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tv   Representative Kevin Brady Discusses Tax Policy  CSPAN  December 5, 2016 10:32am-12:22pm EST

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help the government out. >> watch the communicators tonight at 8:00 eastern on c-span 2. >> kevin talked ability the tax code and the irs and then it's followed by the panel and the experts and jtsz trsz awe
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pleasure to introduce to you a great friend of the american taxpayer and kevin brady you and the chairman of the ways and means committee and then it's the house and then 1996 and then two years before and he was a senior. >> this is a key part of the
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conserve tich and there going to go to the united states and improve the well being. the plans would improve the individual tax rates and the capital gains and dividends and would be reduced dramatically and increase the standard reduction and then the tax rate and then it's most of this would make it more attack tif and then that's the justice and that's going to be the u.s. produce and then the same as the foreign produce and according to the tax preference to imports that we
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have now and the tax rates reduce the works, savings and investments and then we will move forward and quickly and then people and then that's the forms on their lives and a whole. one of the heros here in congress and one of my great friends in congress police welcome chairman kevin brady. [ applause ]
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>> thank you for the leadership. i don't know about you but it's an exciting time to be an conserve tich. the work that's been done over the last decade for the solutions to change directions of the country and now is the opportunity to do that. i don't know about you but when i went to bed on election night, i kept on thinking one thought and the american people gave us another chance and another opportunity to change the direction of the country in a major way as the republicans with the unified republican government and we have a great responsibility here and it's an exciting opportunity and i think clearly voters rejected what they have seen now for too many years and that's bigger government, higher taxes and washington knows best and washington will manage every moment of your life, so here is your opportunity that we have dreamed of o, and we have to
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take full measure of that opportunity and inheritage again thank you for all of the work that you have done to lead up to this moment. i would like to walk you through the better way of proposal and what we call the bill to growth tax code proposal. it starts here, you know, i think that the greatest treat to our long term is our growing national debt and i think that spending cuts can get us half way or more and back to the balance budget. if you want to complete the job and actually start to pay the national dete national debit, we need a stronger economy. we're struggling through the worst in the century. millions of americans can not find full time work. you cannot go online without reading about another company considering moving the
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manufacturing and the research and headquarters over seas. we don't have to settle for that type of economy. the built for growth and the tax proposal that we propose aims to reverse all of that. so when we begin this earlier this year, i set out two goals for the tax reform. first rather than the tax code design simply to ring money from you and this is what we have today, we need a tax code built for growth and designed to grow wages and jobs and the u.s. economy and then the america from the dead last and the global competitors back to the led pack and keep us there. we want to be among the best places on the planet to invest and create the job and to move the headquarters. those two areas grow and go back and fort and then grow the decision making in the tax reform. we're proposing reforms --
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excuse me three major reforms and then we go all the way into growth in the jobs and wages and by proposing the lowest tax rates on the job creators and then redesigning the tax code so that we can win and compete anywhere in the world, but especially here at ahome. the second reform is that we're proposing a tax code so fair and simple and then 95 percent of the americans will be able to file using the postcard file system. thirdly, because we're proposing so much fair and simpler tax code is a fair and simple tax collector, so we're proposing to bust up the irs and redesign it in an agency that i will talk about in a moment. if you hear me use the praise propose a lot, there's a reason for it.
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we're looking for a proposal to jump start the economy. on job and they were representative in the tax and then proposal and then the corporations and then we live in the businesses hands but and then it's in washington and to
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grow and then it's full and unlimited expensing and then the businesses of all sizes and then that's the divisions in the proposal. if you go back and we're all in main street job changes and not necessarily job and then that's the last 50 years and that's the main job and then it's government spending and then it's one in it's in the main streak job and then it's business investment and then it's the first time to allow immediate and then it's the businesses and not competing on the main street and then around the world today and then the tax
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codes no longer competitive and we tax the businesses here and then washington tax is in affect and today and then it's the tax broad and then that's the business rate and then that's invest in the new jobs and manufactures and then zero and then we don't stop either and that's the main competitors tax that made american products today or the disadvantage here in america and disadvantage abroad. we propose to match that tax code and take the taxes off and
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make american products being sold around the world and put it on the imports coming in the united states. this levels the playing field for american made products and competition going forward in the future will not be based on tax code but price, service and quality. when you do that, consumers win. it's going to simplify the tax code and that's stunningly complex. thirdly, and perhaps most importa importantly this makes sure that we have eliminated every tax incentive to move the jobs, innovation or headquarters over seas. our goal is not to stem and stop
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businesses in america from locating over seaings, but our goal is to bring the investments back we will become a 21st century magnet on this planet. we also eliminate the double tax and the second tax alternative minimum tax on businesses and perhaps my favorite part of the whole built for growth tax proposal is we propose to permanently eliminate the debt tax. this tax is still the number one reason that family farms are not passed down to next generations. it funds a day and a half of spending. it's time to let it go. those provisions in jobs and salaries according to the tax
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foundation will grow the u.s. economy by over 9 percent and will grow after the tax and wages by nearly eight percent and create several million new jobs and then will take america back into the lead pack of the tax codes on the planet. our second reform comes from this. as you know since reagan performed the tax code in the 1980s, it's exploded in size and tripled in size 70,000 pages and come pleexs and the former chairman of the committee once described it. for years they have asked why
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can't we have a tax code so fair and simple that can fit on a postcard our tax team went to work and we're proposing that fair and simple and the most americans revealed a postcard style system. here is how we propose to do that. first we flatten out in the tax bracket. there were 15 adifferent tax brackets and he lowered those and flattened them out. today there are still seven. we po pose to flatten them out just down three brackets. it does not need to be more complicated than that. we lower the rates for the simple reason and then the reward worked and then the productivity worked to encourage people to be productive and to keep more dollars in people's households and families to reach
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their dreams, so we flatten the rates and brackets and lower the rates. we believe that it's important to protect more of those first dollar families earn, so we propose to increase the standard deduction and fairly significantly and approximate we think that protecting the first dollars are important with the income workers over young people starting their first jobs in school or young couples with kids and seniors where every dollar counts. we protect more of them with the larger production. we go further than that and this next provision maybe in my view the second part of what we're proposing. after we flatten the brackets, and after we have lowered the rates, we propose that the dollars that you earn from savings and investments to cut the tax rate by half, so if
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you're at the 12 percent bracket, your savings and earnings would be half of that at six percent. here is why, we're not nations savers and we have to award those that set aside the money for the future. this is incredibly helpleful for those who seek in need to save, but it's incredibly pro growth and that's the common and here is how and this seems like the simple example and we will remember this from the high school days perhaps and the economics and it's a good reminder why the savings investment is for the growth. when you and i earn a dollar, there are three things that we can do with it. we can earn it, save, spend it, invest it. you can buy a donut, that's what i do with my disskash their
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income. you can save it and go to the local bank. not much interest on that. thank you fed. you can find a way to save it. that money does not stay in that local institution, but goes back out to the local businesses. maybe to the owner of the donut shop so that he or she can buy a second mixer or another glazer or deep fat fryer. maybe add another worker for that predawn shift. that's really good for the local economy. i know at this point jim is asking himself why does this guy know so much about donut shops. the third thing that you can do is invest it. invest it, so perhaps in the stock market or mutual funds or perhaps it's invested in that donut business, so that they can add a second location or a third. maybe expand the lunches. that's incredibly pro growth for that local community, and the reason that we go proposed to you significantly lower rates
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and savings and is to encourage the rewards and savings and grow to the local economy in a major way. then the postcard itself, as it asked ourselves, even though only about a third of americans itemized, what do they count on? what we've proposed to you is this, to keep on the postcard, uhm, a limbed number of deduction in the credits. first, we know that for most americans, the home is a biggest investment you make in your lifetime so we propose to keep the mortgage deduction. we look to make it smarter and better but we keep that on the postcard. secondly, we propose to keep the deduction and credit for charitable giving. we like charitable giving. we think it's important to give
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to your local church, local community, a college you believe in, important to encourage charitable giving. we know, too, it's expensive to raise kids. we have two teen aimingers ourselves, we know that. so we propose to keep the child tax credit. in fact, to increase it a bit to help families with those costs, and then it's, college is incredibly post high school spiels incredibly expensive so we propose to keep the help you get for college. in fact, we're redesigning that as well to make sure that it applies just as equally to those who are seeking technical skills, which are expensive as well, so my high school senior has decided he's going into welding. someday he wants to own his own custom fabrication shop. we're shopping today technical schools and skills are expensive
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as well. we need those types of workers so we proposed to redesign that to make sure encouraging skills at every level outside of college, and then other than one provision help get people from welfare to work that will be redesigned in a major way, that's it. that's what we propose for the postca postcard, that fare, that simple, that understandable. as i started athe beginning when i said we propose this to you, here's my main point, for republicans, this is your postcard. it's not ours. you can add anything back to this you want. we can add single provisions, we can add dozens of provisions back, hundreds of provisions back. as long as you know to do that we have to send more money to washington and hope we can beg to get some of that back.
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when you put in energy efficient windows in your home we can put it back no problem. the credit you get that $7,500 credit you get for buying a tesla we can put that back. the credit you get for your gambling debts, now that that would affect anyone in this room we can put that back. we can put back anything the american public back. we hope you can get some of it back so this is your postcard, not ours. this is why we're listening so intently right now on the tax reform proposal we've laid out. and the final form is because a fair and simple he tax code demands a fair and simpler tax collector and the irs today is a huge agency with the power to destroy lives and businesses and it is targeting americans based on their political beliefs.
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that's not acceptable, so we proposed to bust it up, redesign it into three much smaller, much focused unit, a unit focused on business, staffed with tax experts on business to accurately and quickly answer business questions and resolve dispute disputes for our businesses large and small. families focused on customer service. i don't know how many of you tried to call the irs lately, if you got through and spoke to three different people you got three different answers. that level of customer service or lack of it is not acceptable in your organization, it's not acceptable in that agency. so we propose a second unit focusing on customer service and timely actions. finally because i've grown so tired in my home, i didn't move to washington. i live in the community
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woodlands just north of houston and four years i have heard from families and small businesses that get into tax disputes with the irs, sometimes relatively minor one. they will spend years and years and thousands of dollars and even when they win they've lost so we're proposing a small unit inpent of treasury and the irs in effect to small claims court so americans can quickly and accordable ifly get their disputes resolved without spending thousands of dollars on attorneys and accountants. the 21st agency with a sing already singular mission of customer service. as you lookality the three proposals you may be thinking this sounds too good to be true, but it's not. we've designed this to break even within the budget,
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considering the economic growth that will come with it. so the only way to do that, the only way to lower rates for everybody is to eliminate the hundreds of special tax provisions for some, so that's what we're proposing to you, significant tradeoffs to move to this. for example, in business, we're proposing not to deduct your net interest costs. it is a change from where we are today, there's good policy reasons for doing that. for example, allowing full expensing where we write off things immediately in the first year, and carry that forward. if you're also borrowing to do that in writing off that interest, at this point we're giving you a negative interest rate. we're paying you to buy stuff. eliminating that as well allows us to go to a more pro-growth dramatically more pro-growth tax code overall. that's a big change from what we do today, why we ask businesses large and small to test drive
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the new blueprint to give us back the feedback as we work to improve this at every step. for families and individuals, for example, so there are hundreds of provisions that apply to come. for example, in our case, we can dotted our two boys. it's the biggest blessing kathy and i could ever have. we didn't take advantage of the adoption tax credit. we were just in the wrong tax bracket for that but that's important to people. what we're proposing to the american people is rather than have hundreds of those provision that apply to some at some point in their life, why don't we lower the tax rates for everybody and americans use it for the priorities in their life, wherever that may be. another, we propose for those one-third of americans who itemize that we don't deduct the
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state and local income sales and property taxes, which is a big change from where we're at today, but here's how it works under the current tax code, we keep your taxes high. you send your money to washington, you hope you can call some of it back to offset your local taxes but what's going on is that everyone is subsidizing each other so taxpayers are subsidizing city taxpayers, middle class taxpayers are subsidizing higher earners, low tax communities in states are subsidizing high tax communities and states. our proposal is this, rather than high taxes and everyone subsidize each other, why don't we lower the taxes and everyone pay their own. the added benefit here is that the federal tax code will no longer subsidize higher taxes at the local level. we think that's a big change from where we're at today and why we're asking the american people to consider the postcard
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to look at this, and the deductions and the provision its that count to them, and bring us that feedback as well. and so jim, i want to stop to take questions from the audience, but i will make the same request to you as we do to everyone we meet, and i've done more than 40 town hall meetings on this back home, i've traveled the country to do the same coast to coast, to lay out the built for growth tax reform plan as well, test drive this. test drive this proposal and bring us back your feedback. don't take one provision out of this like the interest deductibility and drive it like it's that old clunker of a tax car we are athey today. what we're proposing is a new car. it has different features. it drives much differently, most economists believe it drives much faster than the tax code we're in today. test drive the new proposal, bring us back that feedback, help us improve it at every step, because the timetable for
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us is to continue to listen to this feedback through the end of the year. our tax teams are writing key provisions of this as we speak but we're also getting the feedback to make this better as we work toward introducing this early in 2017. and now because we have a president willing to lead on tax reform in mr. trump, while we don't know yet where this fits in that first 100 days of governing, but wherever it fits we're going to be ready to deliver pro growth tax code, tax reform that leapfrogs america back into the gross pages and salaries. jim, with your perpmission, cani stop and take some questions? [ applause ] yes, sir. >> we've got microphones, could
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you just state your name and affiliation before you ask the question. >> happy to. thank you, chairman brady. kip eiderberg with the association of equipment manufacturers. i want to thank you for being here today and also to commend your staff for being incredibly easy to work with and receptive throughout this to process. just looking for your thoughts on the opportunity to include or somehow mirror infrastructure investment is with tax reform. >> there is an interest by some to use the repatriated earnings to fund infrastructure in some form or fashion. we took the earnings from the $2.5 trillion of stranded u.s. profits to bring back the united states, we use those earnings to plow it right back into a more competitive tax code, the lower the rates, to redesign is so we can compete and win anywhere, especially here at home. others would like to use that for an infrastructure relateded
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approach, so we'll listen to those ideas. i think at the end of the day, the stronger economy we have, the more certainty and resign that actually grows the economy, frankly, is awfully important for investments in infrastructure or anything else. we know we'll be having these discussions going forward. thanks. yes, sir? >> chairman, all the work, larry hart with hart strategies. the work you've been doing on this is terrific, and headed in a direction that we have waited to go for a long time. i think the question that occurs to me in reading about this is whereas in the house, this say direction you're going, the
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senate doesn't seem to be in the same planet when they talk about this stuff, and the big question comes down to is tax reform going to be done through the reconciliation process? when i think that you would be able to come up with a bill very much along the lines that you're talking about along with working with the administration you know, on details and things like that. >> yes. >> or whether at least in the senate, they're going to "have a bipartisan bill" because, while, you know, reconciliation takes only is good for ten years and if they do that, if they wind up again as, they did a few years ago in the house, a prenegotiating with the democrats on a bill, i can guarantee you there will be no abolishment of the death tax, for example, and i'm glad you pointed that out, something some of us have worked on for many years and some other provisions. there will be something more
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like a democrat bill. so where do you -- how do you see that resolving itself? >> yes, so while a lot of people now are sort of brainstorming the process and sequencing and timing ways and means committee is focused on the product, develop the most pro growth, most competitive tax reform proposal we can, rather than the process of moving forward, and while reconciliation may be the only ultimately be the only option, we're going to start differently. i'm inviting our democrat members of the house to engage on tax reform. bring us your best idea on how to grow the economy. bring us your best idea on how to make the tax code fair and simple again for families. bring us the best idea, your best ideas on how to redesign the irs into something focused
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on customer service. we'll listen to those ideas and here's why i think we absolutely ought to, because our democrat members of congress, i mean, their communities are suffering, too, their college kids aren't finding those jobs. they're seeing the same companies we see considering moving their jobs and research and innovation and headquarters overseas. they can't be happy with the status quo today, and so we're going to offer a wide open opportunity for our democrats to bring their best ideas forward and engage on tax reform. how that plays out and if they'll take that opportunity, i don't know yet, but we're going to open that door in a major way. yes, so that's the approach i want to take. by the way, you start out with something about this proposal. can i tell you, we incorporated the ideas of more than 50 lawmakers in this tax reform
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proposal. we looked at the thinking of think tanks, in pro growth organizations, presidential candidates, so this is not, this is not just a tax proposal. it is ours from the sense we took the best ideas on growth and simplicity that we could identify, which is why this is in the house the first consensus tax reform blueprint in more than 30 years. it's why it makes it more real going forward and i think we have' got a head start on making sure question deliver this in 2017. >> thank you, chairman brady. my name is jason fickner at the mercada center. could you point out the similarities or differences between your tax plan and mr. trump's tax plan and things we should focus on?
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that might be helpful for us. >> i think the tax proposals are 80% the same and i think the differences are more than manageable. we can find common ground here. we go all in because it's incredibly pro growth along main street america, that's one change. we're very aggressive on the international tax reform, and on eliminating the incentives to locate overseas, the border adjustability provision of this eliminates it, eliminates it, not only that, it actually reverses that magnet back toward the u.s. we think that's important to growth. we're hopeful the trump team will take a look at proposals like that. we have similar tax brackets as well. i do think in recent days i've heard one thought about the wages and the taxes of the top
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1%, but here's my thought. no american should be stuck with the obama tax rates. they certainly haven't grown the economy. this is the worst recovery in 50 years, certainly hasn't reduced income inequality. it's grown under this president. that's sort of old time thinking, you know, high tax rates, hundreds of provisions and try to phase them out or limit them. our proposal is much different. on the postcard we're proposing everyone know exactly what each other's deductions are. we lower those rates so the help you get for home and charity, kids in college, everyone knows what they are, because they're exactly the same for everybody. so we're thinking differently about how you address tax reform at every tax bracket, including those of the 1%.
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yes, sir? >> thank you. my name's tim brown. >> yes, sir. >> i want to say i appreciate your comments. i'm representing myself, i'm a citizen and a taxpayer, and a voter. it sounds good to me. you alluded to one point that i'd like you to amplify on. i'm aware that the highest marginal tax rates on working for a living in this country are on people who are at a welfare standard. if you look at welfare effects as attacks. can you say more about how the tax program will help the poorest of the poor have an incentive to work? >> sure. so there is no quicker path out of poverty than a job, even faster a good paying job. it's one of the missing ingredients in the obama recovery in a major way, not just for those on welfare, those
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young people, the middle class, all but the elderly frankly, their percentage has shrunk within the workforce. this aims to reverse that, to create more good paying jobs, which is really key for those trying to work their way up the economic ladder, and so we think that's the ultimate answer here, coupled with regulatory reform, so businesses are creating more of those main street jobs, coupled in my view with searching for more customers for american products around the world, better enforceable, productive trade agreements i think are important as well for creating jobs here in the united states and in the better way agenda, we propose a new way of looking at welfare. today think about this today, there are more people on welfare than are working full time. take every man, woman and child in 24 states total, that's the
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number of americans in poverty today. it's stuck there. it's not getting better, and it won't improve unless we rethink the way we address welfare. and so in our better way agenda we lay out four key prinz that are game changing but we know work at the local level, starting with requiring and expecting work for these welfare benefits, because that's the key access point out of there. so it won't be achieved, my answer is it won't be achieved merely through a fair and simpler more pro growth tax code, but it can be if we think differently about how we address the issue. >> chairman brady, thanks for being here today. on behalf of the rape coalition i wanted to first note how mu e
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wanted to say that's something hugely important to bringing back the jobs and investment we need here at home. i was wondering if you could talk a little bit given how much work you have in congress next year about what the time line and sequencing will be for tax reform. >> yes, it's difficult to know now. we want to know where -- look, the trump team, it's just been a few weeks. they deserve the chance to fill their team out, think about their first 100 days to sort of get their feet on the ground there. we're engaged with them now. we'll continue to stay engaged with them as well as we work out sort of, find those common grounds on the issues like tax reform and also learn more about their timing. what i'm here to say is that we're not focused on the process in this timing. we're focused on whenever that is set, we're going to be ready to deliver pro growth tax reform. so that's exactly where we're at right now. thanks.
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>> you want to take one last question? >> yes, sir, that would be great. >> unless you want to override, mr. chairman. >> thank you. >> i think there's one way over on the side? >> marty shu with commercial real estate council. i get your point about the expensing and the interest factor. >> yes. >> so if you take that extension over to home mortgages and you're allowed to write off the home mortgage interest, would you not be allowed to write off commercial property interest on a commercial loan? >> we're proposing not to do that. we are actually sort of putting the home mortgage deduction in a separate category, because as we looked at the postcard, i think while some would like to have fights over individual provisions in the tax code, the debate that we're looking for in america is whether americans want something this fair and this simple and this
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understandable and are willing to make the tradeoffs to get there, or we want to stick with the status quo. overwhelmingly complex tax code that no one knows whose other provisions are, how they apply and everything is designed around it. so we're proposing a game changing approach on how we address that, and for many families that home mortgage deduction is something they count on, and so that is why it will stay, we're proposing to you, to keep it within the tax code. for real estate or any industry, you know, in an economy that's growing at better than 3%, or closer to 4%, is dramatically better than the 1.5% and 1.75% we've got today. lower tax rates allows them to continue to keep money invested locally. the ability to buy those new buildings, equipment, software, technology, the items that not just grow the economy, that grow
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productivity in wages for worker, we think that's awfully important, whether you're in commercial real estate, you know, or that doughnut shop owner. parentally keep coming back to that at every state. so we are hoping and asking that every industry take a look, the entire blueprint including the provisions that change this economy in a very positive way, and look at the impact it has on your industry. we want that feedback. we're looking to improve and make this better at every step, so engage with us. look, i'll finish with this. we can do this. it's been 30 years, and i think the biggest challenge the tax reform is most americans have given up hope it will ever happen, but what's occurring today is what is occurring, has occurred for president reagan, three major changes that are happening in america today. one, as with president reagan's reform, the american public was sick of the tax code.
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too complex, too costly, loopholes for everybody, headaches for them, they had enough. that's where we're at today. secondly, there were bold ideas on tax reform by lawmakers and others from then it was the jack kemps and the bill bradleys and others today. we've got fair tax and flat tax and abc tax and jumpstart tax. we have provisions smart ideas on tax reforms so we had the same dynamic. third dynamic then was we had a president willing to lead on tax reform. today we have a new president coming into office, willing to lead on tax reform. those dynamics that existed for the '86 reforms have reoccurred again in a major way. this is a unique opportunity for us to do what most americans have given up hope ever will happen, but it's a dramatic opportunity to leapfrog america back into the most competitive place on the planet to create that new job and we're
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determined to deliver on that. so thank you very much for having me here today. [ applause ] >> if our panel to like to join us here on stage we'll continue the discussion. and i will turn the program over to my colleague -- >> two is in my name this time. >> david burton, when we're talking i always want to call you dan burton, so excuse me if i slip into that. just like you, david. david burton serves as our senior fellow in our thomas a. rowe stoolt for economic policy studies and he will lead the rest of this discussion. david? >> thanks, john. it's my pleasure to introduce
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three high quality panelists, i've asked them to each speak for about ten minutes and then we'll have a question and answer session and a discussion. we're going to go first with jason, then steve, then dan mitchell. jason is a senior research fellow at the mercades center at george university and teaches economics at johns hopkins, at virginia tech and jompbltown if i remember correctly. he is former acting director at the social security administration and chief economist there served in the joint economic community as an economist and working in tax policy and entitlements. steve enton say senior fellow at
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the tax foundation he went to the university of chicago as did i but steve unlike me actually learned something while he was there he served in the reagan treasury, was at the institute for research and economics of taxation for many years and after norm trade died serve as et cetera president. he is an extremely fine tax economist and he and his colleagues at the tax foundation have put together computable tax policy model there that is second to none, probably more better, the very best in the united states. dan mitchell is a senior fellow at the kato institute. he is within advocating for tax reform or competition he doesn't know the meaning of the word fear but in some respects it
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should be unsurprising because there are lots of words dan doesn't know the meaning of. >> you can see why we like to come here all the time. i get nothing but praise. >> dan worked for senator packwood, chairman of the finance committee during the '86 tax reform act, the last time we got substantial passive tax reform done. he once upon a time worked here at the heritage foundation. it's my understanding, before i was here with dan here, people have since repressed their memories of his stay here. in every event we have a very fine panel. before we get to that, i want to take two or three minutes and discuss tax reform, the opportunity we have to get something very positive done for the american people and a few thoughts about what that might be. it's well established that if you're trying to create economic
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growth and opportunity you want to reduce marginal tax rates and move towards a consumption tax base. in micro economic terms that means that you should reduce marginal tax rates and move to a tax base so you reduce what economists who call dead weight loss or excess burden. that is the lost economic output because of the effects of tax policy. this is something anybody who's had the joys of introductory price theory can do. the most important thing to remember about that is that the benefit of reducing marginal tax rates increases with the square of the tax rate reduction and the converse is also true, the economic losses increase with the square of the increase in the tax rate. optimal tax theory is the same result.
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if you look at optimal tax literature going back and its analysis of intertemporal choices, you want to have a consumption base which most major tax reform proposals lead you to. the finance literature leads to the same conclusion. if you want to have a tax system that's neutral with respect to all the factors of production, you move to con sums base, income tax double, trouble and sometimes quadruple taxes. capital and therefore leads to an inefficient, unproductive tax system. we want to eliminate tax preferences. why? there's two basic tax preferences. tax preferences for various producers distort the economy and lead to an inefficient production process and noneconomic choices by the producers. it shrinks the production possibilities frontier.
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on the consumer side when you alter people's choices for comparable reasons, you get an inefficient ability of the economy to satisfy consumer wants. you want to have a tax system that taxes all production once that doesn't double, trouble or quadruple tax capital. we have the opportunity now, i believe, to achieve a substantial move toward those basic criteria what is good tax reform. chairman brady's proposal, which is being fleshed out as we speak is an extremely positive step towards lower marginal tax rates and a tax base that no longer double or triple taxes capital income. similarly, the trump proposal reduces marginal rates dramatically and makes positive steps on the tax base side. so i think we have the best
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opportunity and quite literally three decades to get a very positive, pro growth tax reform done. tax reform has the potential if it's done truly correctly of as much as increasing gdp by 15% over a decade. this will lead to an extraordinarily positive economy in which wages increase and incomes grow and opportunities are once again available to the american people. with that, i'll turn it over to jason fickner. >> do you want us to sit or stand up there? >> up to you. >> what do you want to do? majority rules. >> stay here. nice and easy and sit-down. good morning, everyone. thanks for coming today. i'm sure most people going up to the election probably thought that hillary clinton was going to win the election, be fighting the same tax battle we've been
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fighting the last eight years. i made many vacation plans which we now have to cancel. the trade-offs we make for another chance to have good tax policy. let's just start with the basic for a moment about what any tax reform proposal the next congress should address by making three points first. first of all, the united states tax code severely distorts market decisions and allocation of resources. it impedes potential economic growth and potential tax revenue. make no mistake, it is in need of reform. we must do this and the time is now. second, economists generally prefer a broader tax base with lower marginal rates and brady's plan does that. the tax rates that drive the decision at the margin of what to do next, more work, more saving, more investment, plant labor, equipment, intellectual property, more research and development, a broader base is more efficient because you're not treating some forms of income or expenses differently from others and creating a bias.
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i say economists generally prefer a broader tax base but base-broadening shouldn't be traded off for other provisions in a vain attempt of revenue neutral that would undo all the benefits of lower marginal tax rates on businesses. we don't want to increase the length of appreciation schedules. i was pleased to see both senator brady's plan and president-elect trump plans have expensings. many previous discussions we had in the past years is trying to figure out how to do lower rates extending the depreciation schedules. that's not the way to go. focusing on the right policy provisions brings in my third point which is provisions that tinker around the edges like patent box, innovation box, anti-invasion erosions will only exacerbate existing problems evident with our current corporate tax code. there is an old saga montgomery tax economists, the road to tax hell complexity is paved with
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good intentions. chairman brady made a good point pointing out he wants to broaden the base and lower the rates. lowering the rates are very important. put it on a post card. you want to add all these extra provisions people want as their favorites then you've got to raise the tax rates back up again. that distorts decisions and economic behavior. you've got to make up revenue somewhere. we have trade-offs to make. let's try to avoid the complexity, let's try to keep it simple. chairman brady does that. we need to focus on the causes of the policy problems, not just the symptoms. efforts to attempt to treat the symptoms and not the causes, efforts that tinker around the edges are doomed to fail and only exacerbate the existing problems and further the complicity and create equity-owned businesses using the tax code to wic winners and losers. u.s. competitiveness will continue to languish and create troublesome results.
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a further loss of american jobs, sale of u.s. companies to foreign multinationals, a further erosion of the corporate tax base and a continuation of the harmful tax policies biased against savings, investment, job creation and economic growth. the united states tax code currently distorts market decisions and allocation of resources. the tax code hampers job creation, impedes growth and tax policy and one thing we keep this discussion going and we talked this morning and also with the discussion on the brady and trump plans, please keep in mind that only people pay taxes. corporations don't pay taxes. they are legal constructs with a statutory responsibility of submitting taxes, but the burden of paying taxes fall on people. we hear opposition saying it's a cut on business. cuts taxes for businesses not people. that's not true. businesses are made up of
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people. the ultimate burden of taxes fall on people. we are cutting business taxes, cutting taxes on labor, cutting taxes on savings. that's important. many developed countries are reducing their tax rates. now there is a chance to do something and be more competitive. beginning next year, finally we'll have both a new president and congress serious about tax reform. that's why a lot of us are so excited. exhausted economic research proves most basic effect, the more you tax capital or labor, the less you get of it. it also makes clear incentives matter. one thing we should not do, which i think is off the table going into next year, not raise tax rates. united states corporate tax rate is one of the highest in the industrialized world this now increases business flight to lower tax countries taking their job, money and tax dollars with them. while it's not going to solve all our problems, one of the biggest we have is lower the tax rate on the corporate side individual. lowering the corporate tax rate
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gives so many incentives to move businesses and jobs overseas. it's important income be taxed once and only once. there is much concern those who report significant earnings pay a lower tax rate than those with ordinary income. taxes are taxed first at the corporate level then the individual level. my two colleagues on the panel will get into that. policy makers need not fly blind when it comes to defining principles and goals key to a successful revenue system. research suggests a successful revenue system should include the following. they should be simple. it's hard to understand that, but we have a very complex code and makes it difficult and costly to comply with. makes it easier to scam. congress should make the tax code as simple and transparent as possible to increase compliance.
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it should be equitable. we talked about it being fair. these policies result in immeasurable unintended consequences. tax fairness would reduce the number of provisions that favor one group over another. the tax code should be efficient because the tax code alters market decisions and such work, savings, investment and job creation and impedes economic growth and tax revenue. it must provide sufficient revenue to fund the government services and changing tax payer behavior. it should be predictable. there are a lot of questions that use reconciliation which allow for a ten-year window. negative effects are not just from what it does today but what it may do in the future. such uncertainty deters economic growth, require the tax code provides near and long-term predictability. more we can do that locks benefits into the tax code forever, the better off we'll
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be. to sum up and conclude, there is a broad consensus as to which policies are most likely to provide growth and revenues and which are likely to fail. lower rates. exhaustive research, the more you tax something, the less you get. if you want more labor, work, saving, more investing, more job creation, tax them less. broaden the base and make loopholes. one of the keys to successful fiscal reform is move away from a spending system that depends upon easily manipulated tax system. tax reform should have lower rates, broaden the base and close loopholes and this leads to added employment and most likely increase revenues. we shouldn't have double taxation and reduce bad tax incentives. fortunately the plans follow many of these principles and policies we'll talk about further with my two colleagues. thank you. >> thank you.
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>> thank you for having us today. i was impressed with chairman brady's remarks. the house has done enormous amount of work understanding these issues and trying to deal with them. what i would like to go through today what's wrong with the current system and then compare the current system to an ideal system and then look at how the brady plan moves in that direction to a considerable extent. many people often say wouldn't it be nice if we had a pure income tax with no deductions and everything treated evenly. the dirty secret about the income tax is it was set up biased against saving and investment. the object was to redistribute wealth. if you had a perfect income tax it would not be neutral. it would treat consumption items neutrally but penalizing saving for future consumption. that is the problem that we faced.
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there we go. if you earn income and pay tax on it, you can buy a loaf of bread and jar of peanut butter and we don't tax you again. there are a few excises on cigarettes and gasoline, but generally we don't tax after-tax income when you consume it. but if you buy a bond to buy interest payments in the future, we tax the interest. if you buy a corporate stock to get a dividend we tax the dividend if you put it into your small business we tax the earnings on the business, even if it's after tax money. that's a second layer of taxes. second bias of income tax savings. next step a corporate tax to tax those dividends and capital gains distribution even before you get them. that's a third layer of tax that is not imposed on consumption. if you have enough money in your bank balances toward the end of life, which you set aside in case you need to go into a nursing home that, would eat up the exempt amount and anything over that is hit by the estate tax.
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so that's the fourth layer of tax. a heavy bias. the next problem with the tax system is they don't even measure income correctly to begin with. if you're a business and you buy $100 machine, you've spent $100. we don't let you write it off. we make you stretch it out over many, many years. if there is a nonzero cost of time value of money, which there is, and if there is inflation, that write-off is not worth the whole $100. you've spent more than we let you write off in present value and we are overstating your income the entire time. so that means the tax rate's actually higher than it appears to be. and finally, we have the problem of trying to tax income from what's already been taxed abroad and we have a complicated foreign tax credit to avoid the double taxation which doesn't always work. a tax system that overstates the system and taxes several times.
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it's because of these problems many people researched how to put together something sometimes called personal expenditure tax or consumption tax that can be progressive but doesn't have this added bias against saving and investment. what would that look like? in the first place, would you have to do something about the double taxation of saving. would you tax the saving upfront and not tax the returns, which we do with roth iras and municipal bonds or you would put the tax on the income when you first -- you would not put the tax on the income if you put it into saving. that's a regular ira, pension or 401(k). then tax it when you take it out. but you taxed the original amount and interest built up. all saving would get that treatment. not just limited amounts you take out by a certain time and follow certain rules on distributions. no. all saving would get that
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treatment. the next step, businesses need to stop double tax. businesses get to duct the dividend or integrate the two systems so business is taxed at the business or individual level but not both. then we have to get rid of that estate tax. because that's an added layer of tax on income that's already been saved. every penny in an estate has been taxed, either when you first earned it and saved it or put it into an investment and it earned income and was taxed again. even in an ira where you postponed the tax on the saving, the heir has to start paying tax on it. it's been taxed already, sometimes more than once or it's about to be taxed and the other provisions of the income tax always double taxation. the next step you need to get rid of that long depreciation life and create expensing so
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that people get to duct the full value of what they actually spent on the machine. not just some reduced value. finally, have a territorial tax system like most of our trading partners. income earned abroad where foreign governments provided the water and sewer and police protection, it's taxed over there, stuff that's produced here is taxed here. we don't get into each other's sand boxes and try and grab each other's toys. that's not the right way to do a global tax system. with all that in mind, let's take a look at how the house blueprint stacks up. it reduces tax rates for individuals and businesses. this partially reduces the tax of the business level and the added tax on dividends and capital gains. it doesn't eliminate one or the other. it's still a double tax. rates on both of them are lower.
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so there's less of a double tax system. in the process, they do eliminate the deductibility of interest while continuing to tax it at the recipient's level. the right way to tax interest is to deduct the interest then tax the recipient or not deduct interest and not tax the recipient. they are eliminating the deduction but continuing to tax the recipient which is a mistake. >> at half. >> at the reduced capital gains and dividends rates. there is some problem with that. the senate has an interesting proposal to eliminate the double taxation of corporate income. the dividend is paid out, it's deductible but there is withholding tax the recipient can claim. you can do something similar for interest and that is something that can be worked out. both methods yield a very large amount of additional income because many recipients of tax exempt. the plan ends the estate and death tax, the death tax and the gift tax, i believe. that's one of the key points in moving toward a neutral tax
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system. it adopts expensing. the other key point on the business side for moving toward a neutral tax system. it adopts the territorial structure that a neutral tax system would have ending the anti-u.s. bias against producing here and selling abroad. these are big improvements. i give four out of five stars. i have to tell you, it's much better than what was done in 1986. what you in 1986, we did a lot of the cuts that were in effect in 1981. '86 actually moved toward this pure income tax with longer asset lies, got rid of investment tax credit, made it harder to use iras and pensions. damaged real estate by messing around with the depreciation allowances. and it did lower the corporate rate but the other features were so great raising taxes on capital relative to consumption when you lowered the rates you didn't make up to it. that was a move back to the pure income tax. this is a move in the general
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direction of a neutral tax where saving and investment are treated on par with consumption and that bias is largely eliminated. why do you want to do it? because with the bias, as much as the old people back there where they wanted to redistribute wealth thought they were helping the poor, there are fewer machines bought, fewer farms operating, fewer mines, factories are fewer and you have older machines and work force is less productive and wage is depressed. this sort of plan moving in this direction raises pretax wages and that's where the big gains to the work force come from. not just the tax cut. when you run it through our model and calculate how much additional capital would be formed and how much wages would go up, we get dramatic results. this plan, even though it doesn't go completely toward a neutral base, is so far along that line that it gives you about a 9% boost in gdp, the
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capital stock will be almost 30% larger, wages will be almost 8% larger, there will be a couple percent more people working. the total increase in the economy of 9% will be split on the wage side between higher wages per worker and more workers working. you get a big improvement in the wage earnings and wage bill. the parent initial cost of almost $2.4 trillion would be offset to a very large measure by the growth effects of the plan and we figure over the decade it would only be losing about $190 billion which is peanuts. and then further out you get even more revenue coming in. >> some people have some sense over that ten-year period the federal government is projected to collect about $45 trillion. so that $2 trillion static loss should be looked at in that context. >> yes.
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it wouldn't actually happen because you get most back from the growth. there is almost no revenue loss over the ten-year window and improvements further out. if you look at the distribution tables on a static basis, if you're lowering the tax rates on noncorporate business and capital gains and dividends, a lot goes to the top. if you factor in the wage growth, it looks like a much more even distribution. the total after-tax incomes that we project would be 8.7% higher on average. that would be between 8.4% and 9.3% higher for the bottom 99% of the population and would be about 13% higher in the top 1%, but the benefits to the 99% are huge and the benefits to the labor force are huge, and that's why you want to do this kind of a reform. thank you. >> thank you, steve. dr. mitchell. >> first thing, david, i dug out
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my heritage tie from my closet, but i have to say it's lost its powers. i put it on and didn't want to persecute victimless crimes. i didn't want pointless foreign interventi intervention. i'm still a libertarian so i'm joking, i love my friends at heritage and good to be back here. after we've had two very good presentations from jason and steve i want to touch on a few additional issues so we can wrap this thing up assuming i can figure out how to work the thing. i probably don't need to reiterate that but i want to add one thing that i think that jason and steve and david would all agree with. you can't have good tax policy if you don't control the growth of government spending. i have a lot of faith given what the house has done for the last several years and budget
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resolutions that the house is serious about controlling the growth of government spending and enabling and creating breathing room to do good tax policy. the new president said things that made me worry he might not want to reform entightments, if we don't i worry we'll never have a chance for running tax policy. even though it's not a principal of tax policy if we don't control government spending we'll never get good tax policy and never achieve all those things the panelists talked about. in terms of those things that the other panelists have talked about, let me just reinforce a couple of points. politicians understand that tax rates matter when they want to. they say we need higher taxes of tobacco and alcohol because we want people to smoke less. they're right, as a libertarian i don't think we should be trying to control people's
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private lives but i would give an a-plus for economics but the same politicians turn around and say it doesn't matter if you have high tax rates on entrepreneurs, investors, things like that. of course it matters. people respond to incentives. i want to emphasize what the other panelists have said about the importance of reducing double taxation. i thought chairman brady took the good work of former chairman kemp and put together a tax reform plan in and effect turbo charged it, by sort of breaking out of some of the barriers that kemp had imposed upon himself and came up with a plan that's even better. but the key thing and this really echoes what steve in particular was reinforcing, is reducing double taxation. i want to show you something i
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think gets this idea across to politicians. if you had an apple orchard, you spent all those years, planting the trees, tending the creighs, keeping away pests, pruning the trees and finally your apple trees have matured, you have a good crop of apples, it's the fall, you're ready to harvest the apples, what's the best way to harvest the apples. do you pick them from the tree or do you chop down the tree? and even politicians realize wait it wouldn't make sense to chop down the tree because i wouldn't have apples next year but that's exactly what we do in our tax code with the double, driple and quadruple taxation of saving and investing. technically we're sawing branches off the tree, we're not confiscating all the capital but in this example i have here, the tree is the capital. the apples are the income. yes, tax the apples if you want at a low rate and things like that. do not saw off branches of the tree, because it means you have fewer apples next year.
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that's what steve was talking about when he's referencing the fact that we're going to lower people's income and there's going to be less income in the future for ordinary workers if we destroy capital in our economy with bad tax policy, and the good news is that in general, trump is pushing in that direction. there's no question brady is pushing in that direction. there's even some movement on the senate side, where normally people always joked that's where good ideas go to die so there's a lot of reason for optimism. i guess in my last couple of minutes, i want to raise something that we all need to think about as people who are friendly to the idea of tax reform, and that's this sort of destination based border adjustable part of the tax reform plan, it's not in trump but before i get to that first here's my little chart i put up. i have the flat tax as sort of the gold standard, low rate,
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double taxition, pure no loopholes and i xa irit to trump or brady or the better way plan, hover you want to call it and both trump and brady are moving significantly in the right direction. i'm a purist, but i'm not under any delusions that we're going to get perfection out of the political system, and so when i'm giving them basically bs and b-pluses that's a tremendous move in the right direction that they've done. you will notice on the lower right i have these question marks under things like political risk, pro-competitive, territoriality, because what the house plan is doing is really radically different. now, it might turn out to be acceptable, but i think we really, we are obligated to give some serious thought about what this means, because you're exempting all export-related income. you're not allowing any deduction for foreign produced
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inputs. is that protectionist or is it not protectionist? is it going to be compliant with the wto? for those of you who have some gray hair, we remember back when you had the whole fiske and years were forced to change it. will the wto do the same thing? is this an indetect tax under wto even though it's a corporate tax structure? you know, we have to think about those issues. and what worries me, and this is why i sort of have a question mark under political risk, the one thing i really fear for fiscal policy is having a value added tax added on top of our current income tax. in effect, the destination-based border adjustable cash flow tax you have in brady's plan is a vat but it's not because wages are deduckedable. if the wto rules against it, i worry, would politicians in washington especially if maybe they're not as good as ones we hopefully have right now so this it would happen like five years
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in the future by the time the cases get processed? what happens if the politicians in the future who might not have the same interest of limited government get a wto decision and see the six way to deal with this is to make wage noz longer deductible, make it a vat because in theory even though it will be a sub traction method, the wt op would probably approve it. that i think you may, as well just fold up shop because our chances can of crowing the size of government would be very, very low. this is something we need to seriously think about. but also, we have to think about the implications for tax competition which i think is one of the few good things on our side controlling the agreed of the political class. the better way plan in some sense is based on a plan by alan you're back published by the center for american progress which is not exactly organization that is friendly to limited government and low tax rates. the first sub title in his prap was "avoiding the race to the
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become," and that's a term that the left uses because they don't like tax competition. ireland cut taxes. other countries are cutting taxes. reagan and thatcher cut taxes. other countries had to cut taxes. i think that's wonderful. left uses it as a race to the bottom. if alton wants to avoid a race to the bottom, that to me suggests uh-oh, we'd better be very careful about doing this because if people who don't like tax competition want that approach, that worries me a lot. by the way, i don't want to get into technical boring tax things, but this is a destination-based system which is the exact same thing that underlies the so-called streamlined tax proposal, in other words the internet sales tax cartel that state governments want because they don't want tax competition. brady's plan is great. but this is a very new different thing. i think we need to think about whether or not that would be
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good in the long run and then two final points that are political. when you do a destination-based system, in effect, the goal is to maximize the taxes paid by americans and having nothing tax levied on foreigners. politically, that doesn't make sense. so i sort of wonder about it. the other political thing i wonder about, normally all the things being talked about in these various plans, lower rates, less double taxation, territority, these are things the business community can deserve united behind. when you do the destination based cash flow tax, you're in effect saying to every company that does a lot of importing, think about walmart or something like that, you're going to make them very strong opponents i assume of the plan. if republicans are doing something where you to go up against the left, the media, a
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lot of opponents that are doing the usual fanning the flames of class warfare, do you want vo-to-have part of the business community against you? i think the better way plan is great. it's the best thing to come out of congress in a long time. i think there's been a huge amount of very serious good work done on it. when we're thinking about medding the better way plan with the trump plan, i worry about this one provision. i don't know than enough thought has been given to it. these are concerns since everybody else covered the main things about reducing rates, less double taxation. i figure i would close by raising a few warning flags because this is something we need to think about. thank you very much. >> thank you, dan. jason, do you want to have, say anything one or two minutes, three, whatever in response to anything the other panelists said? >> yeah, a few things. i think we're all in ingredient up here. to two things dan said. one was controlling the growth of spending.
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is he completely right. and i ignored it in a sense as looking at what is good tax reform. one of the problems going forward is because spending is so high, one of the opposition complaints to tax -- it does not raise enough revenue. we keep raising spending. so dan's right. we have to get spending under control. that's long-term entitlement control so we can avoid -- we need to define the ideal tax system which raises enough revenue to support the things we want but not overspending. he also mentioned something called the fisk which i have less gray hair but still old enough to remember what it is. fics. you would set up some sort of subsidiary at a nice tax haven that had a lot of sunshine and i convert some of your sales through there to get a break on your sales from the u.s. exports. and it was called going fisking. if you're going on holiday. a lot of the tax planner would set up sales corporation taz ta minimize u.s. tax obligations. the whole point of why that was being done is the u.s. tax rate is too damn high. at 35% tax rate, you give incentives for corporations to
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be more competitive by shifting business activity someplace else than the u.s. so again lowering the tax rate is one of the biggest things we can do to improve growth and job creation. steve mentioned the idea about how much job creation economic growth will come out of this these tax reform plans if they go somewhere in the direction they're planning it right now. you might hear some debates and criticism about this dynamic versus static modeling. don't worry about it. get it out of your head. let's not focus if it loses money. the baseline we're going under, the assumptions used for the baseline are wrong. we see a declining labor force participation. wages are, people working are going down, income from wages will go down in the future. corporations are leaving the
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united states and business activity in the united states takes tax revenue out. she is assumptions of revenue going up or static are wrong. we don't want a static basis when you do reform. we're going to get better growth and turn around the problems we're having now and reverse the declines. hopefully get more work, more investment, more savings, that will lead to more revenue. let's not focus on whether static or dynamic is wrong. whether we go from 2% to 4% or 1.5 to 3, we're declining. we have to turn it around. these tax reforms will get us there. >> steve. >> some of us have enough gray hair to remember the disk that came before the fisk. >> domestic income sales corporation. >> the bulk of the growth from the blueprint is going to come from the expensing. followed by the rate reductions. the added phillip that you get
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from the border adjustment is perhaps the least worthwhile to press for if you're getting a lot of pushback and it's going to cause you trouble. i wouldn't worry too much about it. but dan's right to raise the question, is this going to be a wto acceptable. the spending side of the budget is critical. area wasting a lot of resources spending on junk. this infrastructure notion that it's going to salvage us and somehow be counter cyclical in the short good and raise productivity by a huge amount, most of what we need to spend on infrastructure is maintaining what we have. that's not going to add to the capital stock. and infrastructure increases are into the going to be a real panacea. we're not in a recession.
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we've been growing much too slowly. we're at equilibrium and it's too low. to get that fixed you need an increase in the private sector capital stock that's been depressed all these years by taxes and regulatory burdens. that's where most of the growth will come from. do the infrastructure only if it's going to yield a very high return because it's very important. build a bridge to somewhere and not nowhere and make darn sure you've done a good cost benefit analysis before you start. some types of spending will naturally decline. the number of people needing public assistance will go down and people needing help with health care will go down as incomes go up. that's something we need to take account of in addition to the enacted spending reductions. the -- model results that i've shown are fairly dramatic. and some people think we can't get there from here because there won't be enough saving here to fund all this added investment. if you put this plan in place, there will be. first of all, the business tax cuts increase retained earnings which are part of saving. lower rates encourage more
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people to save. lower rates in the united states encourage more foreigners to invest here. and importantly, we spend a lot of our savings lending to other countries. and that can stay home. models that are con strapd by not having enough saving to allow this growth to occur are simply wrong. they're closed economy models and nonsense. you hear this out of treasury and the tax committee sometimes if they quote you from a closed economy model, the results are to be ignored. finally, our model is not robust enough in many ways. there are a lot of people who have left the workforce that we show a labor response based on the number of people still in. what if the people who are out cop back in droves? we are about 17% below the trend rate of growth since the 1960s. the recessions have knocked us
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down and the weak recovery has not allowed us to get back there. we have never not gotten back there in the past. it's because of increased tax and regulatory burdens holding us back. we've got a huge amount of potential growth out there unutilized. we're only showing we're recaptuing about half of it with the changes. if we made the tax changes and regulatory changes, i think we would get the other 9%. we can doing this. we just need the will and the house to act. we need to the administration to go along with it, and we need to the senate not to just sit there. >> all right. i'd like to say a couple quick things. then we'll move on to questions from the audience. dan is a very fine economist but he occasionally loses his way. and as sort of exhibit a in that, i'll bring to your attention that he roots for the university of georgia football team. i think everyone here probably
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can agree that that's a mistake. and in any event. >> a way ward youthing. > on, i wanted to say a couple things on the destination principle aspects of this plan. first off, i agree with what steve said is that the most important thing by far are the rate reductions and move towards expensing and that the border tax adjust captain issue be secondary importance. that said, he think it's significant important what, chairman brady has put together on the business side is fundamentally similar to the old who are ra buse cas flaxt with one difference. it the way it treats exports and imports.
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and break the income tax taxes it production in the united states and whether the goods are ulimately exported and in some cases services or sold in the united states and if you produce things abroad and bring the goods into the united states, the income tax imposes no tax on the value added abroad. a destination principle consumption tax is different. it imposes the same tax on goods consumed in the united states whether they're produced abroad or produced in the united states and doesn't purport to impose any tax on goods produced in the united states but consumed abroad. the easiest example to see that is a sales tax but european type credit invoice vats are like that and so would be a sub traction method v.a.t. sometimes called a business transfertach or business flat tax or business consumption tax. so the question becomes do you want to affirm production of receives or do you want a set
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tax system that is neutral with respect to producing things in the u.s. or abroad. i think the answer to that is almost certainly you want a tax system that no longer encourages you to move production offshore and that you wap a tax system that is neutral in that decision. and chairman brady is moving in that direction. dan is absolutely correct, i believe it was dan ta said that, that this will be undoubtedly litigated at the wto. the wto draw the distinction on the economically irrational basis it's permissible to have a border tax adjustment if it's an indirect tax. and it's impermissible to have a bta if it's a direct tax. so indirect, direct, indirect it's okay. direct it's not. we know that an income tax is direct under wto decisions. we know that a credit invoice type value added tax is indirect. we know a retail sales tax is indirect. we don't know the utley what the
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wto would determine with respect to a hora bus cas type value added tax. this is an open question legally. the of economic question i think is different. so the long and short of it is that i think dan -- concerns on this matter are misplaced. i think steve's economic judgment based on his model and the economic theory he goes into is correct that it's of secondary importance but not of any importance. there's a little point here, too. there's a lot of concern about trade. and i think everyone on this panel would agree that protectionist policies are economically destructive and counter productive where you treat foreign production more adversely than domestic production but bta enables people to address that concern
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politically in a way that's constructive and neutral between u.s. and foreign producers. with that, let's open it up to questions. we have time for a few questions if people have any. >> while we're waiting for a question, can i ask you a question, david? >> absolutely. >> if i'm a business and i want to buy an input from an american manufacturer, i get a deduction for it which, of course is proper because that's a business cost. but if i buy that same in you the from a foreign producer, i get no deduction at all. that's not treating equally. i mean it, why is that not just on the face of it protectionist
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that you have much worse tax treatment of foreign produced inputs than u.s. produced inputs? >> because the value of the good that was deducted has already been taxed whereas the value of the foreign good produced has not been taxed by the united states. it would be as if you had a retail sales tax that said, if you produce something abroad, we don't impose any sales tax on it. but if you produce it in the united states, we're going to impose a sales tax on it. that's in effect what the current system does. that's what any origin principle tax does. i mean, i assume you would agree that the business input had been taxed. >> it does ultimately come down to a debate over destination base versus origin based taxation which counsel bore 99% of the people in the world to death. >> it is very, very important. >> but that's why i raised it. i think it's important for our side to hash through these issues before we get too far down the path. >> we will promise to do so, but i think the boring remark was correct. we move onto the next question. >> we do have a question.
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>> again, i'm tim drown, citizen taxpayer. can i address you doctor, professor? >> whatever you'd like. jason is fine, too. >> you made a comment in passing and as a citizen tam pair i would say something back to you and to the heritage foundation as an organization with some political not political, some public policy outreach agenda. you said static scoring versus dynamic scoring forget about that and i would say don't forgetting about that. what you must not forget about is ha in the public perception, you open up the newspaper, you read an article and you say look what those idiots on capitol hill and the white house are doing. they're going to send us into deficit land forever ever and ever and ever. what's missed is the difference between static and dynamic scoring i'm talking public outreach. i'm all on the side of dynamic scoring. i understand the issues but in terms of outreach and public policy communication, i don't think one person in 100 understands the difference in
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how important that is. >> this is not a disagreement. i'm with you on the importance. the concern that i have is you know, this town's a bubble. we've seen that from the election results that we're in a bubble. when you go outside and talk to the american people and start talking on the differences of static and die fam mick, you've already lost them. what tends to happen especially with today's media, they'll find where the criticisms are and the differences and focus on that too disparage the entire plan. if you go out and say our job's going to create 4 million job and maybe it creates 3 can 5 million. it's not to say that the dynamic scoring of the model is wrong, but you're going to have people on the left with the tax policy center, people from brookings, center of american progress, they're going to come out if
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they haven't already starting to attack the tax foundation model and say it's wrong. not that the dynamic scoring is the wrong thing to do. now even tax policy center is going to have a dynamic model. they'll start quibbling on the differences. i want to focus on the fact ta static is wrong and say the way we're doing things is wrong. it's wrong because they're not counting for participation or increased growth and because of that it's wrong, why is it wrong? because they're not counting for these things. the tax plans will fix that. that the american people understand. if we talk about static dynamic, we're going to lose them. >> five ten years ago, the press was never picking up on the numbers. now they are. the house was not requiring dynamic scoring out of the joint
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tax committee. now it is. they're trying. treasury is trying. the press is on board. it's working. but there's another reason for looking at the dynamic numbers. it's to teach them what the proposal is likely to do. if i have two proposals one of which is not going to create growth and one of which is going to create growth and they're both the same dollar amount statically, the house might think they're both equally good. but one is going to get you a lot more growth. dynamic scoring process which first has to calculate the growth will give them that information that they would not have if they just tossed out on a static basis and didn't look any deep per. we had almost a republican candidate coming to us to ask us to score their plans not because they wanted our advice as to how to change their plans.
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we didn't push them around like that. we said this is what we think will happen to your plan. some would come back and say i want more growth than that. what if i substitute this provision for that provision. some of them came back 40 and 50 times. but it educated them as to what their likely outcome would be and they were able to target their growth and budget hit more efficiently by using a model which gave them that feed back. i think that's one of the biggest reasons for doing dynamic scoring is to lead to the better policy. >> called dynamic scoring -- reality based scoring. in some respects, i think it is better that we're talking about it takes into account economic reality that tax changes affect economic. >> we could start saying there's proper modeling versus improper. transparent versus misleading. if we do that, everyone will go that's what we should do. that's a good point to change
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our language. >> there's a question over here. >> return to the. >> i don't think the mike's on. maybe i'm wrong. let's try that. >> yes. >> can you hear me? i just want to return to the foreign input discussion because i didn't find it boring. is a manufacturer who has a foreign input and pays a tariff on that input because there's no domestic source, how is -- i believe that would have a negative impact on them. say you've got a 5% tariff on an input. have you no domestic source. you're saying you would pay on that again. >> not sure i understand the question. >> so you're a mafer in the united states and have foreign inputs. you pay tariffs on those inputs. >> no one's talking about a tariff here. >> it already exists. this bill is not going to get rid of foreign tariffs, is it? >> i see what you're saying. you're saying the 5% tax isn't part of the internal revenue code but the part of the harmonized tariff schedule? so then what's your follow on question from that? >> so my question is, i believe that i kind of am agreeing with dan here that foreign inputs if
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they are not treated the same as domestic inputs is not fair to domestic manufacturer who are trying to keep production in the united states. >> well, since david isn't jumping in, i'll jump in. that's one of the reasons why as i'm looking at this and i'm thinking, we have not paid enough attention to this issue and we need to. now, it might be that as we go down the road, one month, two months that maybe my concerns will be aced but right now, i just can't help but look at it if i'm buying from a supplier overseas i get no deduction which means in effect the tax rate that exists is going to be akin to a tariff on that foreign input. >> he's already paying a tariff more than likely. >> but there will be a new tariff which is akin to whatever the final corporatetach rate
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turns out to be. i think we need to -- those of us who want tax after rewere -- it looked like hillary was going to be elected. it was the house plan was simply a statement of principles. that's in effect all it was. now that all of a sudden this is a real issue and we might have a chance to do some real things, and by the way, you know, no matter what, 80%, 90% of what brady wants to do is going to be things i like. i'm just looking at this one provision and just worried, well, you know, maybe the trump trump's approach on this even though he gets rid of deferral which i don't like. maybe we can mitch the two plans and get rid of everything i don't like and have nothing but things i do like which seems perfectly reasonable to me. >> i guess the problem as you describe it is the 5% tariff and the tariffs vary depending on the source country and the product. not the proposed tax treatment
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which is to treat u.s. production and foreign production identically. instead of what is done currently which is u.s. production is attached and foreign production is not. so. >> part of the confusion in this area and it's intense even among economists even among very experienced professors at leading universities when they get together and talk about this, they get kind of jumbled up.
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it depends on whether you're looking at the taxes passed back to the producers or that's being paid by the consumers. and if you're only one country in the world it doesn't matter which way you look at it. if you've got more than one country, the earning point in your assumption where the tax falls can lead to opposite conclusions which is why eventually the economists threw up their hands and said the twoout comes have to be the same. now, in a situation where you have france and germany and they both have a v.a.t. of the same size, none of this matters. if you view it as being paid by
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the consumers, it doesn't make any difference. it's a 10% tax on all the consumers in both countries. if you're thinking it's being regarded on the producer side, then if you've got the export from france and they forgive their tax, the germans impose the same tax and the same thing producers in france and producers in germany are paying the same tax in jaerp, no problem again. what you have here is a little different. you see, they have a corporate tax. it used to be the same size as ours or a little hi and they had a v.a.t. on top of it. forgiving the v.a.t. on their export didn't hurt u they've cut their corporate taxes and substituted an increase in the v.a.t. they may have an advantage there if you view taxes an as being on the producer. it gives them a competitive advantage. if you view it on the consumer it, probably doesn't matter very much. if however, we take our whole corporate tax and convert it into what amounts to a kind of vattish thing it, then we are getting the advantage back on everything because we don't have a v.a.t. on top of the corporate tax. and they might look at that and say, well, we'd have to abolish our corporatetach and enlarge our v.a.t.s to be everything in order to compete with what the united states has just done. to some extent importers would feel some of that pain, too. i need to think this true much more carefully than i've been able to do because this is confusing. which end is the tax get imposed on, producer or consumer. and it is complicated. you will have push back from the wto. and dan's right. we have to think this through a bit more. i'm sure there's an answer out there. i don't think we have it yet. >> unless you make extremely extreme for lack of a better
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word assumptions about elasticities that the truth of the matter is the sentence is going to be somewhat on the producers and somewhat on the consumers. you wrote a fine paper, i forget the name of it on sentence analysis that people are interested if the subject might want to review. what's the name of it? >> it's in the heritage book public square private chamber and it's also on the old iret website under bulletin 88. i don't remember what i called it. >> there was a book that was a heritage book called "the secret chamber of the public square." you can buy it for $5 or less on amazon because there's a lot of used copies floating around. and it addresses a number of issues we've been discussing, one of which is sentence, another which is the dynamic versus static modeling and also jason did a paper on distributional analysis. to those of you who want to take a deep dive into some of these things that, book is probably one of the best things out there. >> it's free. >> the paper.
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>> that's vicious price competition there. >> marginal cost electronically is zero. >> if you want the rest of the masterpieces, you have to spend $3 on amazon. >> it's a good book. >> any other questions before we close this out? thank you all very much for coming. this session is closed. >> always a pleasure, sir. join us later today when the national press foundation hosts a series of panel discussions about the trump administration and the new congress. journalists and political science professors are expected to participate. you can watch it live at 1:00 p.m. eastern here on c-span 3.
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>> tonight on the communicators -- >> it's a great measure of how fast things change that the law is just figuring out those examples. and maybe figuring out just about the time they are not going to be as important in our daily lives. . so there's just this built in delay that it the lu suffers from and it's hard to keep up with the latest shifts. >> georgetown university law center professor on how prosecutors, lawyers and judges lack understanding of technology and work to help resolve that problem. he's interviewed by dustin volt, policy reporter at reuters. >>


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