Peter well, good afternoon, everybody. I want to welcome you today. Im peter russo. I want to thank you all for coming. You are at a capitol hill Hill Briefing major tax reform in 2017. Before we begin, if youre watching via cspan or via the live stream and would like to join the conversation, wed love to hear from you so please tweet comments and questions to our panel at catoevents. Again, thats catoevents. Further, this spring the Cato Institute released the handbook for policymakers. Copies were available on the tables as you came in. If youd like additional copies, please contact me after the program. I will be happy to hook you up. D p. D. F. s are searchable at cato. Org and there is a chapter on federal tax reform and many others, also, covering the tax treatment of health care as well as the importance of preserving global tax competition. With that i want to introduce catos chris edwards, the director of tax policy studies nd editor of www. Downsizinggovernment. Org. Before joining cato, senior economist on the Congressional Joint Economic Committee and author of downsizing the federal government and coauthor of global tax revolution. [applause] chris thanks a lot, peter. Thanks a lot for coming here. I think some of you might had to avoid the president ial motorcade there on independence avenue so that was a bit of a nuisance but youre all here so thats good. I am going to provide a brief overview of tax review and troduce j. D. Foster, Jason Fichtner and ryan bourne. The idea is to cut individual and business tax rates, to close some loopholes and so improve the treatment of savings and investment. So why do we need tax reform . Well, tax reform can spur more Economic Growth which will raise Living Standards for everybody. Tax reform can simplify the code and tax reform can also increase fairness by creating more equal treatment between taxpayers. The other reason we need tax reform is we have not had a major tax reform since way back in 1986. The world has dramatically changed over the last three decades. International investment has exploded. Entrepreneurs and wealthy people and businesses can have far more choice about where to invest in the Global Economy these days. We want businesses to locate here in america, so we need a competitive tax code to make that happen. So if you look at Corporate Taxes, the last time we cut the Corporate Tax rate was back in 1986. Before that our combined federal and state Corporate Tax rate was about 50 which was cc, the average of the oe and then we slashed it in 1986 and that launched a global revolution in Corporate Tax cutting. Rates have plummeted. The average oecd Corporate Tax rate has been slashed in half since the mid 1980s from 48 down to just 24 today. We have the highest rate in the world at 40 when you include state taxes. Many of you probably heard that ireland has a 12. 5 Corporate Tax rate that attracts a lot of investment but hong kong has a 16 Corporate Tax rate. Taiwan and singapore just 17 . So if youre building a Semi Conductor plant, for example, would you put it in the United States and pay 40 or put it in taiwan to pay 17 . Even some European Countries have remarkably low Corporate Tax rates. Portugal, which used to be a kind of a real leftist country these days has a 21 Corporate Tax rate. And sweden, which is the supposedly socialist country that a lot of american liberals admire has a 22 Corporate Tax rate. Ryan will discuss that the u. K. Has chopped its Corporate Tax rate to just 19 today. So, you know, what are we doing here . Our 40 tax rate makes absolutely no sense. Looking at the individual income tax, again, rates have fallen around the world over the last couple decades. Back in the mid 1980s, the average top oecd individual rate was 64 . Back then our top individual rate was 55 . So we had an advantage on that for a while. So we cut our individual rate back in 1986, but other countries started cutting as well. But we kept our advantage in individual income tax rates for most of the last three decades up until 2013. The deal that ended part of the bush tax cuts pushed our top individual rate back up again, and our rate now with state taxes is about 46 which is above the oecd average of 44 . So were not a lowincome tax country anymore. We are a highincome tax country. This is a problem. High rates at the top matter because they punish the most productive people in the country. Entrepreneurs and Brain Surgeons and venture capitalists, people like that are very responsive to tax rates. Also, a large amount of business income flows through the top brackets in the tax system. So high tax rates means less investment and less work effort by the most skilled people in our economy. So thats the overview today, and im going to introduce our three speakers and then turn the podium over to j. D. First. J. D. Foster is chief economist at the u. S. Chamber of commerce. Before that j. D. Was a senior fellow at Heritage Foundation and before that chief economist at the o. M. B. And advisor at the u. S. Treasury. In the 1990s, j. D. Was head of the Tax Foundation where he was my boss. J. D. Was a very good boss and i learned from him at the time. J. D. Also worked on capitol hill for a number of members. He received his ph. D. In economics from georgetown. Next after j. D. Well hear from jason. Ason is a senior fellow at mercatus out at george mason university. He was Deputy Commissioner and chief economist at the Social Security administration. He was also a senior economist at the joint Economic Committee where i was a coworker with him. He has a ph. D. In Public Policy from Virginia Tech and hes the author of the hidden cost of federal tax policy which looks like that which is an excellent overview of our topic and actually free on the internet so thats a pretty good bargain. And then well hear from ryan bourne who is the chair of the public understanding of economics at cato. He reference all kinds of economics including tax policy. He was head of Public Policy at the institute of Economic Affairs in london and also the head of Economic Research at the center for policy studies, also in london. Ryans written extensively on Economic Issues in the u. K. Newspapers and he holds a masters degree in economics from the university of cambridge. So with that i am going to hand ver the podium to j. D. J. D. thank you, chris. Hello, everybody. In about two weeks we will be celebrating memorial day and you may find yourself at some point over the weekend watching a ballgame. Maybe a golf match. Maybe nascar. Whatever your preference. In the course of watching that program, theres a high likelihood youll see a beer commercial. Theres a high likelihood youll see some car commercials. Those car commercials will be along the lines of somebody driving on a windy road. We get to do that a lot in d. C. Out in the open road and they will be advertising this is the great memorial day sale, low Interest Rates on homes and slashing of prices. Why do that . Why advertise that way . Because people respond to prices. Prices align what happens in our economy, aligns supply and demand. People and businesses respond to prices. What youre not going to he going to see in all likelihood saying my car is just as good as that guys car and it cost 5,000 more. You are not going to see a lot of advertisement advertising that people have higher prices than somebody else. It would be odd to us but the u. S. Economy has now for great many years been advertising to the world, come to the United States, we have the highest tax burden. Not in total tax burden but in terms of rates, as chris was just strike. Weve been advertising for years that we have an extraordinarily punitive tax system. We also have been imposing a lot of regulations over the last eight years on our economy that also has been telling the world, come to the United States because were making it a lousy a place to do business as we can. Well, thats changing at the moment. We are trying to get it to change in tax policy. 1986, the last great Tax Reform Act, we learned and then reminded the rest of the world how important low tax rates really are. Then shortly after the 1986 Tax Reform Act, we forgot and stayed in place pretty much for that period until today. Meanwhile, the rest of the world learned the lesson and they kept applying it. Reducing rates over and over one country after another. In fact, recently in france, emanuel macron won as president. He was previously in the socialist government distinguishing himself calling himself a probusiness socialist and i guess thats how you define a centrist, a probusiness socialist. Its france. What can i tell you . France understood, macron understood they need to lower their rates. Their top rate in Corporate Income is below ours. 33. 33 . He ran as a french socialist now centrist to reduce the rate to 25 . Its amazing. Even the french get the fact that youve got to lower your tax rates to be competitive. In the recent president ial election, bill clinton gave a speech and he noted that, yes, when he was president he signed a bill raising the tax rate on Corporate Income but he did so to make that rate competitive with the rers of the world. We pulled our rate down and the rest of the world hadnt completed the process of reducing their rates. So he said it was ok to raise the rate. But now its not. Now we have uncompetitive tax rates on business income and bill clinton, during the campaign, said we need to reduce these rates. I think thats pretty good observation on his point. And thats really from a business standpoint what tax reform is all about. Its not a complicated exercise. Its pretty straightforward. First thing you have to do is we got to get significant rate reduction. I am not going to say how far down. Its sort of like you are going to go buy a car. How much of a discount do you want, how far can i bring the rates down . Thats the issue. Not just for corporations but for all business entities, passthroughs as well as corporations. If you want the u. S. Economy to start advertising to the rest of the world, in is where you want to do business, it starts with getting the rate down. We need a more competitive capital consumption system, depreciation system. We need to adopt expensing. We have for far too long had a system of taking account of when a business buys a piece of equipment how you charge it off over time. The effect of that has been, along with high tax rates, to produce a highly elevated what its called cost of capital. Cost of capital is a term you should be hearing a lot of going forward. And really all it does it puts into one summary statistic the sum total of all the effects of tax policies affecting an investment and says how much does that these various policies raise the price that you have to pay, that is the earnings you have to have on that piece of capital . So you have a basic level of earnings. You have to have to make an investment worthwhile as a business. And then you start figuring out, ok, this tax is going to raise it. This tax is going to raise it some more. This tax is going to raise it some more. The sum total of those effects is the cost of capital. Well, we want what we want to see happen in capital is the cost of capital to be brought down, reducing the tax rates and expensing of the two key elements of bringing down the cost of capital. The third piece thats core to tax reform is fixing the way we Tax International income. 20 years ago or sore, the industrialized world was pretty mixed. About half the countries in the world did what we do today, adopting a worldwide tax system and the other half adopted a territorial. Back when i was with chris at the Tax Foundation, we used to run International Conferences and we would talk about the need for a territorial system and half of the countries we visited would nod yes and the other half would say thats crazy and the prevailing thought in the United States was thats crazy. Well, it turns out we were right. Almost everybody in the world now has some variation on a territorial system. What is a territorial system . Well, one way to think it, its kind of like a las vegas commercial. What happens in vegas stays in vegas. The income thats earned where its earned is taxed where its earned and only there. Thats all territorial means is Company Earns income in france or germany or japan or china, wherever they earn it, can be subject to whatever taxes are imposed in that jurisdiction. Were not going to tax it again in the United States. Its as simple as that. Its a much sifrler system. You might simpler system. You might think of them getting income from tax. Why . Its taxed over there. If you add tax to it youre making that u. S. Operation abroad less competitive and because operations are integrated internationally, that is the u. S. Operation works closely with the foreign operation, if you make the foreign operation less competitive, you make the u. S. Operation less competitive. Thats the reason why even socialist countries in europe adopted a territorial system. All of them. Because they know they need to compete on a global scale, on the global scene and the only way to do that is to have a competitive tax system. So those are the three key components. There are other things that can be done in part of tax reform, dealing with the estate tax and other elements. Those are all important. The core elements of tax reform , significant rate reduction, expensing and a territorial system. And right now if youll notice when we talk about tax reform, whether its the blueprint or President Trumps proposals, they tend to reinvolve around those three revovlve around these three pieces and thats why we have a chance of getting this done fairly quickly. Depending how you look at the calendar, i argue the 1986 Tax Reform Act was a culmination of an eightyear exercise, actually began with a Capital Gains rate reduction where lloyd benson, later treasury secretary, championed through and got people started thinking how to redesign the tax system and thats what jack kemp and bill roth and others ran with to got us first to 1981 tax cuts and the 1986 Tax Reform Act. It was a long process. Part of the reason it was such a long process, that 1986 tax reform bill was an incredibly complicated piece of legislation because they tried to solve every single tax problem that they could they had identified. Whether dealing with master or limited partnerships or pensions or what have you, this was comprehensive in the broadest sense of the term tax reform if we go down that road right now we have a really still great chance of getting tax reform done probably sometime in 2019 or 2020. If you want to get it done soornings which is what we need to do, we identified the key elements. We need to keep it a very focused package. What are the two or three or four major things we need to do to help the economy to get it to be stronger and what are the two or three major payfors we need to deal with . That brings up the next subject of tax reform. Tax reform is great to talk about rate reduction and expensing and the great things were going to do for the economy. But, folks, we got to put the big boy pants on to do this. There revenue raisers. They will involve tradeoffs. We have to balance, really think about do we want this enough to be worth this tradeoff . Because you cant get a 28 or 25 or 18 or 15 corporate rate and comparable passthrough rate by closing loopholes. You get two or three Percentage Points by closing loopholes. You want to close the rest of the difference, youre going to have to do something thats pretty painful. And thats where the tradeoffs come in. If you do it correctly, those tradeoffs will still leave the overall plan very much progrowth and thats going to be our focus at the chamber. Theres going to be a lot of fights over details of the rate reduction, over how expensing is structured, how transition rules are applied and designed. A lot of these details but the fundamentals are going to be, what is this going to do for the economy . Comprehensive tax reform is ultimately about taking us from an economy thats been growing too slowly to one thats going to raise its potential in the short run and long run. Thats what its all about. As long as this tax reform package looks like it will do that, u. S. Chamber is going to be supporting it and pushing for it. Where it can be made better well be working to make it better. The bottom line is we wont get caught up in the fighting of the details of the payfors. The chamber and commiss Business Community will say, will this work for the economy, will it make it stronger . When we get done for comprehensive tax reform, are we going to be advertising for the world, running our little commercials on baseball games to the world, move here. Foreign companies will be looking to move back because this is the place they are going to want to be. We