side. the complexity of the system and the list is endless disproportionally adversely affects small startup firms and large firms can grapple with the complexity but also calculating the cost of making calculations
does not increase linearly. they are disproportionally larger for small firms so that's a huge burden on entrepreneurship in firms trying to launch their businesses. >> i am jim pinkerton from the rate coalition. this has been a terrific conference and of course the title is the tax base and that's obviously a critical issue but i have also heard at least three of you on this panel talk about the deleterious impact of the corporate tax rate which people know is the highest in the world and i've even heard a discussion about simplification and complexity. those are three issues therefore. the base, the rate and complexities/simplification.