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tv   Joint Economic Committee on Tax Reform  CSPAN  October 31, 2017 1:00pm-2:32pm EDT

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a half executives from twitter, facebook, and google will testify before congress about russia's use of social media and its interference in the 2016 elections. they are going before the senate judiciary committee. that hearing starting 2:30 eastern live here on c-span3, and also on, and on the free c-span radio app. if you missed any of that live, we'll show it to you again this even beginning at 8:00 p.m. eastern. c-span, where history unfolds daily n. 1979, c-span was created as a public service by america's cable television companies. and is brought to you by your cable or satellite provider. house republicans are planning to release their tax plan tomorrow, ahead of that, the house ways and means committee heard from white house council of economic advisors
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chairman kevin hassette about the potential approaches to overhauling the nation's tax code. this is an hour and 15 minutes. >> good morning, everybody. i want to welcome everyone to the most informative hearing on how we can accelerate economic growth in the united states, what is haute holding back economic growth in america has been of central interest of this committee from the conyet of my term as chairman. our hearings have produced useful information and insights. i'm particularly pleased to have chairman hassette lend his insights today on the forces and constraints that are holding back private investment, labor force participation, and important -- just as important as anything else, wages. we hope to get a clearer picture of how the right policies can help the economy recover its full potential. the economy is dealing with the aging of the population, the slowing of a population growth, and technological changes that are altering the methods of production in america.
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self imposed constraints have also altered the way the economy performs and not in a good way. i strongly believe we can do something about that here in the united states congress. i would like to divert your attention to the graph showing how the congressional budget office lowered its assessment of the economy's output potential every year since 2007 through 2016. these are not projections of potential gdp but the actual gdp the economy's output capacity, normally a fairly stable concept. back in 2007, the cbo estimated the u.s. output potential for 2016 to be over 12% higher than it actually is now. what happened? the aging of the population was predictable. not anticipated was the u.s. business investment would be down from a prerecession rates and that the rate in which americans participate this the labor force would be dropping so markedly. despite the low unemployment
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rate, the labor market's health has not been fully restored. indeed the labor rate working force of people of prime working age remains substantially lower than where it was prior to the recession. i believe the policy, including failure to act when other countries were improving their business climate is largely to blame. i would like to show you two graphs that represent the changes the u.s. firms face on the international playing field. the first chart shows how 34 countries changed their corporate tax rate since 2000. all these countries save chile, which had the lowest rate initially, reduced their corporate rates to make their economic -- economies, excuse me, more competitive, while the united states rate remained the same. the next chart shows how 27 countries eased product market regulations from 1998 to 2013 based on oecd index.
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all these countries, save chile, reduced their taxes and reduced their regulations this. paints quite a startling picture and explains why u.s. corporations have been moving offshore. other countries have purposefully improved their international competitiveness of their business sector while the united states has taken for granted competitiveness of its business. as a result, we now have an economy that does not fully engage its resources and entrepreneurial spirit. a jec hearing earlier this year revealed a dramatic decline of new business formations in this country from the last recession. from 2008 to 2014 more businesses actually closed than opened. the hearing earlier this month showed how detrimental the tax code can be to starting a new business in terms of provisions and complexity. as the challenges we face are more daunting as a result the national debt is a bigger problem with a slow growing economy. that is why we so urgently need
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both tax and regulatory reform. we must restore a more highly functions market economy that offers hope and opportunity to investors, entrepreneurs and workers and that removes the artificial constraints on a faster economic growth model. dr. hassette's expertise is well grounded in economic research and one of his areas of specialization is taxation, which is especially useful at this time. i can't think of a better witness to explain to us just how taxes and regulatory reform can lift the economy and living standards across our country. chairman hassette, we appreciate your appearance before the committee today, look forward to hearing your views, and i will now yield to our ranking member, senator peters, for his statement today. >> thank you chairman. first i want to thank chairman hassette for being with us at the committee today. looking forward to having a substantive discussion on the
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state of the economy and some prescriptions for the future. i also want to thank the careman for your presiding over this hearing and also want to wish you well in your future every devers. i was sorry to hear the news. we are certainly going to miss you here in congress. but we also know you are going to enjoy new challenges and most importantly have little bit more time to acquaint yourself with the family which is always a wonderful thing. >> thank you senator. >> mr. chairman, i also think this is is timely given push by the white house to enact on a tax legislation on an aggressive time line. before we get into specifics of tax policy i'd i can to take a step back and take a broader look at current state of our economy and economic outlook for the coming years as well as the coming decades. the administration has certainly not shied away from highlighting some positive economic statistics, unemployment remains low, and the stock market
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continues to climb. but i think we are all know there is more to an economy than just raw monthly job numbers or the daily dow jones average. for working michigan families we are still seeing persistent, frustrating stag nation on wages. americans are overwhelmingly still not seeing the growth in wages that normally accompany economic recoveries. not only do stagnant wage versus an immediate negative impact on the day to day lives of american families, it's also contributing to another troubling economic trend, and that's a growing retirement savings crisis. for too many americans simply don't have the resources for a secure retirement. and as americans are living longer with less secure assets for retirement like defined benefit plans i believe this will have a serious consequence for our entire economy. when it comes to middle class american families, the state of the economy is mixed. for policy makers, i believe there are other trends that we must address to ensure health and competitiveness for the
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american economy in the decades to come and see the type of growth necessary. first i believe it is of the utmost importance that will congress reject the idea that deferring or fom eliminating investment in basic science and rmp has no consequences. it does. it has significant negative consequences. a lack of commitment to funding research that will lead to the next generation of great american breakthroughs will have a devastating impact on our economy. i can promise you our competitors, including china, will not simply stand still and cede the competitive advantage in innovation. second, we must reverse an alarming trend of declining new business formation. new businesses are the driver of our economy and are responsible for most new job creation in the united states. alarmingly, we are not seeing the numbers of new businesses needed to increase the shared prosperity across the economic spectrum, and especially in the urban/rural divide.
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new business formations across presidential administrations in both parties has fallen by half since the late 1970s, and when new businesses are created they are increasedly concentrated in just a few metropolitan areas like los angeles and new york. and finally i believe perhaps the critical question policy makers must be asking about the future of the economy is how are we going to prepare our work force for an increasingly autonomous world driven by advances in artificial intelligence and machine learning? this is why we are facing together i think as a nation some stagnant wams, a massive retirement savings gap, a retreat from investment in innovation, decreasing business formation, except for a few major metropolitan areas and a fundamental shift towards you a nation that could affect the industrial revolution and economic impact. i think we must do this on a
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bipartisan basis. unfortunately, i'm concerned we are going to be spending the coming weeks and months debating how big a corporate tax cut to multicountry conglomerates should receive and benefit wealthy individuals while raising taxes for middle class americans. despite our differences i look forward to a serious conversation today and hope that we can find common ground on how to meaningfully support american workers and their families. thank you chair hahn hassette for being here today. >> thank you senator peters, thank you for your kind words as well. we are now turning to our distinguished guest, dr. kevin hassette, dr. hassette, welcome. i apologize. we have a house ways and means committee meeting going on upstairs. i will be departing before this meeting is over to join them. we are excited to have you.
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the senate also has a vote i think at 10:30. sorry for that interruption as well. let me introduce dr. hassette, the chairman of the economic council of economic advisors. he worked as a scholar with the american enterprise institute. he worked as adviser to gorge w. bush, mitt romney and mccain presidential campaigns. he was also a associate professor at columbia university. he earned his doctorate in economics from the university of pennsylvania. chairman hassette, it is an honor to have you today. you are nowed to your testimony. >> thank you chairman, what it is an honor, et cetera to be back in front of the committee with the word honorable before my name. i'm thank youful for my confirmation in the senate it's great to be back. i think the joint economic committee has a proud tradition of focusing on the problems facing america and the solutions
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we can agree to on a bipartisan base. it's in that spirit that i appear before you today. in the testimony that follows i'll provide an overview and discuss the status of a income of settingors i'll emphasize some areas that need attention as well as recommended policy changes that will improve our citizens economic well-being. if you we had the 46th employment act that created the economic group of advisors that's my mission. the economy is buoyed by heightened expectations right now and it's growing at a sopd and sustainable pace with low unemployment and low inflation. financial markets appear to recognize the likelihood of continued growth with low inface with the major stock indexes over substantially in the past year. that said, the trump administration is not satisfied with business as usual. nor with the pace of real output and income growth during the past several years.
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as a result, we have put forward a program designed to boost the rate of real gdp growth. i'm happy to report that the economy is doing well so far in 2017. real gpds growth during the first two quarters of the year averaged 2.1% at an annual rate, real consumer spending grew at 2.6%. slitly below the 2.9% of the two preceding years. a note acceleration from an essentially flat pace during the preceding two years. that's very important because after translating this pattern of investment into the flow of capital services, it's apparent that capital deepening, the flow of capital services per hour worked has made essentially no contribution to the growth of labor productivity in recent years. in contrast, to a post world war ii average of .8% an point per year if you look at the deepening over the last two years it became negative for the first theiss time since the
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second warld wore. i'll discuss in a moment this administration thinks tax policy could play a role if in reviving the investment in capital services and activity growth and real wages. investment grew -- a low and steady rate of core inflation is notable. core cbi inflation excluding food and energy prices is only 1.7% for the 12 months through september. looking back at the past few years it appears that real potential dpd gdp appears to be growing at 2% rate or less. real wage growth in america has stag nated. over the past eight years, the real median household income in the united states rose only.6% in a year. broke down in the late 1980s, before any of the recent policy had a chance to interrupt that.
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that deteriorating relationship between the wage and corporate profits reflects the current state more than anything else. countries around the world as the chart indicates have responded to the international outflow of capital by cutting their corporate tax rates to attract capital back. this administration together with congressional leadership is to propose reduction of the corporate tax rate from 35 to 20%. it falls partly but importantly on workers is driven by empeeric klg programs -- not to mention a number of follow-up stories. for example, the covariation between wage growth and statutory corporate tax rates between the most taxed and least taxed countries over recent years is indicative of this larger literature. of course simple time series correlations don't tell the whole story but there is a big
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literature that shows that high corporate tax countries have low wage growth, and low corporate wage companies have high wage growth. 13.9 percentage points lower than the ten highest cups. that's about the same scale as is currently under consideration here in the united states. the average wage growth is dramatically higher as would have been predicted by the academic literature. rate of productivity growth and real wage growth has been slow. it's time for all of us in the a bipartisan way to turn our attention for building a plan for boosting the wait -- -- way look forward to working with you, the members of this committee, to help reach those goals of i'll be happy now to
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respond to any questions. >> thank you dr. hassette of the as i mentioned in my testimony and showed in that graph, over the past decade, the cbo has continually downgraded its estimate what have the economy is capable of producing. our output potential. is it possible, in your opinion, that the obama-era policies of higher taxes and heavier regulation actually constrained our economic potential? and how can we change that? >> i think on the regulation it is certainly possible. i think your chart captured in recent years which is that it's not our actions on tax policy that necessarily harmed up, it's our inaction. what happened is the rest of the world cut their corporate taxes and that made their countries more attractive than our countries and we saw the companies move overseas in response. to think about how big this
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effect is, there is a national research paper that came out in the spring that looked at u.s. multinationals that transferred prices to profits abroad but by buying too much of the products they buy from the plant. 50% of our deficit right now is coming about from our transfer price. we are moving that much activity offshore, so much activity that 52% of our trade deficit is to blame for it. of course that means lower rates of employment and lower wages as well. >> you have spoken on the challenges of a economic recovery, a topic that we have explored in this committee, a topic that senator peters mentioned as well. indeed, a wide array of research makes clear that this recovery has been the most geographically concentrated on record, leaving far too many communities like in
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ohio and michigan for example, behind unts kmoo and people who live in those communities behind. as you know i have introduced legislation to provide a new market-driven way of getting private capital of a the cital sidelines and into your communities to fosser new business and create jobs called the investing in opportunity act which has garnered brad bipartisan support and by camerale support as well as senator tim scott is the lead sponsor in the senate. two questions for you. first, can you briefly describe if dimensions and consequences of this trend that's occurring within our economy of increasingly concentrated job growth in places like los angeles and new york? and secondly, can you speak to the administration's commitment to ensuring tax reform ensures the challenge head on of incorporating ideas like the
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investing in opportunity act? >> thank you chairman tee bury. the geographic inequality has been a folk of my work for years. i mentioned in my confirmation hearing that i grew up in a town where the greenfield tap and dye the main factory if town closed. and across in turner falls there was a paper mill. that closed too. my dad and i -- when i go home, we walk next to the abandoned factories. they are along the connecticut river. it is a beautiful walk but the factories are so fallen apart that the video game fallout used it as a location for video shooting for post apocalyptic america. this is something that i care desperately about. that's why my academic career focused a lot on geographic economic inequality, especially places where the plants closed and the jobs haven't come back.
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i think that tax reform in general will definitely encourage a lot of plant location back into the u.s. right now if you locate in ireland you are paying almost no tax. in the u.s. you are paying the highest tax in the developed world. we also you should pay close attention to where those plants are going to go. if they were located in places that have low unemployment rates right now they won't necessarily be helping the distressed communities. the administration doesn't have a position yet. it's not something i discussed with the president. but i can tell you that geographic inequality is something that everybody is paying close attention to. >> senator peters, you are recognized for five minutes. >> thank you mr. chairman. mr. hassette, you have certainly been engaged in a pretty high-profile debate of sorts over the impact of the administration's tax proposal, and what will it have on the wages for working americans. i think there is certainly an
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awful lot of -- a lot to dive into regarding that argument. but to be brief i'm somewhat skeptical of the numbers that you have put out and i think i'm in good company in that a majority of economists are skeptical of the numbers we have heard from the administration. i believe that many working families back home in michigan are also very skeptical about that. for them, i don't think many michiganers are holding their breath to see if their boss's boss's boss tax cut trickles down to them in increased growth or wage increase. instead they want to know how the tax proposal is going to impact them, their pocketbook. they certainly have to worry about everyday challenges like every family, buying a car, paying for day care, and providing for a secure retirement. i think we need the administration to be a little bit more direct as to the consequences of the tax plan that is before us. specifically as it is tailored
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to individuals, so folks know exactly what this means for them. certainly, some estimates that i have seen have shown that some middle class families could see an $800 increase in this tax plan because it is focused primarily at the folks at the very top of the income scale and large corporations and they will actually be paying for it in the form of higher taxes. so i think we need to make sure the american public and families know what that is. and given the fact that the median income for families in michigan is a little over $52,000, an $800 tax increase is a big deal for those families and we need to have full disclosure in this plan going forward. i understand you may find some disagreement with some of these estimates that are being put out by various economists and other kinds of think tanks. but could you give this committee today an estimate of the tax savings that a working family will get as a result of the tax plan that has been proposed? >> yes, thank you senator.
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you know, i know the first part of your question goes to the tax savings discussion. >> sorry to interrupt. could you move a little closer to the mike. >> yes. >> thank you. >> you he no. let's talk about what we agree with. in in the cea report we just put out we found there has been a disconnect between the welfare of corporations and the welfare of workers. that corporate profits are soaring but wages are not. that's very unusual in u.s. history. i think we agree that that disconnect has happened. i think we also agree that we are the highest corporate tax place in the developed world. that's simple fact. and so then the other thing that i think we agree about, because it's a fact, is that the capital deepening contribution to productivity growth in the u.s. has gone to the lowest level it has been since world war ii. and so i think it behooves all 6 us it's our some better responsibility the think about what is driving these factors.
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inthat the best explanation for those patterns in the data is that the corporate rates around the world have gone down a lot. they have encouraged u.s. multinationals to locate plans there instead of here and that's why we see everything that we do. i know that if labor demand goes up in the that wage also go up. there is a dispute about how much, i don't think there is anyone who thinks it's zrochlter as for the estimate for the tax effects as you know the administration is committed to a process that hopefully would be bipartisan, the committees are working out where the brackets go and the president even mentioned we are open to a higher top rate if that's what it takes to get broad support for the tax plan. i think the process is designed optimally to create bipartisan agreement with tax reform. it's certainly everyone's hope that we head there. so if i were to say well this family is going to get this tax cut then i would step in front of that process because where
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the brarkts go is being negotiated in the ways and means committee upstairs and in the finance committee right at this moment. >> you are the prince pal adviser to the administration as to where this policy should be and how it's going to impact growth. i want to pursue that just a little bit. but before i say that, we do agree on the disconnect between corporate profits and wage levels for most workers in those companies. in fact, corporate profits are at an all-time high. so it's not that corporations are hurting right now. but we have seen certain individuals have benefitted. certainly first and foremost we know ceos at those corporations have done well, ceo pay has grown 90% faster than the typical worker. the folks at the top are reaping all of the rewards of that growth. it is not impacting everyday americans. and we have a tax code now or a tax proposal that is going to say those folks who are reaping all those benefits they need to
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pay less taxes. i think the average worker doesn't think that's the case. they think they need that relief. when we are talking about individual members of a particular family i want to know -- and president trump has said that middle class families will not see a tax increase, is that the position of theed a straying? >> yes. >> and will you use that influence that you have with the president and president stand by those comments to the ways and means committee here that say middle income taxpayers, all middle income taxpayers will not see a tax tax increase. >> the president is adamant on that point. it's the one thing that's not negotiatible, there is not going to be a middle class tax hike in this tax bill. i know we are running late. right now u.s. multinational profits are as you said at an all-time high. and executive compensation is skyrocketing. the last i checked, i could follow up on this, the executive compensation in the u.s. was higher than dividends. go figure.
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and -- but what the disconnect from wage is not because there has been a fundamental change in market power here in the u.s. the disconnect in wages occurs because the profits aren't in the u.s. the profits are over there. right now we have the highest tax on earth but those companies aren't paying it because they are locating the revenue in ireland. and so if we make our country more attractive for location of plants, then it's not that we are giving a big tax cut to companies that are not paying. it's just that they are not paying the tax because they are locating activity over there, and the profits that are sky high in the u.s. are driving up wages in places like ireland. >> if i may, just briefly, because i want to make sure i'm clear about taxes for middle income families because some of the numbers that i have seen, particularly with the elimination for example, of the state and local deductions for state and local taxes, there have been a number of studies that show that with that deduction elimination a lot of middle class families are going
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to see an increase. 12 or 26% of families in michigan claim that state and local deduck. it's all over the country. some studies have said the average increase for folks could be up to $1800 a year because of the loss of that deduction. i think you know you will see a number of those figures. given what you have said i hope you will understand when those of us are pushing back on a proposal that may be put before us that's going raise that we are going to say we can't support that. and i hope we will be in line with the president that we can't support increases to middle income families. >> that's understandable. when the complete plan is available i look forward to working through those numbers with you and your staff into right. thank you. >> dr. hassette, we are grateful to have you here. congratulations on your confirmation. i look forward to working closely with you in your new role over at cea. we are in the middle of a significant debate, a debate that's been made clear even so
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far this morning in our discussion. i want to pick up on something senator peters was discussing as i think it's an important point having to do with our corporate tax rate. at 35%, we have the highest corporate tax rate in the developed world. and there are problems with that, problems that i think are acknowledged by most republicans and most democrats. but sometimes i don't think we look into it quite enough. sometimes we tend to look at the corporate tax as being something that is paid, a burden that is borne solely by wealthy corporate fat cats, the likes of whom could be depicted with a monopoly game piece or sort of like mr. peanut with a monocle and a double breasted sooutd. but when you take a really close look at who exactly pays corporate taxes the picture is a little bit different. taxes effectively, both capital and labor, both the investors dividends and the wages of the
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workers -- economist disagree a litton how this breaks down but it's commonly understood that lost worker wages make up between one quarter and one half of corporate tax revenue. some actually put the figure higher than that. so perhaps a quarter to a half, maybe more, borne by workers. on top of that, you have got everything that people buy, every good, every service in the economy is made more expensive by a tax like that. and there is also diminished wages, unemployment, and underemployment that can sometimes stem from that. so in the end, i tend to view this 35% corporate tax as having some very nasty regressive effects, meaning that its least desirable qualities include if fact that it is borne disproportionately by america's poor and middle class. this is why in january i penned an op ed in the federalist that
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proposed eliminating the corporate tax alltogether and shifting that particular tax burden onto investors instead of workers by taxing capital gains and dividends at ordinary income rates instead of having the corporate tax. under this type of strategy, workers would be liberated from their share the corporate tax burden and america would, without a doubt, become the most popular place in the world to do business. so dr. hassette i'd love to get your comments here. any thoughts you might have on that idea. >> thank you vice chairman lee. i think that, again, wage growth is low, profit growth is high. the profits are over there. we've got the highest rate. and we see that countries around the world that are run by governments that, you know, that don't have the commitment to the american system that every member of both parties here in congress has cutting their corporate rates.
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president macron ran in frns on reducing the corporate rate to 25% and the french rate was already below ours before that election began. citia they have lower corporate tax than us. this is not about right wing companies throwing money at rich corporations. it's about economically will it ral rat governments understanding if we want wages to be higher we have to give companies capital to work with. if you look at the u.s. right now, the contribution to capital growth from product deepens is as low as it has been since the second world war and it is deepening and it's something everybody needs the work together to solve. >> this idea of zeroing out the corporate tax all together and replacing it with a tax on dividends and capital gains with
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the tax that we put on income what do you think of that solely? >> i am talking about the proposals from the administration. your idea is analogous to what a lot of other countries have done. a few countries eliminated it altogether but many ingrated the corporate tax with the dividend and the capital gains tax so they are basically charging tax once at one level. but in a progressive manner. if you flow it at the individual side then if there is a retiree getting a dividend and using it to pay their utility bill you don't want to tax that difficult den. but if there is a rich person with a difficult den you do. for me i'm focused on the current proposal. >> i keep two stacks of documents in my office here in washington. one stack is a few inches tall. it is a few thousand pages long.
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i think last year it was 3,000 pages long. the laws passed by congress last year. the other stack is 12 feet tall. last year it is 96,000 pages long. it's last year's federal reglations, the cumulative index of federal regulations as they are released and later finalized. those regulations end upst coulding the american economy about $2 trillion a year, this is up from just $300 billion a year 20 years ago when i first started tracking this problem. it's increased roughly sevenfold. it's the product really of congressional delegation of power, congress not wanting to make law itself and stand accountable for the difficult line drawing decisions that go along with setting public policy and having someone else do it. yet it's costing the economy $2 trillion a year, and i believe those effects are borne disproportionately by america's poor and middle class. in your opinion, during an idea
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like the regulatory bumming idea i proposed or the r.e.i.n.s. act which would require kong approval of major regulations would have a desirable impact on gdp and benefits for america's poor and middle class? >> thank you senator. in terms of the specific proposals i would have to touch base with my colleagues a the white house. it's not something i have discussed with them. i don't wish to signal an official white house opinion i am not informed of, but the.topics are incredibly important to the white house. i think one reason the sentiment in the u.s. is so much higher is there has been a lot of palpable deregulation so far this year, and almost a halt of costly new regulations. one of the things that we at cea have been studying is the impact on firms of new regulations. it is striking because all of a sudden when you run a business and the u.s. government passes
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new regulation, you have to hire lawyers, decide whether you have got to put new things into your plan of the it is a urgent problem. regulations are incredibly costly. one think tank estimates because we slowed new regulations we saved more than 6 million man-hours of dealing with new regulations this year. we are also mindful how important many regulations are, like clean air and clean water and so on. we are not talking about wiping away all regulations but exposing the ones that exist and the ones we might think of to really think about cost benefit analysis? i see my time has expired. mr. delaney. >> thank you dr. hassette, and
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congratulations on your new job. it's great to have you in the seat. staying on the corporate tax question for a moment, it seems to me across the last decade or two a very large percentage of businesses, particularly large businesses, have moved from an incorporated stat to us a pass-through status largely because of how the private equity industry has grown and in every kind of private equity-backed transaction those companies move to an llc stat wrus they don't pay any corporate tax, many of them pay little tax because they are leveraged and they can deduct the interests. there is no data i've seen where the wage versus groan faster in those types of corporations than others in this country. does that to some extent mitigate the a thargt the corporate tax rate is the reason that wages haven't grown in this country? because in fact a growing and large percentage the businesses
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in this country don't pay tax because of what i just discuss. and their wages have not grown any faster based on any analysis that have been done than wages in c corporations which actually pay this tax. thank you for the question mr. delaney. it is an interesting one. eem not sure if there is a literature on that question yet. if there is i'll find and it send you a noted about it. it is a great question. i have to speculate that that fact is there. which i won't dispute or concede because i have to study the numbers more. don't forget that the u.s. labor market is a place where firms show up and compete for workers ideally, so that the wage is set by total labor demand in the country. if we have a big chunk of the firms in the country that are locating the jobs overseas then that reduces overall demand. >> right. >> in the end, if hassette incorporated and come stock incorporated is competing for delaney then we have to pay you
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about the same rage. >> the average corporate rate is 23 or 24%; is that right? >> if you mean the taxes divided by total revenues. >> yes. >> the average rate. i think the last i checked for multinationals it was a good deal lower than that? goss it. is that more consistent with our competitors as oppose today's our stated rate, which is the highest? >> if the revenue is low with our high tax rate because people locate activity offshore then it doesn't mean that we have got a low tax rate. >> you are just deferring it? right. >> i loved how you talked about focusing on things we can agree on. we need to do mo of that here. we tend to focus on things we don't agree on. two things where i think there is broad agreement on, i think you have opinions on these top i go. the first is tying in infrastructure with tax reform. which i worked on extensively, around international tax reform. it seems to me a missed opportunity not to do infrastructure as part of tax
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reform. because we need to fay for infrastructure and everyone agrees we need more infrastructure. the second is a carbon tax, which would obviously generate an enormous a. revenues which could be used for broad based tax reduction, individuals, c corporations, whatever the case, under the category we would rather tax pollution as opposed to income and profits. can you comment on wisdom of having infrastructure as part of tax reform, and perhaps a carbon tax as part of tax reform? >> sure. the first, you know i'm an economist and the times that i looked back on presidential campaigns and tended to advise people they tended to lose. i don't give political advice. >> more as a point of view of tax policy. >> infrastructure is important, tax reform is rn po. whether they go together is something you are the experts.
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and the second is carbon. >> a carbon tax. >> i have written a lot about that. my job as cea chair is to provide abttive analysis of proposals, i'm sure if someone proposed that, i would beity soog some of my work. >> what is your opinion on a carbon tax whether a carbon tax whose revenues would be dividended back to the american people either directly or through tax cuts how would that affect economic growth, putting aside the most important benefit, which is to reduce greenhouse gases. how would you relate it? >> speaking not on administration policy but as an chest that does literature. there is an economist at the university of maermd, rob williams, who has done a careful modelling job of looking at carbon taxes and how they affect the overall economy. depending which tax rates you reduce when you pair with it a carbon tax you can get either big negative effects on the
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economy or not so big small positive effects. >> you can get positive or negatives given the devil or god is in the details. >> give his analysis. that's correct. >> thank you. >> i recognize myself for five minutes. and thank you mr. hassette, good to be with you, chairman, and welcome you here to this committee and to your new position here. >> i wanted to follow up a little bit on sort of on the growth rates. and as we look at growth in what we're doing in taxes and how that relates to our international competition and the potential for growth in the economies, say when you look at india and the growing middle class there and the potential we have to benefit from that, whether it's trade or other -- but also in growing competition
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that we are going to have. what are the best policies, you think, in terms of getting our growth rate up? because when you go to other countries, and hear they are having eight percent or nine percent, when i look at a lot of the potential i'm in virginia with a lot of technology sector in my district, and i often hear from them about they are just sort of waiting whether they can invest here or invest somewhere else. should i go to india? should i go to some other country or should i invest here? what policies can we put in place that will sort of unleash it to both grow here and then interact with the growing economy around the world? >> i think there are three components to economic growth. to grow output you need to grow inputs. you can grow labor input because you have more workers or because the workers are talent. you can grow more capital because we are attractive place
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for capital. or both can get better because of technological change. when you look around the world and see countries growing at nine or 15 or 20%. very often that happens because they are starting out at a place where they are not at the technological frontier so they can copy and skyrocket and growth. the problem for us like being really the class of the world in terms of technological frontier or very close to it is that the sort of innovation part of growth is lot harder because we can't copy what somebody else is doing. we have to innovate and discover something that nobody ever knew existed. but also there are things we can correct with policy and we can affect labor supply and capital supply. and i think that the tax reform that has been negotiated with the white house and congress is designed optimally to help both on the individual side by reducing marginal tax rates, it
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will encourage higher labor supply. and on the corporate side by making the u.s. a place where plants want to locate again we should increase capital formation as well. >> are there ways with work force development, i know that's an issue we will be dealing with also, subsequent to tax reform. how can we best up vest in our workers and grow, because with the information economy w this expanding economy middle class around the world, our workers, if we are going to continue to lead, need to be the most talented and we need to continually invest. we always talk about life long education. what policies can we then put in place to develop and constantly upgrade our employees so that their wages are growing, you know, substantially and we don't have the stag nation that we have now. >> well, sure. one key factor is human capital formation and educating our workers and helping them keep up with the rapid technological changes in society. and you know, there are a number
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of initiatives that are being studied and enacted now by secretary devos and the rest of the team on the education team to help workers keep up. i think that one of the things looking back at our policy failures collectively as a nation over the last few years we have not necessarily done a good job of that. if you look at the people who received training because they lost their job because of trade, that training doesn't look like it has been that help of. it's something we need the study carefully and improve upon. >> maybe in terms of having to look at all these training programs that we have across numerous agencies, kind of consolidating them,lily having them directed towards the work shortages. in virginia we have lots of cyber jobs open. and you can -- we have programs -- i'll give a plug for capital one, has done some great outreach with communities where kids aren't necessarily going to college but they will get them in, and they have gone out and
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recruited kids in lower income areas but with real potential, bring them in for a six month to year program. and they are having huge success getting them into the cyber pipeline. then if they want to go to business school, go back to college they now have a job where they will also get tuition assistance and things like that. how -- maybe as we are looking at these training programs but also maybe tax policy, how we can encourage companies to invest in their workers like that and match the education efforts to the jobs that are open and that we are deficient in filling. >> that's certainly an important objective. >> okay. great. thank you. thank you. i will now yield to my colleague, mrs. maloney for five minutes. >> thank you. thank you. and congratulations on your appointment. >> thank you congresswoman. >> it's wonderful to have you here today. now in the words of a famous and
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immortal new yorker, yogi berra, this hearing and topic sounds a great deal like deja vu. this country has heard again and again about how huge tax cuts of the most fortunate will pay for themselves and that the benefits will somehow trickle down to benefit working families. and again, again that has not been the case. just last april, this committee had a hearing where we debated the virtues of trickle down economics and featured the inventer of the laugher curve, arthur laugher and jared bernstein who was the chief economist to former vice president joe biden. mr. laugher made a number of the same claims being made here today about the benefits of giant tax cuts. and after the hearing, he
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published a number of articles that pointed out that that is not what happened. and i'd like -- it's not likely to happen again, i would say, based on the past performance. so without objection now, according to your prepared testimony, you estimate that the administration's proposed tax cut to the corporate tax rate would increase the level of average household income in the united states by at least 4,000 annually after the effects have taken place. that's on page four of your testimony. >> correct. >> i must say that sounds absolutely wonderful, but it sounds a little bit to me like you can lose all this weight and you don't have to exercise or go on a diet. past performance doesn't show that.
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the "new york times" pointed out that a 2012 treasury department study found that less than a fifth of the corporate tax falls on workers. so it's not this trickle down to them. a congressional recertainly report last month concluded that the effects of corporate taxes fell largely on high income americans, not average workers. so i'd like to without objection to place into the record these two reports also. without objection? >> without objection. >> thank you. >> now, you may have seen the report that they did on your numbers. they also took a look at the underlying math and found there were roughly 125 million households in the u.s. last year and an average increase of 4,000 of each of these households would equal more than 503 billion annually. but according to the u.s. treasury the total amount that u.s. collected in corporate taxes in fiscal year 2017 was
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just 297 billion. so even if you somehow transferred all the money previously collected in corporate taxes directly to american households, you'd still be about 200 billion short. and that doesn't add up to me. so to support the administration's proposal, you further testified today and you give the example in your testimony that between 2012 and 2016, the ten lowest corporate tax countries of the o.e.c.d. had a corporate tax rate 13.9 percentage points lower than the ten highest corporate tax countries, about the same scale
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as the reduction currently under consideration in the united states. but you don't list those countries. i assume they must include low tax countries like switzerland and latvia. i'd like you for the record to submit who these countries are. i looked at latvia and it's a great country. they have emerged in a noble fashion from communism and soviet oppression. but last year the gdp of latvia is 27.68 billion and that is not quite as good at vermont. vermont came in at number 50 in gdp among our states. so are you seriously suggesting that the u.s., a country with huge, complex, dynamic economy and a gdp last year of over $18 trillion can and should model its tax policy after that of an eastern european country still emerging from the yoke of
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communism. if i can use latvia as a model, then we should also use the tragic example of kansas as a cautionary tale, a tale about the economic chaos that happened if your brand of trickle down economics is put into place. kansas is not a pretty picture. so your comment really on the 10 compared to the ten highest -- to me, it doesn't make a normal or accurate comparison and the numbers that were really refuted by on the 4,000 benefit. one of the items that senator peters mentioned is the concern that many of us have that outside organizations and
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analysis are saying that 80% of the tax cut goes to the most fortunate, which is not the stated claim or purpose or goal of the administration. but in its current form, numbers don't lie. the numbers are coming in in a way that does not benefit the working man and woman in our country. >> thank you very much. it's always a pleasure to appear before you. >> always a pleasure to see you. congratulations. >> i'll respond directly. the point about latvia, there is a large literature that looks at corporate tax change and how wages respond. there's variation over time within countries. there's variation across countries. >> excuse me a second. but when you make a presentation, if you could give
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us the ten countries that you're looking at. >> i will follow up and send them. i can't think of them off the top of my head, in part because it changes each year. because people are cutting their taxes. this evidence has been found in people looking across u.s. states there's a paper that states what happens when states change their corporate taxes, what happens and germany and canada. the chart was meant to summarize what is basically a result that appears over and over in the literature. i think it serves that purpose. i think the point which has been emphasized also publicly by a few economists is really something of a classic economic blunder. the fact is that if right now we have a corporate tax system that encourages firms to locate their activity in ireland in order to avoid u.s. tax and they do that by creating jobs in ireland instead of here, then we're
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barely getting any revenue at all from the corporate tax here. so to look at the change in revenue and wages, to say that's a meaningful ratio is something that's been disproven by careful analysis. so the numbers are just not correct. thank you. >> well, if you'd send me the reports that you mentioned and i will send you the treasury department report and the congressional research service. >> i'd read both of those. >> -- that refute that. as we go forward in this debate, it's important that we get our numbers straight. and i would like to see the
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numbers that you projected with the foreign countries. and this is important. i'd like to see the money brought back to america and invested in our economy and infrastructure. i agree with you on that. and this is a work in progress. we do need to simplify our tax code but we certainly need to do it in a way that is fair to working men and women. and i do not believe that the current form that's before us -- of course it's going to be debated and changed as we go forward, as you pointed out. thank you so much for your service. i guess i yield to senator lee, right? >> thank you very much. and thank you so much for being here. i would share the representative's concern about the current proposal. but i wanted to start off with something you've done some work in rural economic area. i'm still seeing a lot of challenges. i was just up on the canadian border with representative
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peterson. we talked about the current estate tax proposal and how it only helps i think two people in his district. last year we saw large layoffs in the iron range due to steel dumping. people are just now getting back to work. we have a shortage of work force housing. we have thought going on in a lot of our rural areas. we have housing issues because we have some successful companies and we have job openings but not enough trained workers. what policies or programs do you think we should implement to help? >> thank you, senator. thank you for your support. i'm very grateful for that and humbled by it. i think that the geographic inequality around our country right now is very palpable in many different ways. there are places that are booming. at the state level, colorado has
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about half an unemployed worker per job listing. if you survey firms, the biggest problem they have is they can't find the workers for the job openings they have. and as you know, there are parts of every state that exactly the opposite circumstance where the unemployment rate is north of 10% and doesn't seem to be bunl -- budging even if the economy is doing great. i'm hopeful that the current tax fortunately that's currently being considered would do quite a bit to help that. with a tight labor market, if you're a firm and you want to locate here instead of ireland, then you want to locate to a place with a lot of workers. i think that big picture effect is probably the biggest thing that we can do. earlier we talked about a proposal which the white house
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has no current position on about how to address geographic inequality more specifically with a bipartisan proposal that mr. teaberry is a cochair of. >> you mentioned the tax, other countries locating overseas. certainly one of the biggest goals we have here is to have jobs in america. i was just talking before i came over here with some tax experts about the difference between someone who would like to bring the money back from overseas, the global tax idea where you have the average countries versus the previous administration had proposed a territorial tax idea where you would have a minimum tax per country as opposed to having this average. and what would the average do? could you talk about the difference between those two proposals?
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i'm not talking about the specific rates. i'm talking about the mechanics of how they would work. >> i know this issue is currently being studied carefully by the committees. i think everybody involve who had's studied it thinks we should move towards a territorial system. the sort of frustrating part for people who do taxes, there isn't really just a territorial system and a world wide system, but there's degrees of territoriality and world wide. i look forward to seeing what the committee has come up specifically on this issue. i think it's a very important one for understanding the international implications of the corporate tax. but i think we have to let the committees decide. >> last question i have is on the economic opportunities that we could have with immigration reform. governor norquist came in and gave his full throated support
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for immigration reform with the basis we could bring down the dead and also that we could actually bring in more talent and create more jobs. and i think the 2013 figure back then would reduce the deficit by 158 billion over ten years. 25% of our u.s. nobel laureates were born in other countries. could you tell me where you are on this? >> sure. i think that as an economist we talked earlier in the hearing about if you want more output, you need more input. one of the inputs is labor. in any economy, immigration is an important source of labor. and also we have borders and they need to be protected.
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i'm not an expert on border security. >> we had a bill like this out of the senate that did both things. we had significant funding for the border but also allowed this kind of legal immigration i'm talking about. >> i'd be happy to discuss that with you. >> time is of the essence here. we've been waiting a decade. >> i'm thankful my irish can ses -- ancestors came here and i'm pretty sure it wasn't because they had computer degrees. >> same with mine. mine was a chef. >> mr. chairman, reports out of the recent fourth round of the nafta renegotiations have not been positive, particularly regarding the interactions in auto and mexico city. the successful conclusion of the negotiation was going going to
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be difficult. now we seem to be further away from that goal than ever before. would the economy be better off if the u.s. pull out of nafta rather than the status quo? >> thank you for the question. you know, i am not involved in the negotiations and i think that the president's position on trade is that our trade deals can be made better. i think that as an economist i could say that if an economist wrote a free trade deal, it would be one sentence that says we've got free trade. if you look at the free trade deals, they've got thousands and thousands of pages. i don't think one could dispute that we could make those better. >> i'm glad to hear. implicit in your remarks is that
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you're very much a free trader. >> i'm an economist. >> yeah. i put those together. you've written in the past about the stock market. based on public statements by senior administration, our treasury secretary described it as market to market basis. stock prices go up and down. what are the risks in your view of guiding policy based on the whims of the equity markets? >> i don't think there's anyone that i know of in the white house who's guiding policy based on what happened yesterday in the stock market. i think our economic proposals are based on sound economic reasoning and objective analysis. i think you're right that the market has gone up and down. and the market has gone up a lot lately. and i think probably there are a couple of reasons why.
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the most important would be there's anticipated tax reform. if the corporate statutory rate were to drop as significantly as proposed, that would certainly have a positive impact on the market. so exactly how big that effect is and what the probability is that the markets factored into the tax reform is unclear to me. there's not really a good estimate of that. but i think one could be quite confident if the tax reform were to fail, that would be a big negative for the market. >> several fed presidents have recently noted that cutting tax at this point in the business cycle would be highly pro cyclical. robert kaplan said my concern is you would create a bump in gdp that would be short-term. when you decline back down, you'd be more leveraged than when you started. san francisco fed president john williams said, a less targeted to rise productivity and underlying potential, a tax cut
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could feed unsustainable growth by asset price bubbles, inflation and possible recession. why is now the time for added stimulus? i know you've been concerned in the past about inflation risks and fiscal risks in the past. were those concerns unfounded in the past? why are we being so procyclical right now? >> i would share those concerns if the tax proposal was a demand stimulus. but the tax proposal is to stimulate supply. there's higher labor productivity. you're making the workers that are already employed more productive because they have better machines to work with. that doesn't create an inflation spiral at all. rather, the increase in capital supply puts downward pressure or at the margin given the positive gdp growth given that you're increasing supply. >> corporate profits are at an all-time high right now.
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there's more capital sitting on the sidelines than there's ever been. why do we think that changing the corporate tax structure is going to put more money to work? >> it's on the sidelines. it's on the sidelines kind of across the ocean. the fact is that corporate money isn't turning into factories here in the u.s. because we have the highest corporate tax on earth. it's not rocket science. if we were to reduce the corporate tax rate, companies would come back because the u.s. would again be an attractive location. >> wouldn't we be better off finding a way to get it much lower, 20-25, whatever the target rate is, by eliminating the preferences and the exceptions that allow 25% to pay nothing? >> they paid nothing mostly because they've located the
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money in ireland or some other country offshore and it avoids the u.s. tax. that's precisely the offshoring model we're trying to settle with this proposal. >> mr. chairman, thank you. i yield back. >> thank you. mr. hassett i wanted to ask you what you believe the brights spots are in our economy. we talk with you regularly about some of the things that scare us and worry us. but i'm curious to know as an economist not only what you think are the bright spots but also what has surprised you about our economy over the last few years. >> i think there are a number of bright spots and we're really starting to see it in the data with gdp going up north of 3%, we'll get another release. it will probably be hurricane affected by a little bit below 2%. the expectation at the caa is we're currently looking at a
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second half of the year that on average would be north of 3% growth. i think that going from the sort of new normal of 1.9 to 3%, that that bright spot, which is a nice headline for america's workers, is mostly attributable to a surge. it's incumbent on us to see that bright spot and make sure it stays bright by delivering on the policies that we promised. i think that firms are optimistic because they expect we're going to succeed. >> thank you. that's good insight. as you're aware, some of the tax reform proposals that we've been looking at have included a discussion of separate rate for pass-through entities. the idea is that there would be separate rules to go along with the separate pass-through rate
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that would be there to thwart opportunistic manipulative tax avoidance. what would those rules look like and how would this work? >> we absolutely believe that the corporate rate reduction to 20% requires some kind of commensurate rate reduction for pass-through businesses but also recognize that the guardrails around that 25% rate need to be very good because otherwise -- i guess lebron james is going to be getting to 25% because he's a small business. i'm not a lawyer. i hear the lawyers talk about the guardrail things and i know there's a lot of optimism this can be constructed in a prudent way. i have to wait and see what the final outcome is. >> thank you. i think this morning we did hear a lot of the same critiques that we've heard in the past from 1980s, you know all the disparaging remarks that you
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heard today. but we're really in a different economy now, this information economy and the international economy that we have. as you pointed out numerous times, people can leave and go to ireland and find a talent pool there that allows them microsoft or a lot of our tech companies to go there, that's what we're competing with. what kind of new thinking maybe gets past some of the same partisan language that has kind of been renewed. i thought we had all sort of agreed our corporate rate was too high. now we're kind of seeing that reversion on the partisan front to same old tired critiques. what kind of new thinking can we do with this new economy so that
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we can get past some of those partisan divides. kind of following up on the bright spots,. but also that we can't really thrive and have 3-4% growth if we stick with those old models. >> i think there's so much that the members of this committee agree about, the fact that there's a disconnect between profits and wages, the fact that we've got the highest statutory rate on earth but there's a whole bunch of companies that don't pay it, the fact that wage growth has been completely unacceptable and it's really the responsibility of the members of congress to find out why those patterns exist in the data and to come up with something we're going to do about it.
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i understand that partisanship is part of what we do here in washington. it's inevitable. but i've not seen an alternative theory to this set of facts that is in any way moving for me. i hope that the responsibility that we all have for america's workers can help us work together on this bipartisan tax reform. i think it's designed to be the same kind of process we had in 86 where a big tax reform passed that was a big positive for the economy. i'm still hopeful that can be achieved. why have wages been growing so slowly? what's your story for that? i don't think there's a good alternative. >> and larry lindsay had an article where he was talking about the difference between the 3.1 or 3.2% growth and the 2.1 we've had from 2011 to 2016, that average of 2.1.
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what is the difference between a 2.1 and a 3.1 to the economy and long-term things like social security and our entitlements. >> sure. these are going to be slightly incorrect but they're useful rules of thumb and they're round numbers. if we get an extra percent of gdp growth, that's about a million jobs, a thousands dollars per household. it's a lot of money, it's a lot of jobs. >> as we were talking earlier if we also had that skill upgrades, you're really talking about wage growth of a lot more than a thousand. if you go from being somebody who maybe loses your coal job, although those are very high income, but if you move into some of these technology jobs,
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engineering, construction, a lot of these things also have very high pay. we need to be supporting through the tax structures, through the business process, supporting that relocation and that reassignment of jobs and labor too. you'd be talking about a lot more than a thousand dollars increase when you get them into that higher information economy, right? >> you're exactly right. it's something we've talked about a lot in the white house. the president even tweeted about people needing to move if they're having a hard time finding a job to the labor markets that are hot. >> great. thank you. >> thank you. >> we thank you for coming. >> thank you for having me.
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>> we thank you for coming. thank you for your insight today has been very helpful. we're grateful also for the service you provide for the country, the administration. should member said wish to submit questions for the record, the hearing, record remain open for five business days and with that we'll be adjourned. >> thank you.
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we're back live to capitol
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hill now for the first of three hearings this week on russian interference in the 2016 election. specifically, social media's role in that. the subcommittee, the crime and terrorism subcommittee of senate judiciary will hear from three consecutives from facebook, theith twitter and the law enforcement information security director at google. among the things they're expected to tell the committee today that 126 million americans during the election season saw ads on facebook reportedly from russian entities. this meeting should get underway in about ten minutes. live coverage here on cspan 3.
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the judiciary crime and subcommittee here meeting this afternoon, 2:30 eastern to review russia's influence on the 2016 election and to hear from officials from facebook, google, and from twitter. outside our cameras are -- have been watching people come into the room. a look from the perspective outside of the office building where the hearing is being held in room 216, the site of many big hearings in terms of the size of the crowd, the visitors in the gallery and also the reporters gathered. the hearing the first of three we mentioned this week that the social media executives will be participating in. tomorrow, the same executives back on capitol hill before the senate intelligence and the house intelligence committees. live coverage on the cspan networks.
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