tv Key Capitol Hill Hearings CSPAN May 5, 2016 1:00pm-3:01pm EDT
relative to its original policy objectives, suggests that the origins and reasons for the beps movement goats much deep me initiative itself. is not the first rodeo in terms of addressing concerns more broadly. relevant examples include as far back as 1998, the on harmful tax competition. in 2004 we solve the establishment in oecd of the tax planning hearing group with established and shared concerns about aggressive tax planning technique that started out with the participation of seven countries and is now 46 countries strong with an inventory of over 400 aggressive tax planning techniques. there was also the work begun in 2005 on is this restructurings,
evaluating indications of global restructuring and the extent of taxation. in 2010 and 2011, we saw the report on task risks regarding tax losses, and you saw reports in 2011 about the need for transparency disclosure and a 2012 report on hybrid mismatches dubbed theon 2 was us. this never resulted in the political call to action we are seeing now being played out in a number of jurisdictions. nor did the prior initiatives received a fraction of the attention that has been the hallmark of the bep initiative. whoy most tax professionals
might be able to cite letter and verse of the action plan never noticed or worried about the prior reports or initiatives and thought they were of immediate concern. why now? what is new? it is not the oecd that power and influence are, what is the power behind the movement? environmentolitical and the public and political environment, largely outside the united states, that really launched the oecd initiative into what it is today. we know a number of the factors that contributed to that end firemen. it was the financial crisis, the political pressure alters were under.
that is what spurred politicians into action. initiative the bep was to temper that initiative and mitigate the risk of what was viewed as politically driven unilateral action. there was a fair amount of concern that action would undermine existing international standards. 2013, thed, in initiative was taken over in an attempt to evaluate and maybe change the rhetoric. made,hat announcement was the point of focus that was not on the behaviors of companies, the compliance, what are the limitations of current roles in a modern world, and that first report was full of statements to a finally weather current rules fit the purpose. the other thing that report
emphasized was that unilateral action would be disastrous for his this and government. and the initial reports promised they would not relitigate the issue of countries taxation. what happened since i think is telling as to whether or how driven this was an oecd initiative. initially, politicians welcomed the report. it was endorsed by the g-20, and they have become involved in ways that we would have never imagined in the number of reports that include tax. those political forces, this of forces that the forces that have the oecd attempting to mitigate isect direction it was going
not surprisingly leading to the outcomes we are seeing from the project. and have made it difficult for the oecd to maintain control where it is going. haseasing rhetoric we see continued in terms of looking to what multinationals are doing. we have also seen ultimately the ceurce versus residen country taxation has been open, and unilateral action has not been stopped. i will conclude by saying the relevance that observation and impact on reform is understanding as we look through to what extent we should consider the best initiatives in issuing u.s. tax reform, it important to understand it is not just about the oecd and we should not have to worry about the oecd but it is broader than that. to the center the goal is to preserve the interests of the u.s. government and the ce andies and resident
interests, those depend on the behavior of countries, and are determined by other governments. thank you, and thank you for the opportunity. thank you for this opportunity to speak about policy and reform. i have seen this movie before, however. talkingto sit around about policy, and i will get policy. while we talk about policy, our .ax is being slowly eroded it does not matter what the rules are if you do not have the people to enforce that. if you take a look at what is happening to the irs in the last few years, you would realize one of the reasons it does not matter what the rules are. we have lost so many people at
the enforcement capability is diminished dramatically. unless that gets rectified, who cares if we do not have a tax system? i will now turn to tax policy. s as the revenge of the source basis approach to tax, and part of it i think is i get this from what bob stack said because the deal as i understood it coming out of world war ii was in the eternal war of residence and source, the source countries would limit their takes of tax and that has been the u.s. view of the world. it is particularly and dramatically reflected in our treaty policy where we are way beyond the oecd in favoring the countries of residence. what happened is that the
country, and we are residence country, failed to do their part of the deal, impose tax on their taxpayers. you could draw a direct line between check the box of that. that is a direct reaction to the check the box rule. they were used aggressively by u.s. taxpayers in ways that got under the skin of a lot of countries. i think it was probably a foreseeable thing that that would happen. i think the problem -- i am like john, have never been inside a corporation -- but the problem is that war between the long and the short views. that would seem to me that taking the short view in terms of tax planning has resulted in a lot of pretty aggressive thegs which have led to what we see in beps. the question for me has been,
how should the united states recta that? that?should react to the indians, chinese, the brazilians, a lot of under the countries are not buying it more. they are answering us, we will set our own policy, and you got in the united states are not doing a great job either. frankly, that is where we are. we have to come to terms with that. there is only a couple things we can do. thatr, my perception is policy it has been to do nothing. does nothat beps exist. it does exist, and it should be up shiite will be -- and the upshot will be quite dramatic, and i will hope we can improve dispute resolution mechanisms. the efforts of bob and others to
advance ways of getting disputes is on the rise in. weekend doubled down on the policy of saying residence country roles, we try to convince them to be fair in treatment of our companies. india,had experience in and it does not work well. i do not see that will be fruitful. the third thing we could do, and it is something that is long overdue, is we could rethink the balance between our own source base of taxation as opposed to ce waste taxation. if you want to put your finger on the problems of tax policy in the united states is everybody seems to think almost exclusively about the outbound rules.
i have seen books written in this town called internet -- international taxation where there was no word about in doubt. it is just staggering. i saw this is this morning -- it 81946 anymore, guys. rules thatevisit have been in place for more than 50 years. tax actnot touched the from 1956, except in the margin, and it is time to rethink that and our treaty policy as well. i think if you wanted to address immersions, lowering the corporate rate and the means of addressing inversions is mindless. you cannot get close to get loan of to remove the incentive. what you can do is pay attention to the inbounds investment once people do invert them because white people invert at the end of the day is just better to be
foreign than the united states. we treat people better. our roles are more generous. r rules are more generous. it will not be thrown by policy around the edges. we need to rethink where we stand in the world. we do not stand in the same place we stood in 1962 and 1966. ismy opinion, what is needed a thoroughgoing review of our statutory law on inbound investment next comes treaty. we are way too favorable to the residence countries in treaties. i think we to can the nondiscrimination clause. we want to discriminate and we do discriminate. we just say we do not. let's get less critical about our rules. i was disappointed in the new
model treaty which does not go enough. you cannot do it, cannot start with the treaty. you have to start with three doing the statute. -- with redoing the statute. the three approaches icy to beps are do, double down on convincing the rest of the world it is the source country should eeduce tax and the residenc taxation, or take a few leaves from the books of brazil, india, and china, that says they will impose taxes on the market. and that market, too, market is not going anywhere. it seems to me that is what i would see as coming out of the s material.
>> don called the senior partner and said do you have anybody foolish to come to washington, in the partnership, i got just the guy, and it changed my life. don, i would not be here. i think you. i rarely find myself in ireement with david, but really think we need to focus more on our source-based taxation, although it was said we do not know what source is anymore. what we need to focus on maybe is destination which is what david is talking about, i think. international tax reform, i like to start outside the tax world what is it we are trying to accomplish? baby to raise revenue, maybe not
in this area, to increase the standard of living, increased investments, jobs, competitiveness, but only to the extent it is a vehicle to increase the u.s. standard of living. how do taxes come into play in this world? how should we change our taxes and to do that? i think looking at what other countries are doing is a good place to start. i do not find race to the bottom. bottom very helpful. i have only two reasons i can think of as to why we not look at what other countries are doing. one of them is maybe we think we are smarter than the rest of the group. we met the enemy and he is us. no other country in the world can put together a group of people like in this room, and
maybe that is a blessing, maybe it is a problem, but we are not smarter than the rest of the world, but maybe different. maybe we were once when we have the large market to ourselves. no longer. today is the result of technology, trade, low-cost transportation. they are summers -- larry summers and others made a point. we are not different than the rest of the world. they are lowering their corporate rates, adopting territorial systems. they are adopting systems ithout minimum taxes, and mean current home country tax on active is this income. passive interest income, maybe that is one thing. it is a very bad idea. it is a hybrid system. it is what we have today. it is too broad.
hurtll competitiveness. we had a 15% based tax. intangibles will still go to take advantage and arbitrage that difference. it will not raise any money. foreign governments will raise their rates to soak up the minimum tax. the u.s. multinationals will stop planning to reduce their late to below 50%. it is a bad idea. the country has one. if we will reduce our rates and adopt the territorial system, we will pay for it. rate reduction -- i would start with base broadening on things that cannot move. i would slow depreciation on things like utilities and rare roads and pipelines, telecommunications, things that have to be here and cannot move and are not in the traded sector. this is what the u.k. did.
i would capitalize a lot of advertising,rs, understanding it is a timing item and pushes the revenue off outside the 10-year window, but we would be using dynamic and dynamic scoring shows a lot of growth outside the window. the u.k. did a study that showed fromf the revenue lost their rate reduction would be made up by a growth in the long run. es,ould adopt end cap rul and if i needed more money i would shift the burden to immigration,hrough the dividend reduction through the credit system, higher taxes .n capital gains, individuals are less mobile. how to pay for territorial?
on a static basis, territorial does not cost much. harry and roseanne did an analysis in 2006 that exempted dividends them you exempted all $1idends, you would raise billion. the joint committee has estimated is moving to a territorial system that would rate, $220 billion, and a 35% rate, maybe up to $400 million. there are -- $400 billion. it is relative income shifting, and the joint committee is anticipating dividends will come back in the window that will not be sheltered by credit. i do not know why they are assuming that. i do not think they will in the next 10 years. having said that, that is the headline number. instead of using a glut cool like the minimum
tax, i would address based corrosion. -- erosion. it is a bigger problem. shift anyway, i can always bring it back, it is a huge problem. to try to identify where the problem is, and you go to your cfo and say i would like to move something offshore. when you move something offshore to protect it, when the tax savings are greater than the nontax costs of moving. when is that? when do you have big tax savings you can caps on? -- you can count on? when you have high margins. only when you have protected intellectual property. that is the only time you can have high margins over a long time. s side. the plu
the cost of moving, if your products can be put into a fedex envelope and shipped at low pharma,gh tech, think intangibles is where the issue is. move tory easy to ireland, but the problem if you move taxes to ireland, you have to move your manufacturing outside the united states. i can explain that later. that is a big problem. we have no high-tech manufacturing in the u.s. anymore, and my thesis is that i.p. is outside the u.s., and because they cannot manufacture there would be a permanent establishment, we would be outside the base. i would address the outbound base erosionbound
with tough pricing rules that would be formulaic. i would outlaw cost-sharing. i would put a realistic alternative test and i would limit the return in a cash box to the weighted average cost of capital of the parent. phizer does not go out to finance its next drug to go to a venture capitalist. i would provide a low rate, r r&d would have to be done in the u.s., and i would only apply to the high margins. i'm out of time, and i would dpt, a diapered and profits tax. what we have left is our large u.s. market. china and now the
u.k. has set the path forward. there is a lot of sense for us to explore that. i'm out of time, and otherwise i would tell you how we can do it. our treaties. [indiscernible] ms. angus: i am speaking for myself today and i am not speaking officially for the committee. n.would like to thank do i was in the private sector involving work, and sometimes we were on the opposite side of an issue. don always approached me and wereclear in his view we both working for the same objective, a better tax system. it is a privileged to be here to honor the first symposium.
i thought the question that was posed to this panel was an important one. i think it also has a simple answer. exchanges have a dramatic effect on services and they further reinforce the need for reform in the u.s.. simple answer. i will elaborate in a few minutes on that. over the last decade, countries around the world have in reducing their corporate tax rate's. the u.k. announced a further reduction of 70%, less than half the u.s. rate. in the same time, countries around the world have been replacing their worldwide tax system with territorial approaches for taxing the globe as this are headquartered in those countries. fortune 500 used to be dominated companies,dquartered but those spots are increasingly being taken by foreign companies.
these the elements all matter. the u.s. tax system must be modernized to reflect the modern world. more recently, the focus on beps has led to an anticorporate sentiment around the world focused on household name companies, household name american companies. and rather than seeing coordinated change in international tax policy, that i think the oecd was seeking to deliver, we are seeing countries using beps as an excuse to justify what are often revenue grabs. there are many examples of unilateral action being taken in the name of beps that are at odds with the beps recommendations. the u.k. divergent profit taxes is an example of a response to concern about the permanent establishment rule, but a different response than the response agreed to and
negotiated in the oecd that involves amendments to the permanent establishment definition in the treaty. u.s.ould say that the regulations, which are controversial for many reasons are a very different response to thanrns about stability the agreed recommendations with flexibly. eliminating the efforts to require public release of reporting information is in sharp contrast with beps mandate of reporting this information to tax authorities only. it seems likely that this is the beginning of a long line of unilateral actions justified by beps, but not in line with the agreed beps recommendations.
another example of law being applied beyond its original corporations,get and almost exclusively american corporations. in the u.s. we are seeing increasingly american companies forced to consider a foreign acquisition or succumb to a foreign ticker and the only way to remain competitive. these transactions are labeled inversions, but we should recognize them as a means for some rival. the way that means committee heard a hearing on the global tax environment in 2016, and what that means for tax reform. that clear conclusion was we need fundamental reform that includes a modernization of the u.s. international tax rules. an important port that was driven home at that hearing was that international tax reform is not just an issue for global
american businesses. it is an issue for all american business groups. if a global american company is forced to move its headquarters to a foreign country to an acquisition or takeover, that also means over time key decisions that used to be made in the u.s. will be made overseas instead. that is something that will be felt throughout the company supply chain, including the local businesses that provide goods and services for the american company. it also will be felt in local community where the company provide support to the symphony, the museum, to the local sports team. in looking at this issue, building a wall is not the answer. tax reform is the answer. the ways and means committee has been charged with leading the effort to produce a blueprint for comprehensive tax reform that will lay out the house republican vision for a 21st century tax system that will be released this summer, so the committee is ready to enact tax
reform in 2017. international tax reform of course is an integral element of comprehensive tax reform, as it thatves complex issues include the meshing of u.s. tax rules with the rapidly staging rules of our trading partners. we have seen the crafting of new international tax rules benefit from consultation and input. we need more input. we need to spend more time looking at what is happening in other countries. i do not mean we should follow the lead of other countries, but international tax rules that other countries choose to put in place may well not be at all appropriate for the u.s. in the u.s. economy, but it is very important we understand them. because of the impact they have on u.s. companies investing in those countries and the impact those roles have on foreign
companies that seek to invest in the u.s.. we need to understand what is happening in the rest of the world. as we look to international tax reform, we will continue this consultation and input process this year so we are ready with the right international tax reform package as soon as it can be enacted into law. returning to the question that was put to the panel, more tax changes are significant, they theyt u.s. this is, and point to the need for u.s. tax reform. >> does anyone have any responses to anything that was said? >> i agree with david that we should be looking carefully at more -- whether you want to think of it as a destination-based income tax on sales in the u.s., or exploit the u.s. market, or anti-base
erosion, or all of our focus on basic erosion has been on outbound. not to say that is not a problem and should not be done with. if we do that, other countries are likely to retaliate, and that will solve the lower income problem, countries acting in their own self interest. >> one of the things i am struck extent the concern and the impact of what is happening now, you have a lot of unilateral action and not coordinated tax policies looking to tax sources. it is without coming to the table to have the conversation and strength to deal the way the original deal was struck. clear if every country does its own thing, figures out to get more source country taxation with respect to its inbound, aches and adjustment, and maybe it is territorial that we will solve faced by companies
now in terms of the class of the tax rules. if the u.s. were to move to a territorial system so the u.s. company operating outside the u.s. that's not have to worry thet double taxation, approach to source country taxation right now does not mean it is not going to worry about double taxation with respect to multiple jurisdictions, claiming the tax with respect to the same revenue. don't we need to do something more than simply think about domestic reform, and is there room to have coordinated action in the international space? ms. angus: we may need to do something more, but is critical we do something to mislead. on the change that is happening around the world has disproportionate impact on u.s. companies because of the ways in which our international tax rolls are different than those of the rest of the world. international
system more in line with the rest of the world, if we moved to a territorial system, eliminate the blackout effect and what that does in terms of the buildup of foreign earnings, i think that puts us in a better position to have a larger discussion. but right now an action that is has aby another country different effect on the u.s. than it does on that country's other trading partners. i do notbloom: disagree with a territorial system, but it seems to me again that the world is not something going to territorial. it is going to and increased emphasis on taxing the domestic marketplace. unfortunately, i think the base is gone. i think it is too late to try to persuade people we ought to get together and get serious about
residence taxation. >> for a coordinated source approach. mr. rosenbloom: i like bob's statement, but he gets paid to do this. it was idealistic. put at the table with some of these countries, and there is only so much persuading you can do. i think we have to act in our own national interest. not had a coherent discussion about what our national interest is. our national interest cannot be confined to always reducing the tax on outbound investments. .hat cannot be the end we cannot pay for that, and secondly, we ought to be paying attention. these other countries are not completely stupid. they are acting in their own self interest and doing it for a reason, and we have something to learn from that. we will not take tate international tax system.
there was a time in history when we could come close to doing that, but those days are long gone, and beps is the proof of that. the world is a big place. it is not all homogenous. if you look at the capital exporting countries, europe, they all had remarkably similar taxes since. isyou believe in markets, it like they got into a room and agreed on how they would tax outbound investments. not all territorial, and have lowered their corporate rates. they did that because it is in their own self-interest. a want revenue, but also want investment. on outboundrmonized investments. we are an outlier. on what we call the source country, the big rich market, india started with the votophone
cases. i think they are right. it is a construct of wealthy countries that will use their markets and you do not have to pay tax, china falls. now the u.k. has followed. we have a big market. lost that to the u.k. is doing two things, they want headquarters, they want to tax source-based income -- great. we should want the same thing. they want their multinationals to thrive outside, great, we can have both. but david said it. the goal should be national interest, and back in 1962 when the architecture of our basic system was put in place, the goal that every economist and picking musgrave from then on, global welfare, not national welfare. national welfare is a relatively new starter in the international tax policy debate. >> it is easy to be a moderator
in this panel. john just pushed one of the buttons i had. is the wrongecd forum for us to make progress. i'm not saying dropout of the oecd, but the oecd has an urge to democratize and looking to the table a bunch of countries that do not have common interests with us. been the lowest common denominator is getting lower and lower. i think what we ought to be doing is forming coalitions of like-minded capitalists countries to talk about these problems on a one by one basis. it will be an hour interest to have groups -- it will be in our interests to have groups -- >> that is an important point. i think it is a false choice for the u.s. when we are both the
countrynd residence and we want to be both. mr. rosenbloom: but we have over emphasize residence. a i learned there was coordinated system and the source country got the first bite of tax, whether it was a residual tax afterwards, countries could decide. the question then, when you have main driver of value, where is it is appropriate to tax those i.p. profits? i would like the panel to help me with this. john was telling me destination, that i have a money feeling about that. is he saying a country develops p. develops their business in the united states --
i need some help. mr. rosenbloom: that is a hard question. the historic concert is where is the income earned. i'm thinking about source in where is the project subsumed. . the, only thing that protected our patent laws. if there were not patent laws in if yount countries, invent something in the u.s. and -- chinady in france could copy it and earn it, the rents with different severe -- would disappear quickly. it is the countries whose laws , atprotecting the rents least in a conceptual sense. net, i can move my factors of production, i can move my
can move where i do my r&d. i cannot move my customer, which is why the definition of a destination-based tax is the only answer. mr. rosenbloom: what you need is a careful review of that very question. i am not convinced it is an either-answer. i am not convinced there is one answer to that. wheretinct it response is are the deductions being claimed? if the u.s. is where the income is, will they allow that actions? if they do not, they will want some of that income. i am not excluding john's analysis. ms. corwin: it begs the question as to in terms of where it is consumed and what is the value attributable to that consumption.
there will be components of value, and there is the question of residuals. is there a residual that goes to the owner or developer or is it transferred and by that up to the consumer and to reinforce the point i made earlier, what if one country follows david approach and looks as to where it is developed protected, and looking as to where it is consumed. mr. rosenbloom: that is inevitable. the reason for preferring residence taxation is the residents country is in a better position to avoid double taxation. international taxation was dominated by the concern for double taxation. there has been a subtle shift. we all know it. the modern concern is not double can taxation. the modern concern is double non-taxation. residencewere
source will be a company. it is inevitable. we have to come to terms with the reality of what is going on. we're not leaving the world. we're following, and some of this discussion puts us in a posture of being a following country, which when i entered this business, when the dinosaurs roamed the earth, we were the leaders. we are not the leaders anymore. sounding like donald trump. [laughter] ms. corwin: can we be team players? [indiscernible] i would put a plug to come back to the economics answer, that your income is earned where the economic value is contributed. an intangible transaction is really complex and there is value in various different points.
but i believe in the fundamental transfer concept that you should see what were the contributions, the value, and where were they made, and income earned should be divided among that. i continued be grateful for the work that bob stack did in defending the transfer pricing rules in this area. they are really important. >> that leads to a follow-up question. was that the right choice by the oecd to continue the transfer pricing, or should they have lifted a different paradigm? ms. angus: i tipped my hand. i think it is the right choice. i recognize every few years there are calls for a move to formulary -- any formula is by its nature artificial and arbitrary. so we're having this discussion today about the disagreements
among countries. i cannot imagine how countries could agree on a formula both on the formula to apply and then more importantly and more fundamentally day-to-day implementation of that formula consistently over years. that is what is needed. i come back to transfer pricing, that it is complicated, but it --grounded in an economic where is the contributions economic value? any agreement needs to have an anchor like that. tier question about the transfer pricing between a parent and its subsidiary, can that ever be arm's-length? and i do not think it can. treasure just told us you can have debt between your parent and your wholly-owned subsidiary. this whole notion of transfer of risk from the parent does your sincerity area that subsidiary,
you cannot get away with that. fiction, thathis the subsidiary is a separate taxpayer, and this is what a venture capitalists would have charged. i respect that foreign entity, but i might need some tough about what arm's-length means when i deal with a wholly owned or controlled subsidiary. mr. rosenbloom: i think that is right. it is a false the economy -- false dichotomy. there are a lot of steps including presumptive rules. i was one of the people who thought the brazilians were not with their system, but i no longer think that. they are slightly nuts, but not as nuts as i thought they were. they have basic formulas. they are rigid in their application of their formulas, which i do not like, and they do
not bend into the negotiations, but it seems to me you can go with presumptive rules in transfer -- and that is the way the developing world is going. they cannot apply a pure like we have.ng we cannot either, which brings administration, which is the elephant in the room. it is not matter what the rules or if you do not have anybody to enforce them. seriously. and that is where we are headed. i will throw this ". i -- i will throw this to the floor. we will solve the business tax issues later, on the question of the impact of foreign rules on the u.s. system and u.s. reform, following up on something bob and john said,
which is context matters, and taxs start outside the system or the business taxes and. john, at the end, you talked about making up revenue on individual side. and with the debate about wealth inequality we are hearing now, it is not exactly what we are talking about business tax form, but when we think about what other countries do on individual side what other countries do on the carbon tax life, or the vat side, how much of that should -- i was in europe recently got i was shocked to hear that switzerland has a progressive fine for you get into an auto accident, you pay more, the wealthier you are. taxes you see around the world. what role for all the us other
changes, particularly in the individual side with wealth inequality being an important part of the debate today? through thised me conversation is we talk about corporations like they pay taxes spirit we do not pay tax. i learned that from you guys a long time ago. if we did pay it, we would not. by people. people are not mobile. you can move from new jersey to florida, but we do not let you move to bermuda. he figured that one out. , our top real money is rates are getting as high as they can get, and our rates are --high as the rest of the the rest of the world's are not any higher. the middle class in this country is getting a free ride.
the top rates in foreign countries kick in around $120,000, $150,000, and that is where the money is. and this is really capital gains, although we can tax capital gains. if we raise the rate on gains, otherwise the lock in will be terrible. for acarry over basis wall. -- for a while. >> [indiscernible] mr. samuels: the answer is yes. i'm not interested in taxing consumption. i'm not so convinced it is so pro-growth. in -- isad the -- back that his name? -- all the gains are from the double tax, and
ones that is gone, i am not sure it is different than any other tax. ms. corwin: even if you go to the individual tax and say as compared other countries, the middle class in other countries, pay higher income taxes, but they are getting a significant amount of services and other benefits. if you were to compare the full spectrum of the impacts, financial impact, on individuals in other countries, it is a -- mr. samuels: their government has a much bigger piece of the economy than we do in this country. we are catching up. mr. rosenbloom: i do not think we ever really know how the tax system in another country applies in full. we read the statutory rules. he talked to experts. any actual application, we tend to impute to the country our own
understanding and our practices. our own practices and our culture is not found in other countries. i saw for example -- i just read a paper done by some economist in asia on effect of the japan moving to territoriality. this paper came to the conclusion that territoriality in japan did not make much of a difference on corporate behavior. that is fine, and it is fine for japan. what to think that conclusion and apply outside japan is crazy. i've dealt with japan and to know that it is the most tax-compliant country in the world. you cannot take a study of japan and say the conclusions that you reached, no matter how good they are, are applicable. our country, it is not true. ms. corwin: and japan's system is very different. mr. rosenbloom: i think that would be true in any country.
in u.k. -- i would be very suspicious of any comparison of a part of a part of a tax system. i lived through that, about how the japanese were more generous we are. ure, they were more generous, but their credit system only went down one tier. taxpayers would pick and choose from other systems and say let's about this, let's about that, but the overall comparisons are fallacious, generally. [indiscernible] ms. angus: it is important we understand what other countries ,ave chosen to do and why because as part of the global economy all of his choices affect the u.s., but it does not meet any of those choices are right for the u.s.. our choice just needs to be
informed about what is happening in the rest of the world. mr. toder: another question? could you identify yourself? >> i wanted to address the point it is not ade, race to the bottom, looking at other countries. the question is -- i would argue that headquarters taxation and the remnants of a residence -based system is a way of collecting rent from the rest of her appeared to get your company headquartered in some place, take advantage of treaties to reduce source-based taxation, and you feel like a little flipper, whether it is a small knot of residential taxation or a taxation on the salaries of people who moved. if you view residence-based taxation and headquarter taxation through that lens, is
in it not true that the u.s. is like every place else, because we are bigger, and so we can benefit from rent from other places less than they can benefit from renting us? i am not sure i followed you, but i do not think this is about headquarters or inversions. they are a symptom of the problem. -- in thessue is hands of someone where they produce the highest after-tax rate of return. stopmehow we could just all acquisitions of u.s. companies, cross-border mergers, that would not stop capital from flowing out of this country's. it wouldlow there -- float out of the portfolio level.
u.s. companies would sell divisions. merck sold its consumer products division, they put it out for ayer,a global business, buy a german company, and it was only the chinese rate. p&g had the bid, assuming it would pay the u.s. rate. it is asset startups. it is not called creeping acquisitions which is slow loss of market share of u.s. firms. some of you may know a great new tax large, who said the biggest mistake was when u.s. had all the capital in the world and all the headquarters from should have dropped our corporate tax rate to 20 percent, adopted a territorial system, and not let these other places nibble us to death slowly, having attracted
investment deal assets, etc. and we would have had a higher tax base today, more headquarters, or investment. in a global economy you cannot place,bile capital in a tax it at a high level when other countries are not taxing is. they be when it was bermuda or bahamas, but not when it is the u.k., developed countries, you just cannot do it. >> [indiscernible] >> source meaning where the income is earned? ini do my r&d -- we do it six different places. raw materials were in one place. different components are made in different countries. they are shipped to a place and
assembled. the marketing is somewhere else. were looking at that question and instead of sitting in washington you were in new delhi and were doing for the indian tax administration, you would identify the various components of source and you would say we want all that. we are going to tax -- [indiscernible] mr. rosenbloom: and that is the probably the way we should start out thinking. mr. samuels: but that is where the product is consumed. you think that software is developed in india and exported and not taxed on a source basis? i am not saying i would conclude on any one of these things and i agree with your proposition that destination is part of the sourcing -- and i am not saying it is easy, but i am saying that conversation the conversation we have not had in this country in 50 years. mr. samuels: i am being pragmatic.
what we have left in this country is a huge market. let's use it. doing, what china is throwing its weight around, also india. mr. toder: more questions? thank you. topic, and the main david you talked about enforcement being lacking in the .s. will that enhance enforcement deployountries to better enforcement, or apply rules by increasing disclosure? mr. rosenbloom: it is going to lead to a chaotic situation. a long while, the
greater amount of information available is going to lead countries to what someone called earlier as revenue grabs. that is pretty much inevitable, that there will be countries doing some strange things. companies will suffer from that. i am not so much concern about the enforcement abroad. i'm concerned about the hollowing out of the revenue service in the united states. -- let me make this one point -- we have in the revenue service there is now 85,000 employees. that is 15,000 less than six years ago. of this 85,000 employees in the internal revenue service, eric 250 -- there are 250 of them under 25. they are not getting new people, not hiring. it is not the most attractive place to work. people do not want to work in a place where you have bozos yelling at you about what a
terrible job you are doing, so it is not the most attractive career path for young people, and in addition, they don't have money to hire people. this is not good. it is not good. i would agree with david that the texas them is not only enforced by the holding firms, and i think we need more and better resources of the irs. you need resources to navigate the disputes that will arise just to defend authority cases and so forth. mike? >> mic for mike. >> of all the people that need tax cuts these days, i'm not sure multinationals should be first on the list.
mr. rosenbloom: you are falling into the trap that they pay tax. don't anthropomorphize them. they're not people. >> and we set up in a tax haven and low textured section and 10 that is where the residence is and then you sail around the enter intoou arrangements everywhere and all the places you are selling stuff and do everything else to make a tiny sliver of profit and all the real profit is going to the tax haven, set up shop with a few people. that everyone wants their little sliver. ultimately, i think you have got to go to where the sales are whether it is formulary and -- it isely on sales not surprising all these countries around the world say they are being cheated out of taxes. they are not getting any tax.
the full the formulary portion based only on sales sounds like an income tax. >> complaining about that -- mr. samuels: i'm not complaining. i'm thinking maybe it is the only solution. and following david's lead. i'm not -- for example, if research is done in the united states but sales are made around the world, i would not give up claims on that revenue. i would be prepared to have a multilayered interpretation -- ms. corwin: that's not source, right? that is a different definition of source. mr. rosenbloom: look, call it what you want. it is not residents, for sure. the source country looks to where it bears the deduction. if it bears the reduction, the instinctive reaction is we are going to text income.
i don't think that is a crazy way -- we are wrestling with the problem of income tax in mobile capital. if the product is sold outside the u.s., we would not collect a nickel of money on that. the export would be exempt. when we sold it into the u.s. can we collect the tax. we are trying to do something that is really impossible, which that is a light beam moving around the room much faster than any of us can move. inome taxes don't work worlds of mobile capitalism. we need some kind of the modern -- corporate income tax is not in income tax at all. it is a consumption tax. we call it in income tax. we are in the death throes of the income tax.
mr. toder: well, i would say since we have all the smart people together, the reason we have a conference is to figure out how to do the the corporate income -- mr. samuels: at the individual level. mr. toder: if we can have it at another level is another issue. mr. samuels: if you want to tax income from capital, you have to tax it where it is not mobile by the owners. mr. toder: i'm not taking position -- [laughter] mr. toder: any other questions? yes? >> [indiscernible] more than one. >> then it seemed to me that you came around -- mr. samuels: no, no, i was suggesting that every economist
will tell you, oh, that is the production tax savings, that is going to create a lot more economic growth, much better than an income tax for .rowth i'm just saying i'm not sure i fully agree with that. look what it did for italy. mr. samuels: i understand when you contact something twice, the accreted wealth, nice income tax, nice bang for the buck, but i don't know why the government takes money out of the economy in one form computer orin one form, either vat another -- i don't have it in my jeans to spend. that is my only point. mr. toder: one more question. time for one more question. twice.nce, going yes?
>> we have a lot of high-powered former international tax deputy secretaries in the room, and i look at these double taxation treaties not from the developed countries' perspective, but developing countries. i've come to the conclusion that most of these double taxation treaties should be terminated. mongolia did. maybe where countries should start is a simple rule, if you deduct it come a have to be someone's income, domestic income. your reaction? i think it would be really unfortunate to follow the trees terminated. they serve important purposes. they also serve significant administrative purposes and provide certainty and i think
that certainty is to the benefit of developing countries and developed countries like. it might be that you would like to see different provisions of some treaties, but i think a world without treaties would be much more complicated. well, i sort of half agree with that. i think treaties with the developing countries are a bit of a con. but i do think that avoiding double taxation exchange of information, maybe a couple of other provisions of the typical treaty, are useful, useful in practice. interference, may be useful in practice. i sat through a bunch of lectures from the likes of argentina on this subject, why countryng treaties, from their standpoint, really are a revenue loss come
as we tend to go and tell them you have got to sign it in a particular way. i sort of see that point of view. on the other hand to my thing barbara is right, in a world without treaties, it will be inevitably a pretty chaotic situation. i think pretty chaotic situation is a good last word. [laughter] mr. toder: so let's ended here and i want to thank the panel for a pretty stimulating discussion. [applause] [captions copyright national cable satellite corp. 2016] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org]
>> donald trump continues his campaign now is the presumptive republican presidential nominee. he has a stop today in charleston, state capital of .est virginia could hill" this from "the afternoon -- senator bernie sanders says he will state until the race until the last vote is counted. he told npr news "i think we have got good victories coming so we are in this race until the last vote is cast." "california, of course, is the largest state and we hope to do very well there and win that state." hillary clinton leads in california by 10 percentage points, or into a real clear politics average of polls. senator sanders says he will try to continue to flip superdelegates who are
party insiders. turnout for the november election could be extremely fortunate for democrats -- important for democrats and republicans taking part in the primaries. good morning, everyone. good morning. i am karlyn bowman, a senior fellow at aei and i would like to welcome our c-span audience to this session of election watch. i will be joined by a extraordinary handle of election analysts, my colleagues from aei, michael barone and norman ornstein, our friends john fortier from the bipartisan henry elsonr, and from the ethics and public policy center. firstday indiana held its competitive and consequential primary in 40 years. little did we know how consequential it was.
this morning we will be discussing the result and what we will be watching going forward. there are 188 days until the general election, and i should add, 13 days until portions of megyn kelly trump interviews will air. but i would like to step back and talk about what we've learned about the voters so far. polls of the general election have some predictive value at this point but there much more viable as we get closer to the campaign. cited aht mr. trump recent rasmussen poll where he led hillary clinton by three points. what he didn't say is that in the 60 most recent polls on realclearpolitics, he let her in only three. henry olsen will be talking about the soul of the gop and the democratic party's in 30 minutes. let me talk quickly about what we learned about republicans and democrats. these numbers have been updated to include the indiana results.
in every state they have been more conservative than they were in 2008. in every state, voters in democratic contest were more liberal than they were in 2008. in indiana, 67% of the voters in the democratic contest describe themselves as liberal. there, liberals were 39% of voters there. vermont state except and new hampshire, a majority or plurality of voters in democratic contests said that the next president should continue obama's policies. in vermont and new hampshire, more voters in the democratic contest one of the next president to be more liberal than to continue his policies. contests,all of these some have been chunk of democratic voters wanted the next president to be more liberal. in every democratic contests except one for which we have an exit poll, the economy has been the top issue. in vermont, not surprisingly, the economy tied with income inequality.
again come on the democratic side from health-care care and inequality had been roughly tied for second place in most states. terrorism ranked behind each of these other issues for democrats everywhere. in 13 democratic contests where the exit polls asked the question, voters in democratic contests said the economic system favors the rich. in new york and a few other states, voters have been asked about wall street. in the new york democratic contest, 62% said wall street hurts the u.s. economy. only 30% said it helped. voters in new york said they were worried about the direction of the u.s. economy in the next two years. that is a fairly familiar finding in polls that have asked the question. york gop the new primary also agree that wall street hurts the u.s. economy, but more narrowly. 48% gave that response. on the gop side come in 18 contests where they have asked the question between 63 and 78% of those in the republican
contest favored a temporary ban on muslims who are not u.s. citizens from entering the country. in only two of 19 states did majorities favor deporting illegal immigrants working in the united states. in 18 states, solid pluralities or majorities of voters in gop contests said illegal immigrants should be offered a chance to apply for legal status. in 15 of 16 states where they asked the question, half or more voters felt betrayed by gop politicians, and many of them were angry. ted cruz won the evangelical vote in eight of the 12 states. trump won them in the rest. including indiana, where they were 61% of all voters. won very conservative voters in 14 of those 16 states we have pulled.
the exit pollsters asked about trade in seven democratic contests. with the exception of ohio, voters in the democratic contests were evenly split. they asked about trade in six gop contests. in every case, the majority in gop contests said it takes away jobs. in every case, more republicans than democrats said trade takes away jobs. thus far, hillary has won fewer total votes than she garnered that she lost in 2008. there are other fascinating stories from the exit polls. we will have a full run of these results in the june issue of the report," which should come out in late may. i should give a special thanks thanks to heather sims and eleanor o'nel. eleanor is the delegate tracker throughout the campaign and kept us on top of convention rules and heather and eleanor are essential helping me put out aei's political report.
a few final notes. the exit poll in indiana had fascinating reports that point to problems for trump and clinton in the future. 26% of the voters who didn't vote for trump said they wouldn't support him. 59% of indiana gop voters said they wanted a candidate outside establishment, a key to trump's appeal, yet 24% of the indiana gop voters said they would be scared if he won and 18%, concerned. he won women by six points, but men by 26. the gender gap and marriage gap will be problems for him in the fall particularly among white women. hillary still has a big problem with men. bernie sanders did extremely well in indiana last night among young people. the indiana poll again pointed to hillary's weaknesses on honesty and integrity and on compassion, on caring about people like you and me. 3/4 of democrats said they expected her to win. that is just a quick summary of some of the interesting highlights from the exit poll.
now i am going to turn to michael barone, and we would like you to just look back for a moment. how did trump do it? when he announced, he was at 3% in the republican field. mr. barone: well, thank you very much for the look back, and we will start with john c fremont in 1956.he nomination mark shields was at that convention. he can remember that for you. [laughter] mr. barone: i did not make it until 1860. one of the interesting things is here by my definition of presumptive nominee, one who has a majority of delegates in hand, committed, or on the way to getting them without visible opposition, the republican party has a presumptive nominee before the democratic party. donald trump meets that definition. hillary clinton doesn't. she certainly will within the
next few weeks barring something utterly unbelievable, but nonetheless, she still has opposition from bernie sanders. she failed to carry indiana, a state she carried eight years ago. so, we're going to have to wait, i guess, until june 7 for her to be the presumptive nominee, as donald trump is for the republican party. one way you can look at the outcome of both party races is that both parties would have been better served, at least from the point of view of traditional leaders if they adopted the other party's delegate allocation rules. [laughter] mr. barone: well, you laugh. there is some people on both the democratic and republican parties that are crying about this.
but trump, who spent much of the month of april complaining about rigging the rules, and so forth, has been a huge beneficiary of the rules of the republican party, which are designed for a party that has a solid core of supporters thought would usually find plurality winners of early primaries to be acceptable. that has not been a description of the republican party this year, but it enabled donald trump to amass a big delegate lead without winning the majority of voters in any contest between february 1 and april 19. he got 35% in new hampshire, a big win. 33% in the maine caucus next door was a loss. 32% of the vote in south carolina. that would have been a loser next door in north carolina or virginia. he got 36%, a win in michigan. next door in ohio, 36% was a
loss for donald trump. so, when he gets combined opposition, he has on occasion failed to win the votes, as he did in ohio against john kasich or against ted cruz in wisconsin. i think what we have seen is that in the month of april, and in the time between april 5 and may 3, you have a significant quantum of republican voters seemed to have been turned off by the idea of a contested convention, by the idea of a emphasizeh deal to byfferent states, right -- getting second-ballot elegant support in states that trump had won or gotten plurality. you see not only in the six northeastern states that voted april 19 and 26 where trump gets majority first time, majorities of the vote, but then he does so in indiana in contrast to the surrounding states with somewhat
similar demographics before that. i think that represents a clear change in opinion. i see certain eerie similarities between the trump and clinton coalitions, and how they have won their nominations. or, clinton is on the way to winning the nomination. they have gotten bedrock support from their party's more downscale constituency. blacks, southern blacks have provided almost all of the plurality of hillary clinton's popular vote for her. non-educated whites have provided support for donald trump. both candidates have run badly among people with high degrees of what robert putnam and charles murray call social
connectedness, social capital. those areas have done very badly for donald trump and for hillary clinton. both of them have done poorly in caucuses, and much worse in caucuses which require a certain amount of participation by people that are going to bother to go than they had done in primaries. now, both trump and clinton have run strongest in the northeast and south, and have run rather in the midwest, obviously with the exception of donald trump in indiana. but have generally not run well in the midwest or the west. what does that say about the general election? well, as karlyn pointed out, if you take the national polls, clinton is leading trump 47-40, and you have high negatives. trump is running 65% negative, hillary clinton is running about 56% negative. my own view is this has not
proven to be a good year to say things could never happen. [laughter] mr. barone: i don't know -- i mean norm might have been innocent of the offense of saying something could never happen that happened this year, but most of us have fallen afoul of that. looking at the general election, when you have two candidates entering the race who seem to be universally known and have high negatives, how do you predict actually few -- how do you predict which negatives will be dispositive? we have a few recent polls. karlyn pointed to the rasmussen polls that show his most likely voters not voting. that is not totally inconstent. there has been this theory that
democratic turnout has been surging with these new groups. democratic turnout has been going down since 2008. republican turnout hasn't been going up, either, but we saw in indiana, the democratic turnout was about 600,000. wasrepublican turnout 1,200,000. the opposite, if you contrast indiana in democratic 2008, republican 2012 races where the numbers are other way around. and, you know, that hillary clinton doing very poorly with young voters in the primaries, but she needs them to turnout in the general election. will they? -- ifuently, if trump people could change their minds in the five weeks between april 5 and may 3 about donald trump among republican primary voters, i wouldn't rule out the possibility, although it seems less likely, of some people who currently say they would never -- forin a million years him in a million years changing their minds between now and
november. ms. bowman: thank you, michael, for setting the stage. john, what should the never trump forces do now? mr. fortier: great, thank you. it has been an amazing situation we find ourselves in. there has been talk of hair, and other things, but enough about kelly ripa and michael strahan. [laughter] mr. fortier: we will talk about donald trump on the republican party. i guess a couple things. i do want to start out on the amazing fact that trump is the nominee and he really does, the gop electorate from a different access. that has confused us all. henry has a fine book -- "the four faces of the republican party." i think you might be adding a
fifth face, and the reason is donald trump kind of cuts across categories, especially with this issue of immigration. not a surprise to us. that is what he talked about at first, and when we realize that the people that describe themselves as less conservative republicans, evangelical republicans compete it has some resonance among all of them. he found a way to activate a majority in the party that is very different than what others had done. and this is the intention of what a lot of republicans thinking after the 2012 election, thesis i generally agree with, that the demographics of the republican party has challenges, and reaching out to hispanics and other groups would be part of the future. it makes us realize the republican party has been moving this way. it is a group of people that can be activated. if you look at europe, there are all sorts of arrangements in european countries with more parties worried about immigration, and more center-right parties in coalition, playing with each other, or having disagreement,
but i think the republican party is going to have to wrestle with these things, and it may be they have to do with the demographic problems, but finding a way to look forward will be the issue in the longer term. can trump win? look, there will be more coalescing around trump. john kasich, i do not imagine staying in the race much longer. ted cruz is out. there are people that have been against trump pretty strongly. some will have a hard time walking that back, but i think there will be a lot of coalescing around donald trump. but what i think we should wait and see is on these matchup polls. michael pointed to it as well. we are very early on these. our suspicion is donald trump will get some new voters, conservative democrats, but he also is going to lose some votes. he has high negatives. looking ahead, we would wonder
if it is a net gain or a net loss. i'm not convinced it is a disaster, as many republicans ae worried that this will be very bad loss for donald trump in the general election, but i do think the mix of what he gains and what he loses is yet to be seen. two other topics -- i'm usually one to downplay the vice presidential selection in terms of the politics. it rarely has a great effect on the race. at best, you can hope for a state to be helped a point or two, if you are lucky. but i think it is interesting this time, a couple of reasons. we put out a report on vice presidential selection, encouraging the candidates to be serious about it, take the time to do it, and find somebody that who is substantial, but there are a couple of dangers out there. hillary clinton, because she is so experienced, is she going to look to pick somebody inexperienced?
it balances you, but it is still something for governing that might not be ideal. then i think she will have to ask the question do she make her left, or bernie sanders supporters, happy with her choice? i do not think elizabeth warren will take that position, but elizabeth warren or sherrod brown, someone who leans more left, or does she feel more comfortable with someone in the center of her party? i do not have an answer as soon donald trump will pick, but this is a chance to solidify himself with the party. there are some that will not want to run with him, but this is an opportunity. leave it at that. my last point is on delegate selection. what i was going to talk about -- convention scenarios and other things that could have happened, and obviously events have overtaken us here, but i think in many ways the cat is out of the bag in terms of the
small d democratic character of primaries. i'm not sure we will see a big rethinking of how we select delegates because it depends on how comfortable they feel, who wins the presidency, but i think the very insider processes, the ones trump was complaining about, some of the uncommitted delegates, or the conventions, or some of the ways the actual selection of the delegates goes on in states that many of us did not pay attention to. insider campaign people spent a lot of time going to be states and figuring out who these delegates were. i think that is going to get more scrutiny. i think definitely a move toward some more democratization, the idea of party insiders having all this power is belied by the fact that their options for stopping donald trump were not that great, no matter what the situation was, and some of these processes are getting some criticism. ms. bowman: thank you very much, john. we'll turn to henry to talk about the soul of both political parties, what we learned from
the polls at this point and whether or not you think trump can unite the party, whether will be a third party challenge? mr. olsen: when karlyn asked me to talk about the soul, i was -- i thought what a field day norm would have with that question. i can imagine norm saying if faust were a republican he would have nothing to sell to the d evil. [laughter] mr. olsen: but of course, the devil has already made his appearance in the republican race, and i want to describe the -- the faction that prefer john boehner to the staunch conservative movement conservatives. and john boehner appears in the week before ted cruz's political test of his life and compares
him to lucifer -- lucifer in the flesh, he says, which i think will lead to a defamation suit, because who wants to be compared to ted cruz? [laughter] mr. olsen: i think this shows the republican party is suffering from a soul deficit, whether surfeit. surfeit. soullul is this, -- not essness, or a bad soul, but a multiple personality disorder. and you've got, as any person who is disordered because the multiple personalities, they cannot coexist in the same body as the body currently understands itself. and unless and until a choice is made by the different factions in the republican party that they must try and get along rather than vie for dominance, the republican party will continue to descend into disorder and irrelevance. but this is possible but it's harder than many would like to think. i think what we see -- i did my most recent piece in "national review," called "the trump
faction, the fifth face of the republican party," and i go into why he did not replace the four faces. as i said, the real estate developer has not renovated the house, but simply added an addition. these voters ask different questions and want different things than the republican factions fighting for the last 40 years have wanted, but even within the factions that are fighting there is strong disagreement. one way to look at it is to look at the most recent typology which takes and divides the electorate into 8 different groups, and you could, very roughly say that what we see in the race right now is three of those groups are vying for dominance. what pew called the staunch conservatives, the business conservatives, and what they call the the hard-pressed skeptics -- skeptics being the downscale whites largely caught cottoning to trump.
easy thing to do is two on one, but then what happens to the third? if you look at the data, the two on one temptation will be very strong -- on trade and immigration, the hard-pressed skeptics are largely in agreement, and strong dispute with the business conservatives. this is what heritage action for america is proposing as the populist conservative alliance. that is what mike needham wrote about recently. i view that -- this alliance looks as trade and immigration as gateway drugs to conservativism. if we give them immigration and trade, they will come over to our side of entitlement cuts, strong tax cuts, and robust social conservativism, but the problem is you look as those voters, they actually don't want those things, and this is where the business conservatives and the staunch conservatives have agreement.
over 87% of the business conservatives and 90% of the staunch conservatives agree with the question that government is doing too much. hard-pressed skeptics are on the other side. a majority thinks government is doing too little. that is at the heart of the trump appeal. the problem with government is it is not standing up for the people it on to stand up. the problem in the trumpite view is the government should be serving the average person who deserves something because of their citizenship, and that the government has abandoned citizen in favor of noncitizens, and that is what unites all of the planks that he talks about. i call it in my most recent piece a form of nationalism, but not expansionary nationalism -- it is a sense that citizenship matters. that being an american entitled you not to a check, but to consideration, and that what the
elites of both parties in this view have failed to do is give consideration to the plight of people that are being hurt by policies that both parties have pursued. that makes this group a swing group. which is one reason why you saw turnout in 2008 was up for the democrats. it is up here. what we see in places like europe is the people that eventually settle in the right wing populist parties try out the establishment parties first. voted labour in 2005, tory in 2010 and is now convinced neither side cares about him. the task for the republicans going forward is one of, to quote the american revolution, "whether you want to hang together or you want to hang separately." each of these groups have something more in common with each other than they have with the other groups. but if they don't get along they
will all hang separately because of the national democratic advantage the the democratic coalition has. it is impossible without nationality as a central factor. this is not unusual. every successful conservative party in europe and in the anglosphere eventually comes around to the idea that some form of citizenship and nationalism is in fact essential to going from a minority of well-off individualists to a majority that appeals to people throughout the class structure. and this approach also will help as republicans, deal with the demographic question. if one wants to deal with latinos, one has to do with latinos as you have them, and they are people that because of where they come from expect an active role for government. they do not expect socialism. they do expect that getting government out of the way and letting the private sector work won't help in their benefit. adopting some form of idea of
idea of nationalism and obligatory citizenship as a complement to the existing republican structure will unite these groups. it will do what lincoln did, who disagreed on tariffs and immigration, but could agree that slavery was wrong. it will do what nixon did after the debacle of 1964, take a modulated approach to what goldwater raised, discard the things that divided, included the things that united, and that the republican part on a path that culminated with reagan who was independently reaching the same conclusion, made the republican party relevant and the dominant party for 36 years. if the republican party views this as an opportunity to unite, then the republican party will surprise virtually everybody in this town and once again become a dominant, more class-based,
more secure party in control than it has been since the great depression. if it fails to do this, we should expect the democratic party that will pursue what it , weeves its natural course should expect a 16-20-year reign of the democratic party until the republican party remakes itself in its image, and we should expect many conservative intellectuals to discover the wonderful seafood of auckland, new zealand. [laughter] ms. bowman: thank you. any thoughts on the soul of the democratic party? well, if faust were a democrat -- [laughter] mr. olsen: the democrats have their own divisions. the soul of the democratic party is less acutely in play, but their day of reckoning is coming as well, which is to say there
are elements in the democratic party that while in congress are as therottweilerish republicans, are equally irredentist and irreconcilable. the sort of people that say barack obama is a sellout, the people that will never be satisfied with anything except purity. that day won't come right now, but that is coming for the democrats. ms. bowman: thank you. norman, let me ask you about something donald trump said last night. he said ted cruz has a great future. do you agree? mr. ornstein: so ted cruz, who yesterday called donald trump a pathological liar, serially adulterer, and then pulled the venereal disease card, which leads people to believe there is
a new meaning to the phrase "feel the bern" -- [laughter] one has to think about what happens if trump loses and there is a struggle for the soul of the party that henry is talking about. then you will see a number of factions. the fact that cruz lost so badly in indiana and had to pull out, immediately, reduces his traction as the leader of the goldwater wing. he pursued before this, we keep losing because we nominated these moderates like mccain and romney, and now we nominated a liberal like trump, but so many will have to pick up that baton. the freedom caucus wing of the party. if trump loses, and especially if we see this movement that is likely to fall apart, of having an independent candidate -- the theory being that if you have a
real conservative running out there, at least republicans will turn out and vote down ballot. if that happens, then trump is going to say another conspiracy of the elites destroyed me, i would have won otherwise, and the populist forces will have some traction. and the third force, which i think may be the weakest, is the establishment leaders in congress and the party as a whole who failed so badly to this point. no one should take comfort in this kind of structure. -- struggle. democracy does not work unless you have two vibrant parties who can compete. it is just not a healthy thing. i would say you have a party that is the donald trump party, and given his hair, maybe we should change the name to the whig party. [laughter] mr. ornstein: with that, let me make one observation. those of you who listen to my
colleagues should compare it to the sophistic and shallow -- simplistic and shallow drivel that dominates most of cable television dialogue, and i want to give a shout out to karlyn, heather sims, eleanor o'neill, who put these sessions together and work to decide what we're going to talk about. we are very proud to be part of this election watch series. so, with that, what is going to happen down ballot? obviously, this is a really difficult year for republicans in the senate. we knew that going into it and we know the rhythm of senate elections. who was up six years ago, the numbers work very much against republicans this time -- 24 senate seats, 10 democrats. because of the wave that occurred six years ago, that means you've got a lot of
republicans who are naturally vulnerable. they are in blue states. there are seven of them and then there are others. and it means the democrats survived a difficult election and you're not going to find many vulnerable there. what has happened now with trump and with the discord inside the republican party is that the number of seats that are now in play on the republican side has expanded. and it has expanded for a number of reasons. it was striking to me yesterday that mark salter, who has been a close adviser and aide to john mccain for many decades, co-author of the books, the bestselling books that mccain has done, said "that's it for me, i'm voting for her." and for john mccain, when you have a republican candidate who said waterboarding, that's not enough, that namby-pamby stuff. we are going to go for real torture and we are going to kill their families at the same time. this has to be a very difficult moment.
and in a state where arizona itself may well be in play, and you have a guy who's been around for a long time and has plenty of enemies in his own party, you have to say arizona is in play right now. grassley, in iowa, having taking the stand that he has as chairman of the judiciary garlande on the merrick nomination, has seen his support decline significantly, and all of a sudden, iowa is in play. if you put that together with the seats as you can see on the chart, those of you in the room have in front of you, where we know which seats are very much in the tossup category, the open seat in florida that marco rubio is giving up. mark kirk's seat in illinois. kelly ayotte in new hampshire, rob portman in ohio, pat toomey of pennsylvania, ron johnson in wisconsin. you've got a whole lot of seats that could potentially change hands.
and on the democratic side you only have nevada, which is harry reid's open seat, and given what may well be a very significant uptick in hispanic turnout there, i think the odds are good that democrats take a majority in the senate. but then we just have to point out that the worm turned very sharply in 2018, as the chart shows. you have 24 democrats up the next time, a lot of them in very vulnerable places. if hillary clinton wins the white house, then there's likely to be, as there almost always is, a set of headwinds. the democratic tenure as a majority of the senate is likely to be a short one. the house of representatives -- it is striking here, we have a chart that shows all of the seats you could potentially, at least at this point, putting the in the tossup put category.
you always end up with one, two, or three that are in there, that end up being upsets. 13 democrats, 45 republicans. you look at that, and you say all of a sudden everything falls apart for republicans. i have to say i am not sure it is going to work that way. our politics has become so tribal, that in the end i think we're going to see a lot of people come back. i am waiting to see how ted cruz makes the pivot from pathological liar to "i am going to support this guy." mr. olsen: their wives could have lunch together. [laughter] mr. ornstein: exactly. all the ex-wives -- and we can have a unity lunch. we see marco rubio, already, perhaps, giving him a template for how to make the pivot, but a whole a lot of people will be making that pivot, and it might not turn out to be as dire as it looks right now. and there is another factor we have to keep in mind -- the koch brothers and their allies
amassed a war chest of between $800 million and $900 million, and they have spent some on building the most sophisticated voter identification we have out there, and they have more troops on the ground than the republican national committee. my guess is a lot of that money goes into house and senate races, and identifying republican voters, making sure they turn out at the polls, and telling them in many cases, do whatever you want at the presidential level, but just make sure you protect our last lines of defense. that will be a lot of money and a sophisticated effort. i would say, getting back to henry's point, it raises another interesting and somewhat troubling element, which is donald trump is now going to pick his chairman of the republican national committee. he will not have complete control over the members of the rnc, most of whom will not be warm to him, and you will have a struggle for the structure of
the party, and in the meantime a parallel structure that is already being built outside. those forces use the short term -- the koch brothers and their allies -- they have been recruiting candidates in primaries, doing what a party organization does. there are a number of fronts here, including more than we have seen before. now, let me just say if the democrats somehow pulled off a stunning upset and won a majority in the house, and winning 30 seats is still a very serious uphill battle, and if they win the house and the senate, anyone that thinks that will lead to a wave of legislation is missing the boat here. democrats win the house, that means they will have 20 new members that won in districts that are much more republican, and in midterms they are in trouble. the idea they will go out on long limbs to vote for sweeping legislation, given what we know is the history of members of the
house who immediately run scared and away from their party will be a challenge, and republicans will unite in opposition. i would add that if they win the house or don't, if republicans hold onto their majority, the smaller majority -- if you look at the republican seats being vacated and those that are the most in jeopardy, they are the remaining somewhat conservative, in today's congressional context, which is very conservative generally in a past context, but you put together people like erik paulsen in minnesota, lee zeldon of new york, these are people that are going, and the freedom caucus forces will have a higher proportion and more leverage in the house of representatives. paul ryan, who you will recall at a trump rally in wisconsin
had people yelling out "paul rino." the idea that the most conservative speaker is viewed as a rino, with all these other -- cannot get a budget or appropriations through, with all these other challenges, if they lose the white house, means that congress is going to be a very interesting and not terribly edifying place, whether it is for the next president, or for the rest of us. ms. bowman: thank you very much. terrific summary. i am going to turn to john in just a second to talk about the governor's races, but norm mentioned how proud we are of this series. this is a bittersweet moment for norm and for me because this is the last time we will meet in this room. we have been meeting every two years for election watch -- almost 100 sessions. -- almost 100 sessions since 1982 in this very room. we are moving to 1789 massachusetts avenue. we are hoping we'll have our first fall session in september at the new building.
this has been a very long run. of course, norm and i were children when it started. it is been a long run. mr. ornstein: we should note that 1789 is not a year we want to have as a model -- but we are stuck with it. >> we get george washington sworn in as president april 30. mr. ornstein: i am thinking french revolution. ms. bowman: john, the governors. mr. fortier: i have a few words to say about the governors, and then i want to ask norm a follow-up. there are not so many governors in this year. it is like the class of cicadas. -- many of them are safe. overall, republicans have enormous advantage in governorships -- 31 republicans, 18 democrats, and one independent. i would say if you're looking
for change, probably all things being equal, assuming not a blowout with trump losing badly, but a relatively neutral environment, there are slightly more democrats in trouble, three, really. west virginia in particular. an open new hampshire seat that is competitive, and an open missouri governorship that is competitive. on the republican side, you have a couple -- north carolina, where the race is shaping up to be close and potentially an outside chance in indiana, but i guess i'm going to focus on north carolina. looking at that, it looks like a mild republican pickup in a field or a group that already have a big advantage in. orm wasid want to ask n on the congressional question, i think we all agree that if there were a big win for hillary clinton over donald trump a lot of those seats will fall. but what if donald trump does pretty well? whether he wins or not -- he has different characteristics.
there will be people like kelly ayotte, pat toomey, part of whom will want to run toward trump, part will want to run against him. what you say to those people that will be conflicted? they might benefit in some ways, but also be troubled? mr. ornstein: you are absolutely right. i do think that we are going to find a lot of republicans who will come back into the fold. it may get closer than it would otherwise be. we're not going to see, i think, the kind of blowout of a goldwater losing 45 states or a mondale or a mcgovern losing 49 states. the states are more firmly red and blue now, although some of those red states may be in play. but if you have got lawmakers in states that are still swing and could turn close, they have a huge dilemma on their hands. and how do you embrace trump, where you know in the process, you may end up linked to him for minority voters or others who might turn out in more
substantial numbers? but if you get distance from him, you will create a backlash among a lot of others who see you as betraying the cause. so i think there's no easy way out of it. and my guess is you're going to find some people who handle it in a very clumsy fashion, and others who may be a little more adept. in the house, they are used to running away from their presidential candidate, and trying to run as individual lawmakers, but much of this will depend on the turnout. i didn't make, but should, for those of you thought indiana was an upset, alan abramowitz, a good political y, hasist at emor developed a simple model to look at the democratic contest that
has three components to it. the region -- is it a state in the south or outside of the south? what is the percentage of minorities -- of african-americans voting? and what is the percentage of democrats who voted in the democratic primary in 2008? and he has been just stunningly accurate within a point or two of every contest, and a week ago, he said hillary clinton would get 47% in indiana. he has also looked ahead, and it looks like bernie will win in oregon, but possibly lose in kentucky, and not that this matters in the end. she was still win the nomination, but we tend to look at the tea leaves. this is what happened, the campaign moved in that direction. a lot of it, and that includes a lot of our politics more generally, doesn't have quite as much as we think the events in the campaign suggest. ms. bowman: michael? mr. barone: we have been through a period of very high persistent
polarization, roughly equal size blocks on both sides and very persistent voting patterns. we had in 2012 only 26 congressional districts out of 435 that voted to split tickets, that is vote majority president in one one party, elected congressman of the other party. lowest number since 1920. i do think, however, that americans are capable of splitting tickets. it's not that hard if you want to do it. they just haven't been in the habit of doing it lately because george w. bush for a long time defined the republican party, and barack obama defined the democratic party, and people voted accordingly. norm suggested the problems with the difficulties -- does donald republican party or the republican party for every candidate?
we may be back into the territory in the 1960's, 1970's, 1980's, when some republicans did not want to be identified leader andparty lik many democrats did not want to be identified with their party leader. when richard nixon was reelected in 1972, he carried, i think, 389 congressional districts against george mcgovern. half of them voted for democratic congressman. so, the americans are capable of splitting tickets if they want to. in this context, i think turnout is going to be important. we had a surge-increasing surge of turnout during the george w. bush presidency, including the 2006 and 2008, a repudiation of the bush presidency. we have had declining turnout during the obama presidency, particularly of democrats, but not any surge of republican turnout. i have been of the view that the fact of re