Dwight d. Eyisenhower as a military man and president. For a complete schedule go to cspan. Org. Business owners, policy writers, and an accountant testify before the Senate Finance committee on the future of u. S. Business tax law. They talked about the latest research into ways United States tax law could be changed to be more competitive in the Global Economy. This is just over an hour 45 minutes. Good morning. Its a pleasure to welcome everyone to todays hearing, which weve entitled navigating Business Tax Reform. Its a big title. I think this title accurately describes the challenges we have before us. Moving forward on Business Tax Reform specifically and on comprehensive tax reform more generally. In the recent past identifying and developing certain bipartisan policy proposals and moving them through the legislative process has proven especially difficult. But im an optimist, and i believe we can and should find Common Ground on a path forward for comprehensive tax reform. Of course, as ive said in the past, successful tax reform will take aw president who truly makes it a priority and works closely with congress to get it over the finish line. Currently i think its safe to say that we havent met that prerequisite with this administration, which most acknowledge means that for now we have to wait. But in the interim this community will continue to lay the foundation and develop progrowth proposals for when the appropriate opportunity arises. That is why last year senator wyden and i asked members of our committee to work on various Tax Reform Working Groups to help identify issues and develop consensus if possible around tax policy proposals. Today we will focus our attention on Business Tax Reform issues, including topics that were covered in the report issued by the bipartisan business income tax working group. I want to thank the cochairs of that working group, senator soon and cardin as well as other members of the working group, senators roberts, burr, toomey, coats, stabenow, carper, casey, warner, menendez and nelson. A lot of time and effort went into examining these issues and compiling this report. I appreciate everyones willingness to help advance this cause. Tom barthold, the chief of staff for the joint committee on taxation, is with us today to provide background on Business Tax Reform issues and highlight some of the major topics reviewed in the working groups report. We appreciate his work, and we appreciate him being with us. We have a great group of additional witnesses here today as well that will provide important insights and recommendations about broad design issues of the business tax system and practical on the ground issues that are important for us to keep in mind as we further develop and refine proposals in the business tax space. I want to take a minute to discuss one particular business tax issue that was discussed in the working group report that i believe warrants real consideration by everyone here today. Corporate integration. In very general terms corporate integration means eliminating double taxation of certain corporate business earnings. Under current law the corporations earnings are taxed once at the corporate entity level and then again at the shareholder level when those earnings are distributed to the shareholders as dividends. In other words, under our system if a business is organized as a C Corporation we tax the earnings of the corporation itself and those same earnings when paid out to the individual owners of the business. This creates a number of inequities and distortions. My staff and i have been working for a few years now to develop a proposal to address there problem. I was glad to see that the Business Tax Working Group addressed corporate integration in its report, noting that eliminating the double taxation of Corporate Income would reduce or eliminate at least four distortions built into the current tax code. One, the incentive to invest in noncorporate businesses rather than corporate businesses. Two, the incentive to finance corporations with debt rather than equity. Three, the incentive to retain rather than distribute earnings. And four, the incentive to distribute earnings in a manner that avoids or significantly reduces the second layer of tax, unquote. Depending on its design, corporate integration could have the effect of reducing the effective Corporate Tax rate and help address some of the strong incentives were seeing today for companies to relocate their headquarters outside of the United States . In fact, i think it would make a big dent in the reversions of companies that arent even considering that now. It would also have the likely effect of making the United States a more attractive place to invest and do business. Ill have much more to say on this topic in the coming weeks and months, but i plan to raise this issue in several terms in general terms here today. Once again i want to welcome our witnesses. I look forward to a robust and formative discussion. With that im glad to turn over the time over to senator wyden for his opening remarks, and then well hear from the two cochairs of the Business Tax Working Group who will give brief opening remarks. Well start with senator thune and then senator cardin after senator wyden completes his remarks. Thank you very much, mr. Chairman. I very much look forward to working with you and our colleagues, and i too want to commend senator thune and senator cardin for their outstanding work. We have just the right people heading that part of the working group. And i appreciate it. Colleagues, if you own a Small Business in america today, often you go to bed at night believing that you are in danger of being ensnared by an outdated, overgrown tax code that americans spend 6. 1 billion hours and more than 100 billion complying with each year. That tax system is punishing to those who dont have a fleet of accountants and the luxury of time to Plan Investments around taxes. The american tax code tells Small Businesses that their dollar is worth less compared to sophisticated firms that can afford to make the rules work for them. Thats why today i have released the Cost Recovery reform and simplification act of 2016. This proposal is all about making the tax code more attractive for the risk takers who go out and start a Small Business. People who are more often than ever before going to be minorities or women. So this proposal would modernize the tax code and strip away much of the unfairness to Small Business by radically simplified our system of depreciation. For the small cashstrapped firms to grow and create jobs, they need to invest in basic priorities like a new cash register, an office computer, or Farm Equipment when it makes business serngs not when it makes tax sense. Today to figure out the Tax Deductions on these investments a Small Business person has to navigate more than sets of tax rules. My proposal dumps that headache and lays out six categories for depreciation that are far easier for a Small Businessperson to work with. Today youve got to do the math as many as three separate times under different programs for each and every asset. My proposal says one round of math is enough, Small Businesses shouldnt have to do individual calculations for every car on the lot, every computer in the lab, or every machine in the shop. Todays rules come frommest year year, from the last century. Theyre stuck in an era of fax machines and vcrs that predate the Technology Boom that has transformed the way in which americans live and work. My proposal says our business tax rules should reflect a 21st century economy and help our cutting edge entrepreneurs thrive, not hold them back. It makes no sense to cling to an outdated system that taxes some hightech investments such as computer servers and mri machines at more than double the rate of other investments. A startup shouldnt be told that theyre not allowed to use a work laptop in a coffee shop or otherwise theyre going to face a big financial hit on their taxes. And in my view the tax code shouldnt get in the way of publicprivate partnerships that want to build new roads, bridges, and highways across the country. So my proposal would fix these issues with new rules grounded in common sense and a realistic appreciation of how our businesses, particularly the Small Businesses, operate again on a bipartisan basis how to bring our tax ococode up to date. Im especially pleased that gale gauchy in silverten, oregon is with us today. The hundreds of acres of hops they grow at gauchy farms are a big part of what makes oregon beer the best that money can buy. And just for those kind of historians in the room. Goschie farms just celebrated their 112th hop harvest. We couldnt have a better witness. And mr. Chairman, again, like you id like to show our appreciation. Senator, well hear your remarks. Thank you for the opportunity to make an Opening Statement today and for the opportunity to co chair the business income Tax Reform Working Group with senator cardinal last year. While there are undoubtedly differences between the political parties, i believe that our working group demonstrated that theres bipartisan agreement in a number of areas. Senators in both parties understand the importance of reforming our tax system and how we face the most vexing challenges of Business Tax Reform. Our report had a wide range of issues to simp luification reforms to biases in the tax code. However, given that my time is limited this morning, i want to speak about two issues. Senator, could i interrupt you for a second. I have to go open up the senate, id like you to continue chairing this until i get back. First, our working Group Recognized a more competitive u. S. Corporate tax rate is going to be integral. America is losing ground as other nations continue to lower their Corporate Tax rates, over tlo 39 is the highest tax rate in the developed world. This is not sustainable if we want our country to continue to be an attractive location for foreign investors. Lowering the Corporate Tax rate is achievable. Our working group reinforces that a lower Corporate Tax rate remanlz at the center of any bipartisan approach to tax reform. And secondly, our business discussed that it needs to be about all businesses, both large and small. The reality is those businesses taxed at the individual tax rates earn more than 60 of all net business income. If you include sole pripriterships, and our report found and i quote clearly Business Tax Reform needs to insure that these businesses are not ignored in an effort to reduce the Corporate Tax rate. They need to benefit for any such effort to be consider a success. I believe we need to keep this perspective foremost in mind as we move forward. So, i would say our working group found that a modern, more efficient system is critical to raise incomes and increase wages p. It will require leadership both in congress and from the white house. But i believe that we should remain optimistic because with each passing day it becomes more a question of when and how. Our out dated tax code is without question Holding America back. And thats one of the most important elements to come out of last years working group progress. Thank you for their input and for helping us lay the ground work. I look forward for the continuation of the robust debate on how best to reform our business tax systemcyssystem. Thank you so much for your leadership on the work class working group. And i want to join you in thanking senator hatch and establishing the working groups p. Our working group produced a report of 140 pagepages. I particularly want to thank the joint committee on tax for their extraordinary work. I said at the conclusion that i learned a lot. I thought we were gaining senate continuing Education Credits and didnt have to pay any tuition for it. I agree that high tax rates on businesses in america is making america not competitive. We are definitely at a disadvantage in International Competition because of the high business tax rates and that i think democrats and republicans agree we got to do something about is it. The ccorporation rate at 35 is not competitive. And senator hatch and others have brought forward proposals in this regard and its an area that we certainly need to take a look at so that the business entity form doesnt discriminate against a business and thats clear lee an issue we need to deal with. But 90 of american businesses dont pay the c rate. We need to deal with the realities of both the c rate and the individual rate in dealing with business taxes in our country. Although, we want to talk about major tax reform, we shouldnt lose sight that there are socalled smaller reform issues that we should do and we should r try to get that done as quickly as possible to help americas businesses. The challenges in dealing with the high rates are incredible. I want to put this on the table so our colleagues understand if were going to do a major are eform for business taxes in america. First, its a huge revenue issue. If we use the existing structure, for every 1 point reduction in the c rate, estimated it would cost 100 billion over 10 years. Most people want to reduce it by a trillion dollars and that doesnt deal with the individual rate. And we need to understand that theres need for help on the it individual rate with business income and that could add anywhere between 60 to 80 more to the cost of any proposal that deals with reducing the rates p. So, if we say threalets do wha did in 1986, that lasted until 1987. Politically, im not sure thats possible for us to leave the tax code alone for any snipping amount of time. I just want to challenge the committee. The United States, among is one of the lowest on its reliance on the governmental sector for its services. So, why should we have the highest marginal rates, we should have the lowest in the oecd countries. And the reason is were the only country that doesnt have a National Consumption tax. There are about 150 countries globally that have a National Consumption tax. It dramatically simplifies our tax code by simplifying it and starting it at 100 thousand of taxable income with the highest rate being 28 for the taxable income for families over fiv 50 thousand. And reduce the Corporate Tax rate to 16 , giving us a significantly lower Corporate Tax rate and a National Consumption tax at 10 using the credit invoicing system. Its progressive. And cashing out the earned income tax credit are crashed out. And its revenue neutral and contains a Circuit Breaker that if we produce more revenue, there would be a trigger system to return the excess to the taxpayers. We would have on average five Percentage Points lower than the countries, giving us anned a va advantage. I think we can be in the leadership of tax reform and i think the work that was done by the working groups we have become, i think, understanding of the challenges we have and i urge us to Work Together for america, in fact, can have a tax code thats a lot easier and simpler and efficient on capital and growth than our current tax code. Thank you, senator carden. If i take a couple of minutes and introduce our panel of if i ever witnesses. The chief of staff for the joint committee on taxation. Tom is no stranger here and shouldnt need much of an introduction. Hes worked since 1987 when he started as a staff economist and worked his way to become acting chief of staff before being named in his current position in 2009. Prior, he was a member of the economics faculty at Dartmouth College and later received his doctorate in economics from harvard and indespenceable in term terms of providing insight and counsel in the working groups. So, good having you here, tom. And second, the musgrave professor and currently serves as the Research Director at the university of michigan. He is a Research Associate of the International Tax forum. And once long ago was an economist in the u. S. Department of commerce. He has held appointments at the London School of berkley and graduated from yale and a ph. D. From harvard, all in economics. Third, dr. Erick toter. His recent work includes papers on what the u. S. Can learn from u. S. Territorial tax systems Corporate Tax reform, net benefits of expenditures and many other issues. He had service as the Deputy Assistant deputy at the treasury department. Deputy assistant drexer at the National Budget office. He received his ph. D. Of economics from the university of rochester. Our next witness