[inaudible conversations] senate reconsider the consideration of the tax cuts in jobs that and begin by walking through with the chief of staff from the joint committee on taxation following the conclusion of this process which will likely take some time it will be provided to members later today. Because of a large number of amendments we have processed a modified mark will be given to members later today and then everybody can have time to read over the modifications. We will reserve the markup for tomorrow morning with a the modified mark i appreciate members participation of yesterdays session and was glad to hear everyones initial thoughts however the number of issues were raised the required additional responses that characterization the bill as a massive tax cut for the rich that particular claim was repeated by almost every minority member of the committee but it is just not true. The committee on taxation has concluded not only does it maintain the tax code but the largest tax cuts of percentage of income go to those middleincome earners are doing understand that additional analysis is contingent inconvenient for the narrative that they keep saying that we give the rich a tax cut but that should not be ignored altogether as the analysis. Also the repeated claims that the bill is a massive tax hike on the middle class. So to reach this conclusion members had to twist the meeting of the data specifically at the temple concluding somebody could see a tax increase out of the bill while those eight numbers ignore the fact that same data of 90 would get a tax cut or be held harmless under the bill. The tax bill introduced by the Ranking Member there were a number of similarities with the previous bill from the one we are debating today however there are some differences. For example, i am not aware of any distributional analysis but the Tax Policy Center did look at the distribution effects of the Ranking Members bill when he introduced it with former secretary grey. Im sorry senator gregg but interestingly enough 45 of middleincome taxpayers would get a tax increase and 17 with see the tax is raised i dont mean to go titfortat and their reasons not to consider the analysis by the outside think tank to be the gospel but i do think it does show a the Ranking Member is the champion for tax reform by the standards they have used which was much more problematic in to raise taxes on more tax players of the legislation we are considering this week. Id like to address the many complaints about process from yesterday. Members who lamented the lack of hearings arguing the 70 hearings we have had on this committee were not enough that we needed multiple additional hearings to examine the specifics of the chairmans mark but they didnt mention this demand would be a significant departure from the way this committee has traditionally operated. Historically the committee has not held hearings on specific issues we certainly did not do so when we consider the Affordable Care act or any other major mark so therefore it is absurd to demand that they do so now. In addition they are complaining about the partisan nature of this exercise but i dont believe a single Committee Member even the knowledge the fact three months ago that they signed a letter indicating they would not engage in the bipartisan tax reform process unless the republicans agreed of front not his reconciliation. In the history of this committee in congresss recent history with tax policy it is not a rarity for a major tax bills to move through reconciliation and if that potential use no way bars the possibility of a bipartisan compromise. So the intent of the letter was to communicate to engage meaningfully in tax reform but even with that interpretation to make countless public statements were i call in my democratic colleagues to join without perdition but yet to my knowledge of the on the democratic side has said in a thing to suggest my conclusion about their prerequisites was incorrect claims still hoping we can get in favor of the bill but mention yesterday the vast majority of those proposals have enjoyed bipartisan support from democratic members of this committee. That is something members of both parties should be able to get behind loring Corporate Tax rates making a americas businesses more competitive is something that both republicans and democrats will do. Not with the International System is a bipartisan endeavor the Senate Minority leader is the cochair of one of our working groups which is common for International Tax reforms consistent with what we try to do with this bill. So with the subsistence to policy not with the eye to november this is a good bill. With real tax relief to middleclass families and grow the economy increase wages and create jobs. Los members who against this with strategy will take a course. But the next up is to market through we will begin the process in a few minutes but first i will turn to my friend for any comments you would like to make. Mr. Chairman you could tell that you have of what a field on our side yesterday when there may gaskell said she adored deal. I was thinking she would only say that about me. I was pleased she said that about me. That was very complimentary not shows our affection for you but i want to make the point, what is going on now with the finance committee is not right. When we left last night we were told we would get the chairmans mark first thing this morning. That has not happened. Now were on this second day and we still dont have the full text of the bill we are supposed to be riding in the markup. So i gather from the staff that now the idea is senators can ask questions about legislation that may not be relevant in five or 10 hours. This is further evidence the finance committee is not ready to proceed with the bill with 1 trillion of changes to the tax code this doesnt resemble the matter what the other side says it does not resemble the regular order of the finance committee. This is reckless haste for the we have already heard of the evidence the millions and millions of middleclass families. The news was about how this proposal would open evidence of for multinational corporations a and special interests. So i dont want to pretend this is in the Public Interest because members will have less time to actually work on the real legislation that will affect millions of our people to remake the American Economy in fundamental ways that affects trillions of dollars trying to make fundamental tax reform that is not what Ronald Reagan did or what i did working with the respective colleagues, this is not in the Public Interest. We share your views the tax code is a broken mess we share your view we would like a bipartisan bill but what has happened just in the last 12 hours, we are continuing to move in the wrong direction. I hope we will see that changed. Once again the original bill entitled the tax cuts ordinarily we would include the of modification in the markup however were still working on some final details with the modification everyone to make sure that we look that over before it is incorporated into the mark that is something i would eventually like to accomplish but now we can begin with a walk through with questions from members than tomorrow if you have questions about the modifications tomorrow morning. Continuing the usual practice with tax legislation the chief of staff is joining us here today to assist us in this endeavor. Could you please describe the mark . Members of the committee you have three joint committee documents which describe the germans marched in detail and provide the staff revenue estimates and the distributional analysis of the chairmans mark. That would undertake a significant restructuring of the Internal Revenue code and i was asked to give a highlevel review their highlighting those significant features starting with the changes of the individual income tax tax, that would provide for seven tax brackets with tax rates of 10 or 12 for 22 1 2 or 35 top rate of 40point 5 which will eliminate the marriage to help penalty as the breakpoint as the amt the chairmans mark to the standard deduction of 24,000 for the very joint filers or head of household. But the mark would repeal those deductions including the present lot deduction or Real Property taxes or excess casualty licensed losses better subject at the twoperson floor so the mark retain the mortgage Interest Deduction for charitable zero contributions it and would repeal on itemized deductions with that limitation. So the aggregate of facts defect with present law cost 29 the taxpayers claim itemized deductions of approximately 5 claim itemized deductions. With the individual incometax to reveal personal exemptions but expanded the child credit at 1,650 for a child under 18 but also expansion of eligible children and 1,000 of that is refundable to be indexed in the future in addition for other children there is of 500 credit. Also the phaseout of the credit would be increased expanding the number of taxpayers to take advantage of the child credit. Another significant feature would provide a special effective reduced tax rate on income earned by the pass through enterprise such as the as corporations and partnerships this reduction of tax rate isnt given by a deduction for tax Household Income and it would generally not be available to the enterprises of professional services such as accounting or consulting law firms with the exception that if those professional services had taxable income of less than 150,000 the joint return is 75,000 they could avail themselves of the deduction is self that is limited to no more than 50 of the qualifying w2 wages paid to is the employees of the enterprise. With the individual taxpayers to double the of present law exemption for 9 million under the gift tax which is just shy of the 11 million so with business income taxes it would take the corporate statutory tax rate and effective starting in 2019 it will move would get the corporate at t and expand present law 50 firstyear deduction no one had to present both bonuses and write off for the first year that is effective for five years. Also expand the intersection 179 which presently is limited at 500,000 worth of the annual qualifying investment expanded at 1 billion worth margrave some changes in terms of the Cost Recovery of nonresidential real estate to modify taxpayers timing to claim those operating losses they may have occurred the prior year that they would be limited to 90 percent of the taxable income but any unused losses could be carried forward indefinitely to limit the deductible amount which is no more than 30 percent of taxable income. That is provided for Real Property businesses that may choose to alecto or fully deduct interest expense if they do so. They would have to use the Cost Recovery for the property. In addition several smallbusiness provisions are expanded to give a threshold for the purposes with expanded access to cash accounting bin to rules with the percentage completion method are expanded to include any business with annual gross receipts of 50 million or less. The last major area to note is the cross border taxation of investments and enterprises moving United States away from the current hybrid of taxes to territorial tax system by providing 100 percent dividends received. To effectuateffectuat e the shift to the territorial system that is deemed a repatriation of those untaxed earnings held abroad to bifurcate that on repatriated or untaxed earnings 10 percent liquid access assets. Also to make significant changes to protect against Profit Shifting there is a current tax on the teachable low tax income and this is a calculation of income of the of that with that tangible investment it would be currently taxable the global low tax income does have a slight error in the dock document we have to clarify that but the effect is that they would face a kurd defective tax rate of 12point 5 and in parallel luggage is defined as for the intangibles is the equivalent to the income derived of foreign sources but is paid in the u. S. Are earned by the u. S. Taxpayer and in this case the market as an error saying that is 37point 5 deduction but in fact, that was intended 50 percent that was a typographical i did not catch on proofreading that creates the effective marginal tax rate of 10 and then to protect against domestic based there are other provisions to modify the ability as a tax payer to strip the base by comparing interest expense to that of the world why a leverage ratio of of a multinational enterprise. The mark was also have the antiof use tax to apply only to taxpayers with gross receipts in excess of 500 million annually and with its workings live cat cross border related Party Payments and if the tax payer has Party Payments deductible and that is more than 4 percent of the global deductible payments, then a comparison is made of Tax Liability under the regular income tax in a 10 tax with a certain related party of cross border payments that will put some details so i will conclude i am happy to answer any questions you may have. Recognize members for the purpose of asking such questions in the appropriate order in the rules of the committee so we will just go from there and turn to you, senator. The joint committee on taxation is the Gold Standard for professionalism in this field. They call it on the basis of facts and objectives, straight with democrats, republicans, everybody across the political spectrum and we want to begin by thanking you and your staff for the habitual professionalism, and i think we are probably going to make you a little tired over a very, very long day. We are now proceeding on something by washington, d. C. Standards we are now asking questions on a bill that is not the bill. We were told we would get the modified chairmans mark first thing this morning so that we could actually ask questions about a bill that is the bill when we are looking at the prospect of almost tens of trillions of dollars worth of changes in tax policy. So, we do have a lot of questions. Im going to begin with two of them from this mornings headlines that have been deeply troubled from the new york times. The tax bill may leave a trail of loopholes so they sent us tax ideas to be a gold mine for some companies pistorius talk about some of the complex provisions in the bill but havent really devoted scrutiny and in the decades of u. S. Tax law to send even more taxable income overseas. These headlines from this morning ought to serve as an alarm bells signaling the dangers and consequences of rewriting americas entire economy in a matter of days. The former assistant treasury testified for the committee a few weeks ago and focuses on the new rules for the passthrough entities and multinational corporations. The oneyear delay these are complicated issues with complicated implications for businesses across the country. Not exactly dinner table conversation for the stuff people are going to talk about today in the lunchroom that real important. So first on the passthrough except the complex new rules for the different roles depending on the type the entity does and how much income is made. They could skirt the limitations by creating multiple partnerships with different functions with one providing headline saying licenses or leasing so i would like to get the staff reaction. First ms. Schaffer and then mr. Barr told. Is it true . Speeten. The taxpayers setting up. Skirt the limitations of multiple partnerships and different functions providing the services and on the other hand saying licensing or leasing a look to the mar realtor tomore looking at the common control related parties and treating them as one of the. Of service and combat the owner was trying to attribute to themselves for 75,000 worth of Service Income whereas all other income was 200,000 im abstracting from the taxable income and adjusted gross income [inaudible] again, looking out the partner level. They owned three different retail establishments for the Service Income aspect they are generally excluded except for the income i noted and so if the individual were successful learning income in the actual Retail Enterprises such that they have the income from those enterprises with excess of 150,000 award in matter if they set up a fourth enterprise. The ability of taxpayers to bifurcate and consider the services. If the passthrough owner has multiple passthrough is the different qualifying business. Lots of employees to avail themselves the maximum deduction every year for any of the other Panel Members . Just a moment, senator. The wage income limitations i noted and perhaps i should just reemphasize. They had perhaps ten employees and whatever the wage income was a while it is not clear our understanding is that goals are to offer basic principle, section 199. If that is how it would allow the owner of multiple passthroughs in the wage is as well as income that is our understanding is the members deliberate. Thats what i believe you were told by the majority staff getting into the multinational area this cuts those taxes dramatically. It actually says that its more attractive to do business overseas damages in the United States. According to the article, we could wind up Encouraging Companies to shift even more profits offshore companies could set up complicated structures. Its my understanding on the germans mark there seems to be some complexity to the. If it is operating abroad. Its with vip back into the u. S. And because the inbound proposal doesnt affect there is actually an incentive to achieve a 10 tax rate versus the 12. 5 tax rate. The mark would create essentially an effective rate on intellectual property that is held in the United States and exploited to the earned income abroad of having effective marginal tax rate of 12. 5 . They have current taxation at an effective rate is also 12. 5 which wou