Jack spencer, vice presiden Vice President for the institute of freedom here at heritage. He oversees research, range of domestic and trade issues. He previously served as director of the Roe Institute for economic studies where he spearheaded our work on initiatives in federal spending, taxes, regulation, energy and environment. He also specialized in Nuclear Energy issues both in domestic and global arenas. Please join me in welcoming jack spencer. [applause] thank you john. Good morning. Welcome to the principles for tax reform, a conversation with the House Freedom caucus. What a great day to be in washington. The sun is shining, the oppressive washington humidity has yet to set in, and im not sure but i think i even heard a bird or two chirping. Its not just a great day to be in washington, its a great time to be in washington. We have a president thats not just threatening to shake things up, and i dont think im stepping on a limb but hes actually shaking some things up. We have a Congress Whose talking about shaking things up. Thank god they are working to repeal the obamacare monstrosit monstrosity. Just yesterday, the house of representatives passed the choice act. It would start reversing economically destructive and morally bankrupt. Frank regulations. And we cant forget paris. What a day that was. Getting out about liberty sucking quagmire was a victory for us all. That would also go for dodd frank, by the way. Those efforts cant come quick enough. If our goal is to establish america with freedom, prosperity and Civil Society flourish. Part and parcel to that america is when americans get to keep more of their hardearned money. When washington takes less. Not only does that leave the politicians and bureaucrats with fewer resources with which to meddle in our lives, but it gives us more resources to get our economy humming again. That is why tax reform is every bit as important as the repeal of obamacare, reforming dodd frank and getting out of paris. Reform is not easy. We know we want lower tax rates. We want to remove them against saving and investing. We dont want to burden our business with heavy taxation that they become uncompetitive. We want fairness, transparency, and simplicity. Folks have a lot of ideas on how to achieve these goals. Unfortunately these two often come barriers to success. We cannot allow our ancillary issues to derail us from our common objective. We need to find our common ground. Thats what the Heritage Foundation wants to help us do. We had chairman brady speak laying out his plan, a plan that provides a foundation for moving forward. On july 13, we are excited to host secretary of treasury steve nugent to give us his views on tax reform. Today im excited to host members of the Freedom Caucus to give us their thoughts. Without further ado let me introduce our guests. I would like to honor jim jordan and warned davidson. We also have with us the honorable dave bratt representing the seventh district of virginia. The district where i spend a great deal of time and im very happy you are there. And now id like to invite mark meadows to come say a few words, he represents the 11th district of North Carolina and the Freedom Caucus. Good morning. Its great to be here. Its always great to join so many of you that are here. Its always good share a panel with three people who are a lot smarter than i am at that way when the difficult questions come in we will refer them to some of my colleagues. In a few remarks i want to set the framework of where we think we need to be so you can ask the good questions. When we get into the details of what we envision. I want to complement chairman brady and his foresight to get the discussion going. Anytime you put out a blueprint it is a bold move. Everyone will find reasons why it wont work, not why it will work. To have this administration put forth an idea on what they want to do for tax reform, we have to applaud it. The minute you do that again, there are people saying why their plan wont work. We have tried to be good listeners over the last several weeks and months, to find where there is consensus. Some of you are tax reporters. You probably know more about the levers that can be turned up or down based on that, but here are a few fundamental facts. There is not consensus for the border adjustment tax. The sooner we acknowledge that and get on with the plan that actually works and actually can build consensus, the better off we will be. There is not anything weve taken a formal position against, even though we will have some who will say we are divided in the Freedom Caucus but we have some who believe its a great idea and some who believe its not, but the political facts are there is not consensus to have support for the border adjustment tax. What we hope to lineup today is a few principles we believe , hopefully the majority of the house can get behind to not only lower taxes but reform, have true tax reform. The second part is time is critical. Chairman jordan, as i family refer to him, my good friend from ohio, introduced a bill that look at real reform in terms of welfare reform. That welfare reform has the potential of creating some 400 billion in revenue that we can allocate and move across. I look forward to hearing from him. We believe time is of the essence and we need to get tax reform done sooner than later. We should have a real proposal that we start debating before we leave the end of july. But if not, weve already taken a formal position. We believe we need to stay in through august. I see from a lot of heads nodding that we should stay here and get it done. I am encouraged that i believe there is the foundation of coming together. We will be laying out some principles for tax reform that we think can bring consensus and have rigorous debate in terms of what may or may not work. Thank you for joining us. [applause] thank you. Now my first question, you started saying there were three people that were smart, but that would leave one of us who are the dumbest amongst the crowd. I was wondering if you could tell us which one. [laughter] i will just lay claim to i am the dumbest. No, i was talking about my colleague. Will put you way up there in terms of your ability. We will let the audience determine if thats legitimate or not as we go forward. Lets have a conversation, do any of our other panel is have anything to add or initial remark . Lets get to it. I think the brady plan is something were all interested in. There is a lot of good stuff there. You also mention the border adjustment tax. Absent of the border adjustment tax, is that something the Freedom Caucus generally likes . Is that something you can get behind, generally . To answer that, the 20 cut in terms of a Corporate Tax rate cut, as long as it applies to Small Businesses, those who have an s corporation, llc, propers prior ship, a lot of that work gets done there. Its just a corporate cut the big guys, it leaves mainstream off. A 20 rate for that, look at repatriation. My advice would be to do a repatriation over 20 months. We look at not only cutting the rate but expensing that is in chairman bradys plan. How do you do the full and immediate suspense thing . As the business guy, typically i havent made that decision. A lot of big corporations dont make the decisions that way. Making permanent the bonus depreciation in place now would be prudent so doing something on the expensing side and expecting it to be deducted. Finally had to make sure you do things for moms and dads and aunts and uncles and kids on main street. Whether its the brady threepoint structure or for many of us, we believe it puts money back in the wallets of people of main street. We could come to an agreement within the next three or four weeks. We can have a real debate in the months to follow. Some of the rough numbers, you may be shocked to know that politics intervenes occasionall occasionally. Were still working through healthcare. I dont know if we have the votes. Now thats changed in the last couple of days. There is a trillion dollars there that will go to tax or perform. The border adjustment piece is another trillion dollars we need. All displays in and we have a budget piece going on and were arguing about 50 billion. That seems like a big number, but the other two numbers, we just roll over those. That is 2 trillion. Everybody doing the math in their head . We have to vote on a budget in a week or so and all of this plays into the piece we are talking about without blowing a hole in the deficit. If you get rid of the border adjustable, we have come up with a trillion on that side so you dont break the deficit wide open. I think a lot of us have some possibility when it comes to taxes because we know for the next generation, this is a once in a century opportunity to get this country humming again and we are progrowth people. All of that is intertwined right now. We have to make sure we keep the full momentum moving on all of those. I would say, one of the big things, we cant lose sight. We cannot bankrupt our country. We do have to get the tax reform to match dodd frank reform we just passed. Hopefully the senate will take action quickly. I get the politics, why its important to link to the average household, but the doubling of the standard deduction, perhaps some change in payroll holding, because what we have to do is get the workforce engaged. The big challenge is getting labor. In monetary policy, theyve bridged it as far as they can. Monetary policy will probably look under your work at odds with the financial stimulus that were going to be doing. I think we need to do it by the end of q3, not the end of the year because it will have a leg. The other things in the economy are going to have an impact that we need to drive counter with strong fiscal growth. Lastly, when we talk about corporate reform, we are 37 out of 39 developed economies and this gets us in the top 12 or three. Swinging big is the way to go. We dont need another ernst young reform act of whatever year, we need to not tweak around the edges, we need to go big and i think the blueprint does that but we also need to be realistic. I am the one guy appear that can live with the border adjustable tax, i can live within state. The problem has been that they laid this out and there is not yet a plan communicated on how you actually implement it. Its a little bit like the fair tax. I think it has lost a lot of momentum and musters a big reversal, even if you totally love it, which i dont as a standalone thing, i dont see how you pull it off politically. Im a new guys im open to learning and seeing what happens here. It seems to be two principles to guide. What is not in those principles are this concept of revenue neutrality. It has a way of saying the tax burden stays the same you just shift around who pays what. It always works out in this town that the connected class gets a good deal and middle families get the shaft. When did republicans adopt this idea that we have to do revenue neutral tax policy makes absolutely no sense. Letting families keep more of their money is not a cost to government. Its called freedom. Lets focus on that principle. Then lets focus on deficit neutrality which says tax policy that lets families keep their money, one thats conducive to producing growth and lets cut spending. Other fundamental points, you cant get tax reform if you dont have reconciliation. You cant get reconciliation if you dont pass the budget and right now a budget cannot pass in the house of representatives. What we are going to put forward is this, maybe we as the Freedom Caucus can live with a higher budget number if in fact we do real welfare reform on the tax bill, work requirements, time limits on ablebodied adults as part of the package. The idea is you have to write the reconciliation instructions in such a way, like reverse engineering. The dollar amount you will get from welfare reform, make the instructions to make sure they go get that dollar amount. Then we are assured of savings in the long run and its just good policy. Its good policy to encourage work in good policy for family stuck in the system and treating taxpayers with the respect they deserve by requiring ablebodied people to work and not live off the taxpayers dollars forever. We think that is the key to unlocking this roadblock we are in, but i dont see any other way out to get a budget agreement. If you dont get a budget agreement you cant get reconciliation. It seems to be the way to unlock the logjam that exists in the house of representatives. Thank you. If anyone wanted to address the comments on revenue and neutrality, that would be appropriate. We appreciate what was said yesterday. Weve talked about the importance of Corporate Tax reduction. Weve talked about the importance of Building Momentum in the middle class for this and the importance that they also feel like they are winners. The Corporate Tax reduction would actually benefit the middle class but we often dont talk in those terms. My question to the panel is, are there ways we can do that, because that really is the essence of what needs to happen. The second part is how do we build momentum for tax reform. We are talking about big changes in without the Ground Support from your constituents, it can be difficult to do that. A lot of young people i see in this audience, how many of you have had economics . Supply and demand . So it tax reform on the personal side, put money back in your wallet. Thats good, but whats the major problem in this country . Theres no productivity growth. So you can do bailouts and put money in peoples pocket on the demand side, its on the supply side that you need to fix, and thats business. Just to show you what a wide gap we have come the left in budget meetings, they will mock and ridicule and make fun of the supplyside. Who is the supplyside . Its everyone in business. The left is mocking the supplyside when you want to incentivize and boost the supply curve up so all our incomes go up and thats the politics. We need a message. Hopefully trump can do that, hes the business guy but all you young people need to help us out. How many of you have heard of deidra mccloskey . Shes an economist . Her argument is that the moral phenomenon that changes it. We need to take pride and say that the economy, business is a morally good thing, and weve lost that. K to 12, hire education, et cetera. We start saying business is bad, what a downer. What you are going to do for the rest your life is morally bad, and uplifting message. Lets get business rolling so young people can get jobs and have great lives. Are you gonna put out a pop qui quiz. Im going to give everyone a warning. I have one or two questions and then im going to come to you. Its important that you help me carry us through the end of this presentation. We can put. [inaudible] you talked about maybe staying through august would be something worth doing to get this done. There are a lot of legislative priorities. Can you talk a little bit about what your broader priorities are and how tax reform fits into that . I think my good friend from ohio talked about the budget and everything coming together. I believe on tax reform we need to agree to four principles in the next four weeks. Thats easy. Four and four. Lets come up with four principles we can agree upon, lets take the next four weeks to do it. What will force us to do that is what jim jordan was talking about, weve got budget reconciliation, weve got numbers we have to assigned to do appropriations, that comes as a perfect opportunity to bring all of that together so it forces us to make critical decisions that are incumbent on one another. If you cant come up with a number and you cant come up with budget reconciliation instructions, that should influence your decisions on tax reform. We are at a critical time to make decisions, not talk about making decisions, so if you hear me talking about it, it is four principles in the next four weeks. This last question pains me to ask. The senate is talking about delaying some of the obamacare cu taxes, and maybe not at all. If we dont get rid of those, that makes tax reform even more difficult. What does that do to this whole effort if we dont get that up . It doesnt help that. [laughter] theres nothing we can do about that right now. Does the United States senate. We will wait and see what comes, but what i do know is that we make the job too complicated. Our job is straightforward. Do what you told the voters you would do. We said we would repeal and replace obamacare. The building fully accomplish that but it was a step in the right direction. Not just because its good for tax reform but thats because we told the voters what we were going to do. Lets open it up. If you could, give us your name and affiliation and keep the questions precise and short. You mean make sure there is a russian in their. We actually of these gentlemen to provide the commentary and answers. Thanks for your time. My name is porter. I was just wondering if we could get clarity on the caucus division. I note earlier on you mentioned it sounds like with the eliminationyou favor some form of full expensing. If you could clarify the importance of the. Thank you. Great question. I want to verify, as a caucus we have not taken any official position. In fact we had a good hour and a half or two hour debate about the budget and how all this place together. Its one of the best debates you will find on capitol hill. Everyone thanks the Freedom Caucus, we have the same ideas on everything, i can tell you fights can break out any time a day. As we look at that, heres my concern without the interest deductibility. You have to make two assumptions. One is if we are doing full and immediate expensing and youre only doing that, you are assuming a cash scenario. It only benefits thosethat have large amounts of cash sitting around. The average Small Business, many times they dont have that so they have to go out and borrow money. I think thats the question. How do we do that along with what you do with the 17, 18 trillion in commercial Investment Real Estate thats out there. I call it a reverse china, their building all these New Buildings that sit empty. If you do full and immediate expensing you can almost immediately create a problem in your commercial Real Estate Market by making a long depreciation for commercial and immediate expensing for the ne