construction of this site, including the layout of the mud, has to be, and, of course, this increases the cost of construction.

>> the committee will come to order. the preliminary announcement. the cherry wishes to again remind our guess that any manifestation of approval or disapproval including the use of signs or placards as a violation of the world, which covered this committee. and the chair wishes to thank our guest in advance for their cooperation and compliance. today's hearing of the joint select committee on deficit reduction is entitled to revenue options and reforming the tax code. we want to welcome our witness, dr. thomas barthold, chief of staff for the joint committee on taxation. dr. barthold, thank you for your time. thank you for your service. we look forward to your testimony. i suppose more precisely,

testimonies. we have set a congressional first today with two panels of one witness. we will have our first testimony by our witness on business tax reform. there will be a round of questions by our members and then we will have a second testimony by our witness on individual tax reform. members of the joint committee have agreed to limit opening statements to those at the two cochairs. so at this time, i will recognize myself for an opening statement. in last week's testimony regarding the drivers of other structural debt, we heard congressional budget office direct your dog elmendorf say that although government revenues are certainly temporarily down, he expects them to again reach their historic norms of a little over 18% of gdp in short order.

however, he reminded us that spending is due to explode to over 34% of gdp in the years to come. that principally driven by entitlement spending programs, some of which are growing at two, three or four times the expected rate of growth of our economy has maintained since the joint select committee and the actions the city could take that would be helpful in addressing our structural debt crisis. however, we simply cannot and will not succeed unless our primary focus is about saving and reforming social safety net programs that are not only beginning to fail many of their beneficiaries, but simultaneously going broke. if we fail to do this and choose to solely or primarily a debt crisis bite increasing the tax burden, i fear the consequences. former cbo director rudy penner

and testimony before the third symbols stated quote come in the u.s. total tax burden which is considerably below the oecd average would be higher than today's oecd average by midcentury and within a few years after that, we would be the highest tax nation on earth, unquote. also appearing before the simpson/bowles was former cbo director and current social security and medicare trustees, robert reischauer who stated quote, the longer we delay the greater risk of catastrophic economic consequences. the magnitude of the adjustments is so large that raising taxes on the rich or corporations, closing tax loopholes, eliminating wasteful or though pretty programs in prohibiting caremark simply won't be enough, unquote. finally, when he served as cbo director, dr. peter orszag in a letter to paul martin stated the tax rate for the lowest tax

bracket would have to be increased from 10% to 25%. attacks again and comes in at 25% brack it would be increased to 63% in the tax rate of the highest bracket would have to be raised from 35% to 80%. the top corporate income tax rate would also increase from 35% to 80%. so the ability, wisdom and consequences of addressing our debt crisis or tax increases will continue to constitute a rigorous debate by her committee. my hope is that we may be able to achieve rigorous agreement that fundamental tax reform, even just limited to american businesses can result in both revenue from economic growth for the federal government and more jobs for the american people. seemingly, but the president of the united states and the speaker of the house agreed. most americans agree there is something fundamentally wrong with our tax cut when a small business in east texas pays 35%

in the large fortune 500 company pays little or nothing. there's also something fundamentally wrong with the tax code an american company pays 35% and its chief european competitor only pays 25%. we should seize the opportunity and correct this for the sake of both reading and more revenues to economic growth in addressing our jobs crisis at the same time. at this time, i will recognize my cochair, senator patty murray for her opening statement. >> thank you very much, cochairman hensarling. a much bigger witness, thomas barthold for taking the time to be here today as well as their colleagues and members of the public and those watching on television. we all know the american people are looking at this committee with great optimism, but also with real skepticism. as for the partisan rhetoric that is dominated nation's capital recently and quite frankly are tired of it. when it comes to the committee

and the work, they don't care how it impacts one party's fortune versus the other. they don't care how it impacts one interest versus another. there is a question to us is how will it impact your life? they want to know who can out their spouse or family matter or neighbor get back to work. they want to know if we can make about and in the deficits of their children are able to compete and succeed. and cannot be done in time for families losing faith with each passing day? answering those questions is going to take on a fee from every member of this committee. honesty with one another and honesty with the american people about what it is going to take. is going to mean looking in every part of our budget and realize the various spending going too fast. job investments still needs to be made. entitlement expanding too quickly and a tax cut that's become riddled with corporate giveaways and carveouts for the richest americans. more than anything else, it's going to take the shared realization that solving the

deficit crisis and putting americans that to work will take a truly balanced approach. to this point in congress, we have begun the process of addressing spending. in fact, the budget control act that established this committee cut more than $1 trillion from our national deficit and that was on tops of cast appropriations bills for the dirty boot put in place. the overwhelming majority of families and economist and every serious bipartisan commission that is examine this issue has agreed to spend aid cuts allowed by not going to put americans back to work or put our budget back in balance. we have to address both spending and revenue. so i'm looking forward to hearing from mr. barthold about the tax reforms in revenue this committee can exploit. i'm interested in hearing about loopholes and tax expenditures. my colleagues on both sides of the aisle are the greater are too often wasteful and market distorting about our options for

broadening the base of over debate, boosting the economy and bring in additional revenue and about keeping our tax code truly progressive. revenue in the tax code is just one side of the ledger, but it is an important one and it is to be part of a balanced and bipartisan plan. we owe to americans to come together on this committee and passed. and please the committee has begun the hard work of negotiations over the last few weeks and i'm hopeful we can come together and took over the results that americans deserve. a balanced plan that helps get our economy back on track gives businesses the stability to higher again and ensures that middle-class families in the most vulnerable are not bearing the burden of balancing our budget allowed. thank you very much. >> i think my cochair and at this time, dr. barthold come i wish to yield to you for your testimony and business tax

reform. your recognize. >> thank you, mr. serling and members of the joint select committee. i thought i would use the time on this first enough to give you a very brief overview of federal tax system with an emphasis on business taxation under our system. i submitted testimony provides substantially more detailed and of course i'll be able to go into here. i'm going to concentrate on just a packet of slides that has been placed before it beaches of your chairs. and if you turn to the first page of that, figure one billy just hosted the federal revenue system in the united states is comprised of five tax sources, which the individual in contacts with the largest. the payroll taxes are the second. corporate income taxes the third largest component, followed by a series of excise taxes and the estate gift tax. figure two documents in fact this has been the case.

this has been the basic structure of the u.s. tax system for many, many years. one broad trend that you'll see in figure two is that employment taxes have ground largely with the expansion of the social security system over the decades and medicare. and the importance of the corporate income tax has declined since post-world war ii era. figure three really just documents i think a point that cochairman hensarling made that doug elmendorf presented to you a week ago. this is sort of the history of federal receipts as a percentage of the economy. looking over the next decade, there's some significant changes in the tax system scheduled to occur with the expiration of many current tax provisions after 2011 and again after the

close of 2012. figure four shows the projected revenues by stories of increasing revenues from individual, payroll tax and corporate income tax, et cetera, for the next decade. and just to scale back to the economy, figure seven provides the same information scaled to gdp. now, these prior charts they've turned through very quickly divided the tax world into an individual income tax and the corporate income tax. but i think it's important for us to recognize that many business enterprises in the united states are not c. corporations. so that means they are not subject to the corporate income tax and in fact a significant amount of business income is taxed directly to the individual return. and so, what figure six shows he is just the number of business entity types and how it's changed over the past 40 years

or so, with figure seven providing particular detail on the growth of s. corporations and partnerships in comparison to c. corporations over the past 37 years. as you can see in figure seven, it is passed or entities, these alternative business forms, this includes state-chartered llc is, with which i know many of you are aware from your constituents have become in an recently important in terms of the number of business entities. it is not just members of entities of course have a look at the tax system. it is the amount of revenue. figure eight gives you a very quick look at the growth of net income reported by these entities and reported by c. corporations again over the last 30 years. what this chart shows is the

relative growth of non-c. corporate business income as a percentage of gdp. the same information is really sorted them besides in the projections that we are making for the coming decade when you look at figure nine, we project that the sum of income reported to solve proprietorships, two s. corporations and part airships and other pass-through business forms will grow by 80% of the coming decade, comprising a larger and larger share of taxpayer's adjusted gross income. now that said, it is also important to have -- i guess will be very brief in this case. overview of how we tax business income in the united states. and they are the rules for taxing business income, whether it be through an s. corporation rc corp. are really essentially the same. we look at the gross income of

the enterprise less allowable deductions. allowable deductions include all ordinary and necessary business expenses, such as salaries and wages, the fringe benefits for such things as retirement and health and other fringe benefits that employers provide employees. the cost of raw materials, advertising expenses and an important expense for many business enterprise is the deduction for interest expense, for borrowed capital. it's probably important to note in this case the interest expense is deductible to businesses, the dividend payments, another form in which capital investment is reported as not to duck form in which capital investment is reported as not to duck we provide rules for cost recovery for long-lived assets referred duck we provide rules for cost recovery for long-lived assets referred to the modified accelerated capital because system counts for the depreciation, economic loss in value from long life assets.

in addition, of course there's a special deduction related to domestic production at dvds. this has the effect of lowering the effective tax rate on qualifying activities. taxes on business income apply to u.s. taxpayers worldwide income were everything and, that certain active income earned abroad may have its tax-deferred until the income earned abroad is repatriated to the united states. currently, the top rate of tax for c. corporations, which applies to almost all large corporations, so just been in a corporate game you can think i've come in the statutory rate is 35%. there are lower tax rates for smaller levels of income. and if you turn to feature 12 in the packet before you come it shows you a brief history of corporate income taxed --

corporate income tax rates. and so you can see that 35% rate. the number inside the bubble tells you the income level at which they rate becomes applicable, so you can see both the bracket level as well as the rate and how that has changed since the mid-1970s. now, the cochairman asked me to take a couple of moments and introduce the concept of tax expenditures and how they might be important both in the context of business income than the individual income -- and contacts. the detailed presentation provides a large list and shows you some of the evolution of tax expenditures through time. just to be clear, and the notion of tax expenditure is relative to sort of a theoretically contacts. what might be considered a special exclusion, a special rate, special credit for special

deduction. in table five, the next page in your package is the largest tax expenditures is calculated by my staff colleagues for corporations encompassing the period 2010, where project gained over 2010 to 2014. you can see the 10 largest tax expenditure items, our estimate of those items. one point i'd like to note is that although this list is top 10 list when you look in the detailed presentation has changed over time. two items have been the list of top 10 expenditures every time we've done the analysis since 1975. and that is some form of accelerated depreciation. in the explosion of interest on general-purpose state and local guides help my business entities. it's also been the case that the

reduced rates for smaller levels of corporate income has been featured of our tax expenditure analysis center corporate tax system every year since the early 1980s. and generally, also since the 1980s, one of the newest tax expenditures has always been a very deduction or a tax credit or you can take the sum of the two for research expenses. i think at this point i've probably given you a very quick and rough overview, but it's time to are taxed at

the top two individual rates. is that correct? >> i believe we have published that number, sir. yes. >> okay, one of your charts also shows that there has been a large increase, i believe, in trying to find the chart. and the number of non-keycorp entities. i guess it is your figure six, perhaps. >> yes, in the packet before you

, figure seven -- >> i'm sorry, figure seven. so certainly since the late 70s, there's been a huge increase in essentially what are known through pastor entities. >> that's correct, sir. >> so is it fair to say that increases in the top two individual tax rates could impact again by your testimony, 50% of small business profits. i don't know how many individual small businesses that is. your figure seven would suggest that he generally have a large number pass-through entities that could be potentially impacted by that. the next question i have is to do at the progrowth aspect that could be derived from some kind of fundamental tax reform. i guess also to some extent, figure seven would suggest that tax reform in the realm of c.

corpse alone may prove problematic unless you do pass through entities as well. >> well, what i was trying to emphasize was that when we think of business income, it it is not just taxed in the federal system through the tax on c corps. there is a lot of business income reported on individual returns. but the concepts in terms of how we measure that income, the depreciation schedules, the treatment of research expenses, advertising expenses are the same regardless. ..

>> gdp growth per capita from 1.1% to 1.8% a year. do you have more information concerning what model you use and how's it derived, what other studies you looked at that suggests to the committee the positive program aspects of fundamental business tax reform? >> how long do i have, sir? >> 30 seconds. i'll yield. >> i'll give a quick -- we do

multiple types of models for the members of congress. the basic modeling that we do is based off of microsimulation models against the congressional budget office macroeconomic baseline, and when we do that, we look at many different changes in behavior in terms of what individuals or businesses make, but for consistency in reporting to congress and subject to the budget resolutions that we do not include a feedback effect in terms of this packaged -- legislative package will increase or decrease the growth rate of the economy, so for the past near decade now under house rule 13, we have been providing as part of house ways and means committee reports on tax bills supplemental information of macroeconomic analysis, and we have three different primary models we use to emphasize

different assumptions and to emphasize different features that people think are important in the macroeconomy and in that analysis, we look at the effect on changes in labor force participation rates, savings rates, cross border capital flows and changes in investment incentives. >> for example here -- so at this time time i'll yield to my cochair, senator murray. >> [inaudible] [inaudible] [inaudible] >> you know, mr. chairman, i would just say having chaired committees, if we don't stay on the clock, we'll never get through. everyone's opportunity to have more than one chance at

questioning. i appreciate what the senator's saying, but we're going to have to keep this move, and we can follow-up with mr. barthold after. he's an employee, and we can talk after the hearing. we will have at least two rounds of questioning per member in two panels, so i appreciate that, and, again, i'm not setting a good example, and if other members want the witness to explore this further, they can, but i'll yield to my cochair. >> thank you very much. thank you again, dr. barthold. i appreciate your testimony. this hearing is divided into corporate and individual tax sections, but i wanted to start with the key issue facing millions of americans today which is jobs. we heard about the negative impact the current economic situation and high unemployment rate has on the economy both in terms of demand for social services, but also reduced tax revenue. we heard this committee could

have a positive effect on the fiscal situation of this country if we support pro-growth policies in the short run even if they result in greater spending. while promoting gradual and real changes to spending and revenues in the long term. in terms of taxes, last week cbo director testified that cbo had considered various tax proposals and weighed their effectiveness in stimulating the economy. he mentioned reductions in payroll taxes as among the most powerful followed by expensing of investment cost for businesses, and then followed below that by just a little bit broader reductions in income taxes. i wanted to ask you if jct performed a similar analysis of any kind and whether or not you did your conclusions match or differ from cbo. >> thank you, senator. we have not tried to replicate

work that the congressional budget office did, but we have in a number of different progress for the ways and means committee and number of other members of the tax writing committees look at some of the effects of payroll tax reductions, expensing provisions, and so let me just address the way we approach that, and i think the congressional budget office's aploach is similar -- approach is similar. expensing. okay, expensing works to essentially reduce the cost of capital, reduce the cost of acquisition of new equipment by businesses, so it increases the after tax return, makes it more attractive to make those investments. when we do our macroeconomic analysis, then we show that that leads to an increase in investment. now, what becomes important also in that analysis is what's the -- what's the context of the overall legislative package?

is it just providing expensing relief -- expensing of capital equipment for a large number of years, is it offset in some way? it's also important to think of how the fed might react in terms of its policy for trying to moderate inflation. we don't, of course, right now in the current environment, we don't think of inflation as a real problem, so as it general statement, yes, expensing can be a very powerful proinvestment incentive. mentioned payroll tax. we have looked at payroll tax. i -- it usually is the effect that it depends are we talking -- and this would be true of expensing also -- is it a term innocent reduction in the payroll tax or temporary reduction in the payroll tax? is it offset in some ways?

there's the same general questions, but then the principle, of course, is that if it reduces the -- if it reduces payroll tax and increases the after tax wage, that's two effects, a cash flow, a short run stimulus, more money if my pocket, i can spend, potentially spend more, but it also makes it more attractive for me to work longer hours. now, me personally, i already work fairly long hours, so that would be a personal effect -- >> sorry. >> it could be my wife might decide -- she's not in the labor force, but maybe there's a better after tax return of being in the labor force, so labor supply would increase, and that's progrowth. it's important to think in the overall legislative package as well. you can't say because a package has this in it you get one

result all the time. >> okay. let me talk on corporate tax reform. as you well know, the u.s. corporate tax rate is 35% at the federal level and 39% with the state and federal tax rate included. the average rate of other countries of oecd is 25% and japan has a higher rate. i think most people do agree that such high tax rates makes the united states a less attractive place in which to do business. our corporate tax code also distorts hiring new people -- spend too much time and effort devicing business strategies at tax avoidance. i think we know that all of that reduces the number of jobs created here at home where we are all focused and puts greater strain elsewhere on us in terms of government spending. companies in my home state has consistently been telling me they care less about keeping a

particular tax expenditure even when nay benefit from it than having predictable taxes with lower marginal rates. right now, they don't want to game the system to pay a lower rate and use every loophole available to them, obviously, but they say they'd rather focus efforts on making things and selling products around the world, so i think we all agree that our corporate tax code needs stop sign reform and important to do the individual and corporate side all together because a significant number of biseses operating as pass through entities pay taxes on the individual side, so to ensure the competitiveness of u.s. business, it's important, i believe, to coordinate reforms for individual and corporate taxes, and i wanted to ask you if you agree there are advantages to doing more comprehensive tax reform opposed to just looking at the corporate

side? in terns of business income, senator, i think that was the point i was trying to emphasize in the brief run through. it was to note that there are businesses that are organized as sea corporations. when you look at the supplemental material i provided while i said there are a lot of non-sea corporate businesses in terms of assets, large sea corporations own the vast majority of the assets, and earn the vast majority of business taxable income. now, that said, itch noted that non-sea corporate entities are growing in number and the income attributable to those entities is growing relative to the overall tax base. because we define business income the same way, if we're

looking -- we, i think, we should not look just at compt reform, but -- corporate reform, but business income reform, and from a practical point of view, a practical legislative point of view from the aspect would be very difficult to wall off a number of provisions and say we'll have one set of rules if you're this type of entity, and potentially very, very different set of rules if you're another type of entity because we'd have to double back and change people from restricting their choice, and that would be a bad outcome to restrict entity choice. >> thank you very much. the >> the co-chair recognizes senator kyl of arizona. >> thank you, dr. barthold. just to follow-up on senator murray's questions with regard to the effect of short term

payroll tax deduction policy, in your studies, did you find any evidence that either the payroll reductions -- well, just take the most recent, but if you want to go back to the bush administration if you can recall that as well, did that have a stimlative effect on the economy, or -- and was it responsible for any job creation? obviously, we had job reductions during that period of time. did the temporary aspect of it reduce its effectiveness and was the need for people to deleverage such that rather than spending a lot of that money, they ended up paying off debts or saving the money. were those possible effects that reduced the effects of that temporary policy? >> senator kyl, just to be clear, yoir talking about the tax rebates under the bush -- >> well, there was a tax rebate

under bush, and then more recently, we had a payroll tax -- >> but -- >> one year policy which some would like to see extended. >> since we've done some work p recently on the payroll tax reduction, let me try to answer your question by addressing -- addressing that. as i think i noted to senator murray, there's two as pelgts -- aspects to that in terms of macroeconomic analysis, and an increase in take home pay can have a stimlative effect increasing the cash payers' flow and the consumer can spend more. that's true in the short term. there's there's mixed results on whether someone has a short increased pay how much is saved opposed to how much is sent. there's the terms of the ethics

and long run change, but there's that demand effect. the second aspect we talked about is, well, what's the supply effect, labor supply response? in short term, it would not expect a dramatic supply labor response because they tend to be longer run decisions. now, we had used our models to analyze a proposal to extend by one year proposal that was -- >> can i interrupt? rather than speculating what might happen in the future if the current policy is extended, what'sed evidence of -- what's the evidence of policies in effect now? >> there's no academic study or solid empirical evidence right now. there's just casual impeerism

because the data's not available. one problem with economics and analyzing, you know, the effects of policies, is, you know, it sometimes takes three or four years to get the data and do a good analysis, so i don't have a good answer for you in terms of the effect of the policy currently in place right now. >> given there's other factors, temporary versus permanent and obvious deleveraging going on in the country right now, those are all factors to put into your analysis about what potentially might happen in the future. >> as i noted, it's important to think of the overall context of the legislative package >> yeah. >> you just can't say because it has this one piece in it that you get, you know, a guaranteed -- >> cause and effect. >> a number of other things you mentioned will also affect

business decisions and potentially employment decisions. >> yeah, we're all going to complain about the short time. i think i got yes or no questions, and i'd like to ask you if you can just answer these true or false or yes or no. let me just ask you about some general economic principles or statements, and these are, as you said, generally speaking, and then you qualified other things you said, and i totally appreciate that. general ly, there's a positive relationship between economic growth and jobs? >> certainly. >> right, true. there is a positive relationship between economic growth and resulting revenues to government? >> that's also true, sir. >> there's a positive relationship between economic growth and reduced federal spending on need-based programs. >> well, that will depend -- i got to give a qualified one there. >> okay. >> it depends what's happening in terms of where income's being earned. >> fair enough. there's a positive relationship

between economic growth and deficit reduction. >> well, that will depend -- >> again, if we don't spend the money as congress, all else being equal. >> that would be true, sir. >> tax policy affects economic growth. >> that's what our macroeconomic analysis is trying to provide members with information about how it might or when it might not. >> it may do it in a lot of different ways. >> the official revenue estimates on taxation account for responses of individuals, but not larger economic growth effects, is that a fair way to state your -- revenue tables? >> that's fair shorthand. we work against the congressional budget office, receipts baseline, and we do not assume the large economic aggregates of total income, total investment, employment, and inflation are altered.

>> right. you also said earlier, i think, in sponsz to a question that the joint committee on taxation is capable of providing estimates of growth effects since it provides this analysis to the house, but the growth effects are not incorporated in the official score of the proposal, is that correct? >> it's certainly the case. they are not part of budget rules and budget score keeping. the information that we provide is a range of outcomes reflecting sensitivity to different assumptions, but we provide that information to the house under light 13. >> yes. where's our lighter timer -- oh, right over there. i'm done. i had a really good closing question. >> the senator from arizona 4r have another opportunity to ask that question. >> 45 seconds. >> at this time the chair will yield to the congressman sir of california.

>> thank you, mr. chairman. mr. barthold, good to see you again, just 24 hours later, we saw you in ways and mean, and we thank you for that testimony as well. let me ask if we can get your table number -- i'm sorry -- yeah, table number five from your charts, and i'd like to talk a little bit about the tax expendtures, at least those in this chart that apply to corporations. expenditures seem to have quite a bit to do with the actual taxes paid by a company, and so while we hear about the corporate tax rate in america being around 35%, if you are able to qualify for some of these tax breaks, tax expenditures, you can reduce what you effectively pay to the federal government in taxes so that your actual tax payments will be less than at a 35% rate,

and actually that's not the chart i'm referring to -- it's table, not figure five. if we can go to -- your last chart. that's correct, just so we get it correct on the screens. it should be the very last chart, i believe, you presented. >> in the handout -- >> yes, there you go. >> it's the last item before part ii. >> right. i'm not sure folks can see that clearly, but i wanted it just to move into that a little bit because quite honestly through the tax code, we select winners and loses on the corporate side in terms of income taxes, and i suspect we'll see with regard to tax expenditures the tax breaks on the individual side of the tax code so that winners and losers as well, and if i could ask a question. if we were to remove, for example, the first tax break that you listed, defeferl of

active income of controlled foreign corporations, $70 billion over four or five year period, who would lose? >> for the benefit of the committee, the particular tax expenditure line item that congressman's referring to, defeferl of active income of corporations relays to the point in the overall testimony that the united states taxes income on a worldwide basis, but in the case of active income earned abroad, the taxpayer may elect not to repatriate that income, and if the taxpayer so makes that election, the tax is deferred until the taxpayer chooses to do that, so if the congress were to decide to repeal deferral, just take shorthand, it would mean that the income would all be taxed at the current statutory rates.

since this is about income that's earned abroad by corporations, we're largely talking about u.s. headquartered multinational corporations, and so it's the income that is earned on overseas investments and overseas sales by those corporations. >> and just going through the list, you have a tax create for low income housing. i assume if we were to remove that tax break, the $27 billion that goes to those who take advantage of that tax break, probably affects the housing market, and if you were to go to the expensing of researching and experimental tax expenditure where it's $25.5 billion, that it's those companies that do research and experimentation that can claim on their taxes that they did certain research or experimenting activities, and therefore get to reduce their tax burdens. we could decide based on what we

eliminate or leave who becomes a winner and who becomes a loser, and so we have to be very careful how we do this because we could influence actions of a lot of important companies that do business here and maybe do business elsewhere in other companies, and so how we decide to reform the tax could could have a major impact. obviously, those are all the list of those different types of tax breaks, list a good chunk of money that we don't collect because we give the tax break to those individual companies that can qualify, so as we talk about making changes, we could end up selecting the winners and losers. let me ask another question with the brief amount of time that i have with regard to tax collection. we know that there is owed tax money that is not collected. in some cases it's not

intentional. people make a mistake on their filing. in some cases we know, and we've had cases where it's proven people intentionally try to avoid paying their fair share of the taxes. there's estimates about how much we don't collect in taxes that's owed. i don't know if there's any recent estimate, but i know there's one from about ten years ago around $345 or $350 billion of uncollected taxes. any update? >> the researches of the internal revenue service runs what they call the national research project working on updating those estimates, but the estimates that you cite of $350 billion in terms of what's referred to as the "tax gap" per year i think are the most recent, but they are a couple -- at least a couple of years old, sir. >> with time expiring, i'll explore this more when we talk

again about the individual income tax. thank you very much for your testimony. >> you're welcome, sir. >> the co-chair now recognizes congressman upton of michigan. >> thank you for not only being with here today, but with us for a number of days and days ahead answering questions so i appreciate that flexibility. we know that the u.s. corporate tax rate is the second highest that there is. as we look back at the size of the top 20 companies in the world, 50 years ago, 17 of them were u.s.-based. in 1985, 13 of the top 20 companies were in the u.s., and today, it's about six. the companies that i talked to particularly in michigan and before this committee here in energy and commerce, one of the

things that they talk quite about is certainty in the tax code. there's a lot of -- and has been discussion on working with chairman camp and baucus as well to hear their comments from the many hearings that they've had, but the research and development tax credit which stops and starts and stops and starts is a real frustration. accelerated deappreciation has been a bipartisan idea for a long time to encourage investment here in this country and export products overseas. how would changes in these two, accelerated deappreciation and research and development and maybe move the dials in terms of increased deductions or whatever, how would those help us with investment in jobs in this country? would what would you encourage us to do as you've examined the

tax code? have you done studies along these lines? >> well, congressman, let me refer back to the example that senator murray raised. you said that doug elmendorf approached you with a week ago wha. does -- what does expensing do? it's one form of super accelerated depreciation. accelerated deappreciation methods, again going to the cost of capital for the business, even, you know, from a sort of simple cash flow method, it means that you have more cash available after tax from being able to recover more of your cost sooner or if you look at it in terms of what economists refer to as the user cost of capital model looking over the lifetime of the assets, it -- by having cost reduced early over the life of the asset as opposed

to later over the life of the asset, the present value 69 returns to the asset are increased, so it makes it a better investment. accelerated appreciation is a policy that encourages investment in the united states. similarly, you mentioned the research credit, and expensing of research activities. from sort of a -- from a -- >> but do you have studies showing if we did x or y, it would allow companies to do more investing here allowing more people to work and pay taxes? a whole lot of positive things for the economy, a laundry list of things that can help us? >> translator: joint committee staff -- >> the joint committee staff responds to members legislative initiatives, so we don't have really many formal studies that say do this as opposed to do that. now, we have in some of our

macroeconomic work that we have undertaken to provide supplemental information to the ways and means committee that we looked at the role of expensing, looked at the role of reduced corporate tax rates -- some of the same points i made to the senator earlier -- there's a number of academic studies that rereview to help inform or work to reform our macroestimates and economic work on the impact for incentives of research, on the impact of accelerated depreciation. most of the economic findings are that there is -- there is an effect. there's differences of opinion as to how large the effect is, but the incentives generally are as the theoretical discussion would suggest that they are pro-investment or pro-research in the united states.

>> do you have any studies that if we increase the capital gains rate from the cawrpt 15% what it would do to capital investment by companies if we raised it to 20%-25%? >> well, again, congressman, no study per se on point, and you're asking about what would be the macroeconomic effect of that change? so, to walk through, that is, the tax on capital gains affects -- let's think of it on corporate stock -- the shareholder's after tax return to investment so there's a couple of ways in which the shareholder gets returns through investment. there's return on dividends -- >> but the company itself -- >> well, the capital gains -- remember the capital gain, of course, relates to the change of the value of the company shares that occurs in two primary ways.

the company's very profitable and so its income earning potential increase, and so the value of the stock is over the longer haul the discounted value of the potential net income of the company, so if, you know, the company's successful and its income goes up the value of the stock should go up, and a higher tax on capital gains at the individual level would say the return to me saving and putting money in equities opposed to maybe putting my money in the bank or buying dead instruments or some alternative investments makes that tax return a little bit less, so i may choose to do other things. the macroeconomic analysis looks at the general portfolio effect of the different savings options individuals have and what's this do to the taxation of the net overall of savings. net saving it important in the

macroeconomy because it's the wherewithall to invest. those are the funds to invest, and we think that taxpayers do respond to the net return to savings, and if the net return to saving is reduced, they'll be a little bit less saving. that works through the ma crow economy. it's hard to trace one particular -- one particular aspect of that saving return, but that would be an important aspect. >> time of the gentleman has expired. the co-chair recognizes senator baucus of montana. >> [inaudible] >> thank you, mr. chairman. i just like to address a bit this point that the two points were raised that hurts small business. it is true that as has been mentioned already here today that 50% of small business

income is subject to the top two rates, but it's not true that 50% of small businesses and employers are subject to the top two rates. in fact, only 3% are, and it's also -- isn't it true, mr. barthold, again, only 3% of taxpayers are subject to the top three rates; is that correct? >> that's, i believe that's a statistic -- >> 3% of taxpayers, not 50%, but 3% of taxpayers. >> there are a large number of businesses, passthrough businesses, the owners of which -- so the recipients of pass through income, are not in the top tax brackets. >> and in addition is it true that about half of the 3% or taxpayers or bankers or celebrities make salaries and just invest a small portion of their income in publicly traded

passthroughs. >> right -- could you -- >> half of the 3% are people who don't really employee people, but their businesses invest their income. >> certainly a number of the recipients of what you would -- what you would consider active business income are the passive investors in those businesses. >> right. i want to make the point that only 3% of taxable income is affected by the top two rates. there's a lot of talk by corporate tax reform which i think it's good. general talk is broaden the base, lower the rates, ect.. it's -- my understanding -- and there's a lot of talk about lowering the top corporate rate to make it more competitive with other countries in the world,

and that's good, but a lot of that would include eliminating -- reducing many of the tax expenditures. there are -- some point out that the effective u.s. corporate rate is roughly comparable todd effective tax rate of other companies in other countries. i want to ask you if that's generally true. does our effective tax rate be competitive with that of other countries? >> it's not always clear what some people mean by "the effective tax rate." >> actually, -- >> it's after you deduct and it's over what time period, so i have seen the studies that you cite that say that, and so what you say is true that there's studies that say that, but part of what they are calculating is if you look at book reported income and book reported taxes

of u.s. public corporations, they would not include in the taxes, the taxes that are deferred abroad in what's considered income property. >> don't misunderstand. i'm for going down this road and lower corporate rates significantly; however, there's other data that shows today different industries in the united states enjoyed -- there's a big difference among which industries in the united states enjoy tax expenditures compared with other industries. it's a big variation. for example, manufacturing industries and real estate industry have much -- take much better use of because they are available of the tax expenditures. the services industry and retail industry. i try to point out if there's very significant changes, base broadening and lowering of the corporate tax income, that

there'd be big dislocations. some industries would be hurt a lot compared with others, and some would benefit compared to others. it's important to know which the industries are, and if we go down the road to know what the roles would be that affect the industries and then decide which of the industries are really more important for jobs, growth in america compared to others. now, nobody likes to pick winners and losers here, but it may be that some of these industries do provide more jobs than some others, and i think it's important that we note what they are, so it would help me, anyway, if joint tax could come up with some sort of a study that shows which industries benefit the most when they are compared with those that don't. >> senator, i'll follow-up with you and your staff from the work that we've done with you in the

past. we do identify in a certain features of the tax code by the primary industry of the taxpayer and we've done some analysis for you in the past. we can do some more. >> in part, just trying to point out this is not an easy undertaking, corporate tax reform. it takes time, and often we go down this road. it's more complicated than we think, and there's unintended consequences of major changes that we might otherwise make. it's important that we think through what the intended consequences are to try to avoid some of the unintended consequences. my time's expired. >> the co-chair recognizes senator portman of ohio. >> thank you, mr. chairman, and i appreciate chairman baucus' comments both saying that he supports heading down the road of lowering these rates which are high relative to our global

competitors, but also the fact that this requires hard work, and i'm hoping this committee rolls up its sleeves with his guy dabs and -- guidance and chairman camp's guidance because he is right, this is complicated. i'll tell you as recently as yesterday a ceo of an ohio manufacturing company that does business overseas came to me and said i'm at the point that i believe that a lower rate is a better deal for me and my company than me taking advantage of many of the current preferences that are in the code for industrial companies as the chairman said, and that would be consistent of what co-chair murray said about companies in her state who have come to her, so this is a path that i agree with chairman baucus worth us pursuing and with the proceed

opportunities before the committee, that we use the opportunities. i have two sort of simple questions that i have about the tax reforms that we've been discussing today. one is, you know, what should the tax burden be on the economy, and i think that's sort of the fundamental question that we need to answer in this committee, and that goes right to your testimony, mr. barthold, because in figure three you talk about the 18% historical average percent of gdp of taxes, and in figure five you talk about what's going to happen over the coming decades, and you see the percent of gdp and figure five going up significantly from 18%, 10 one, we need to figure out, you know, what is the right burden on the economy, and that, i think, is properly reflected as the percent of gdp, and the second question really is the fundamental question everybody's been asking today. what's the best way to collect

the taxes? some say it's a fat tax or another consumption tax. i don't think this committee has the time or ability to get into that level of reform, but i do think that there's been a lot of work done by chairman baucus, chairman camp, and others to look at this, to know that there is a way to lower rates and broaden the base, and best is in the eye of beholder, i suppose. some talked about distribution and fairness. some have talked about efficiency. the cost of compliance which is really a separate issue from the impact on economic growth although it relatings to it, and then timely what's the best way to reallocate resources and the impact it has on economic growth. that's the sweet spot for this committee as i see it. you know, how do we do smart tax reform that one does not provide additional new burdens on the economy that make an already weak economy even weaker, and we can't do that. president obama has said that.

president clinton apparently said that today somewhere, but second, one that is smart so that it does generate more economic activity, and as a consequence of that more efficient tax code that generates more economic activity generates more revenue, so it's a consequence of the fact that it does have an impact on economic growth. this feedback has to be measured, and this is one of the frustrations that many of us have had over the years is that although there's plenty of economic am sitz out there showing -- analysis out there showing this is true, and you talked about that this morning, mr. barthold, it needs to be measured and reflected so good policy can result. in the short time we have on the committee, i'm really hopes that we will be able to have those measurements, and we will be

able to, with the congressional budget office, be able to show what the impact is with various proposals. on the compt rate, since we're talking about that now, we don't collect as much revenue as we should due to the complex loophole ridden tax code we got, and therefore most economists agree reform will produce economic growth, and therefore again, it's a consequence of more revenues. can you just quickly go throw you you can give us the information? you can correct me. one, there's a standard model, and that model will provide us with some behavioral changes. we talked about reallocating revenues more efficiently under a code that makes sense, and under firm and individual responses, you can incorporate in the individual model; is that correct? >> it always includes responses

of many different types, sir, yes. >> we'll have the conventional modeling. second, there's a macroeconomic effect that you now do with an analysis, but macroeconomic analysis that you do is something that's made public; correct? >> it's included in the house committee reports on the reported bill, yes, sir. >> and can you extrapolate from the macroeconomic effects that you're already studying, you have the model to do it as to what the revenue feedback is going to be from say an increase in gdp? >> senator, we have reported as part of the reports, changes in gdp, changes in employment, changes in investment, and changes in revenues from the resulting growth. again, across a range of sensitivity assumptions to give, you know, the breath of possibilities. >> labor market as well?

>> employment, yes, yes, sir. >> and so you have provided revenue estimates from those changes? >> no, not -- >> in gdp and labor market? >> no, i wouldn't want to call them revenue estimates. you could, i guess, you know, think of taking the next step in saying what's the feedback that's identified, and add that back in. chairman -- >> so it could be done, you could -- >> they held a hearing yesterday as one noted, and they discussed some of those issues, and i can provide the members here later with copies of that testimony we give some examples of some macroeconomics. >> let me say because the time is short, this committee would be interested in that feedback and you do great analysis and we have to be sure we have that analysis. there's changes in the real

world resulting in revenue changes, and we have to be able to do that in a short period of time in several weeks. my time's expired. but you also do a compliance analysis? if you go from compliance of 88% to 90% compliance, that can have huge changes, and there's a complexity analysis that also impacts that; correct? >> complexity analysises, trying to study more comprehensive analysises now. >> the time expired and the chair now recognizes congress clieburn of south carolina. >> thank you very much, mr. chairman. mr. chairman, it is my humble opinion that the overarching mission of this committee is to find commonground. now, recently, the house republicans released a jobs plan in which they referred to as to

complicated and cumbersome and they are unfair. i could not agree more with this assessment. i think it's unfair. the wages tax and it's unfair that the wealthy get the tax break, and i think it's unfair that the number of top corporations making record profits pay more to the ceos than they do in taxes. now, as we pursue this. there's people making over a million dollars a year, that is like three tenths of 1% of our entire population. >> that figure sounds correct,

congressman. >> okay. if that figure is correct, and i think it is, i think the question before us today, one of the questions is is it fair to value wealth more than we value work? because if we are willing to say that our tax code reflects our value system, our tax code seems currently for the greater value on wealth and dividends than it does on work and wages. now, is it class warfare to seek some equity in the tax code? that's my question. do you think it's tax warfare? i'm not asking -- i don't know

whether it is or not, but do you think? >> well, congressman, i don't offer an opinion on that sort of a question. i try, and my staff tries to provide information to members such as yourself so that you can make appropriate judgments for the american people. >> thank you. that's fair. let me ask something about -- i'm a great believer that there's something that we ought to pursue in the committee, could be a value added tax, a consumption tax. i don't know what we might want to call it, but suspect it true that every major economy with which the united states competes really funds our government through consumption taxes? >> all the western-european economies have individual income

taxes, payroll taxes, corporate income taxes, some other taxes that we have such as we do, and in addition they all have a value added tax. >> well, then, if crs's estimates are correct that value added tax could be levered on taxable base of 8.8 trillion. if we exempt food, health care, housing, higher education, and social services, that would leave taxable base of around $5.1 trillion. do you agree that that is a

viable option? >> through time, congressman, a number of members of congress and, in fact, the ways and means committee in the late 1990s held a series of hearings. they asked us to explore a number of issues related to value added taxation. our staff has identified for congress a number of policy issues for them to think about. it concept issuely and legislatively, it's viable, but would take a lot of work, a lot of decisions by the members, and a lot of technical work to get the law up and functioning for our taxpayers. >> well, thank you. in the 50 seconds i have left, let me be clear. when we talk about a 35% corporate tax rate in this country, and comparing that with the rates in other countries, we really are not comparing apples

to apples. we are actually comparing our rate to countries that have a value added tax. >> as i noted, sir -- >> in addition. >> those countries do have a value added tax in addition to their corporate tax. >> thank you very much. i'll yield back by 16 seconds to someone else. >> we thank the gentleman for yielding. co-chair now recognizes congressman camp of michigan. >> well, thank you, mr. chairman, and thank you, mr. barthold, for your testimony yesterday on economic models for analyzing tax reform. figure one of the handout that you gave us shows the federal recreates by sorts, and it shows more than 47% of those recreates to the federal government come from individuals. only just over 8% come from corporations or what we call sea corporations. >> that's correct, sir.

>> corporate income. in figure iv in your projection of federal revenues to come that goes through 2021, it shows receipts from corporations going flat, but yet revenues from individuals show to be increasing over time. is that a fair statement of the two charts? >> for the most part -- >> i see an outline with the individuals -- >> it's a matter of scale. see the green line, the corporate tax does increase as expensing -- it's currently, you know, slightly low uered by the fact there's bonus depreciation followed by expenses, but yes. >> the point is the individuals go up at a faster rate, projections to the federal government is going up greater for individuals than corporations. >> that's consistent with our projections. >> that's related to the number of entities that organize as

passthroughs paying taxes as individuals. some of that is business activity that you see increased in that chart, and isn't the united states somewhat unique that so much business activity takes place in the form of passthrough entities? s corporations, llcs, and partnerships, and isn't it fair that other countries do not have as much business activity taking place in a taxform? >> these activities are more prevalent in the united states, but i'm not expert enough in all the other countries to make a blank statement. >> all right. corporate reform alone would then leave out many employers, leave them out of the equation because of the way that business activities organized in the united states, so as we compare around the world, we need to understand that. >> moving to corporate rates, a major factor in where businesses decide to invest and to locate, it's been said by yourself and

others that we have this high statutory rate, and with capital being increasingly mobile, it has become a much more important factor. the high corporate rate makes investment in job creation in the u.s. less likely as we compare around the world, and 23 you look particularly at canada, who is certainly a key ally of ours, but also a key trading partner, one of our largest key trading partner, but when it comes to trade, they're one of our key competitors. you look in 1990, they had a 41.5% tax corporate rate. in 2010, it was 29%. 2011, it's 16.5%. in 2012, their corporate rate is going to 15%. now, we have a high statutory rate, second highest in the world, in the oecd countries, but we have a number of expenditures, tax expenditures

that then lower that rate, and that affects different sectors as chairman baucus pointed out in different parts of the economy in different ways, but aren't these other nations getting to their lower rates by eliminating these tax expendtures around the world? >> some of the other tax reforms that i'm familiar with have made tradeoffs of that sort. for example, germany has lowered their statutory rate, and they made one of the tradeoffs was to lower their statutory rate while lengthening cost recovery periods. that was a policy choice that they had made, so the reduction in special provisions, i think, as reported by the oecd that they have noted that that's been

a factor in a number of worldwide tax reforms. >> and as chairman upton pointed out the companies headquartered in the u.s. has declined while other economies have emerged or changed their tax policy, and we're finding that many major employers are located in other countries rather than the u.s.. >> it's certainly a fact that worldwide large corporations that the fewer of the top 50 to top 100 are u.s. headquartered countries, so i'm sure there many factors that accounted for that, the growth of other countries, but that's certainly a fact, sir. >> the other factor reface as a nation is the number of expiring tax precisions, and can you comment on how that's grown? i mean, i remember as they used to call it the rostencowski13,

the 1 tax expenditures expiring. how many do we have now expiring on a regular basis? do you have that? >> well, you're familiar, mr. camp, we publish annually a list of expireing tax provisions just for the other members, and i'll get a copy of if for all the joint select committee. we've done this annually for more than a decade, and it used to be a lot thinner publication. i think we're up to expiring within the next two years 150 or more different provisions of law. it, ewe know, it certainly creates uncertainty both at the individual level and at the business level of what's the law going to be next year? what's the law going to be two

years from now, and obviously there's a lot of important policy choices that go into -- that the members have to face as well. >> thank you, mr. barthold. >> co-chair recognizes senator kerry of massachusetts. >> thank you very much, mr. chairman. i want to focus later on some of the tax expenditure piece probably when we're individual, but i think it's important to note that 80% of all the money the federal government raises in taxes, 80% of it, goes out right back into tax expenditures. only 20% of what we raise actually goes into things we spend and pay for at the federal level. 95% of the tax expenditures, 95% of the 80% goes to the top ten

expenditure items. i have a lot of questions of the efficiency of that and other things and the choices made in that which i think we have to look at, but i want to say at the outset i second powerfully what senator portman said about our opportunity here given the mandate and structure of this committee and the presentation to the congress to take advantage of this to try to get that sweet spot, which he talked about which is really simplifying this, putting in place the most efficient choices that will drive our economy that therefore will raise revenues and help us deal both with the deficit as well as jobs at the same time, and i think that's the key thing here. one of the things that i'd like to focus on quickly is just the simple question -- we hear a lot about the top tax rate with respect to corporations, and, yes, it is the highest second statutory rate, but the effective rate is what matters to people. business people can judge the

bottom line and make judgments accordingly. we fall in the middle of that. should the committee in its thinking here be looking at the top statutory rate, or is it the effective rate that's more important? >> senator kerry, as an economist, i think it's the effective marginal tax rate on investments that's really a key factor in terms of both growth and economic efficiency allocation across sectors. ..

we are creating jobs and other countries because of the structure of the tax code. the fiscal reform commission recommended we move to a territorial system and replace the current death of taxing active foreign source income when it's repatriated. this is obviously a source of income as well as a better tax code and maybe a more competitive one. could you share with the committee whether we can strike the right talents and have a system that is globally competitive, but encourages job creation and investment in the night stays even as we were to create a territorial structure. is that doable?

>> strike the right balance is it's a difficult assessment for me, senator. >> let me try and answer your question, be responsive to your question. highlight of pure issues, some of which we are to talk about. investment in the united states, things important to investment in the united states can be the effective marginal tax rate on the income earned by those investments. so the statutory rate cost recovery, research in the united states come in many countries provide research incentive. we provide research incentives. 's assertive weighing the, the return to income earned from research undertaken in the united states is supposed to research undertaken abroad would be a fat here. when we look at territorial

systems, what does it say about location or some investments as opposed to a broad. one feature materials toward a system of the dividend exemption system so that income earned abroad would only be taxed at whatever rate the foreign country has brat. if we lower our domestic rate ml at their countries under a tarot trail system >> is a net is that fact that none of buyers have a complete trade exemption? >> typically there is 95% egyptian. >> is very particular country you would point to where you think the model has sort of struck by balance?

>> i think there is a number of interesting features policy decisions for the members to consider from a number of different countries. >> could you perhaps share with us. i think it would be great if you and your terrific staff could present us with a sense of how to perhaps strike a balance, where there is a provision. what we are currently touring, everyone is talking about this massive amount of corporate revenue sitting abroad that doesn't come home because it doesn't want to be taxed. we've had one round of the greatest amnesty so to speak, didn't work so well. the question is whether or not we can find a way to see that money more effectively with capital formation component put to better use and still not wind up encouraging the company to go create the jobs. i mean, there's a balance there.

it's difficult. >> it's definitely a policy excerpt and a happy to try and work through options with members of the committee that direction we want to go. it is complex because -- >> is complex but you have to acknowledge what we live with today is not affect it more efficient. >> what we have today is also complex and certainly has incentives that people find creating inefficiencies. >> a cochair not recognize senator to me of pennsylvania. >> things, mr. chairman. i'm glad to be following senator kerry and i want to underscore micronet with him and senator portman and how important it is that we make every effort to do something stanched on the tax reform side. this is the most progrowth thing we can do is to fundamentally reform our tax code. it is a way to generate substantial revenue while lowering marginal tax rates.

that creates jobs and helps reduce our deficit problem. it can enhance fairness, which we desperately need to do. so i appreciate your test money. i'm glad we are focusing on this i want to follow-up a little on the same that senator kerry was just discussing. you know, tax expenditures justifiably get a bad name because so many are in my view egregious flaws in the code, especially those narrowly targeted and have a distorting impact. not all tax expenditures, not everything we describe his tax expenditures meets that description. the first one on the list to your table five is the deferral of active income, right? this reflects, of course, the fact that we choose not to tax at the time that it turned come income that is earned by gophers he subsidiaries. if elected this is number one on

the list of the biggest number by far, you can superficially pretty quick glance suggest that maybe this is because source of revenue. but in fact i would argue that our current system puts us at a competitive disadvantage because at whatever number there is on this form, we tax foreign income when it's brought home to a much larger degree than most of our competitors. is not true? >> that's correct, sir. >> so if we were to actually taxed at the the time that it turned, we would be taking a competitive disadvantage we have no and making orders, right? >> you would be creating a higher tax rate on the total income of the u.s. corporation. >> well, exactly. we would be increasing disparity, the difference between the tax rate we charged on overseas incomes and not

switch our competitors charge. each of these and it's in lower tax locations. >> which most are. >> yes, sir. >> i just think we should be very conscious of the fact that reducing tax expenditures matters very much which ones in how we go about doing it. i'm in favor of moving into the territorial system and i think a lot of pennsylvania companies, whether it's u.s. steel or heinz , companies with substantial operations overseas exist to serve local markets overseas. what i would hate to see us do is move in a direction that creates an even greater incentive than there are ideas to have corporate headquarters somewhere else. as that process jobs, a lot of good jobs. so my preference would be filling those in the direction of a more territorial system. and like to get back to you

another line of questioning that senator portman raised. and that is how your methodology quantifies the feed back of variations in policy. celebs and her studio, you acknowledge that personal incentives affect behavior and so used an example of reduction in the payroll tax might create an incentive for someone to enter the workforce because their after-tax earnings would be that much higher. of course that's true of any production in marginal income tax rates, payroll ordinary income. my question is when you analyze the night, do you attempt to quantify the number of people who enter the workforce in response to the greater incentive to work? >> when we undertake are macroeconomic, we report employment effects usually in terms of hours of work, which you can loosely translate into

numbers of individuals. but ours can also be overtime they currently employed individuals. >> okay, so you acknowledge that. you also then in your calculation attribute a new source of revenue from these new workers? the fact they are paying payroll taxes a sum somewhat lower rate perhaps imagined before? >> this goes to the point reproached a couple of times. are macroeconomic analysis that we've been undertaking for about a decade is skewed to provide supplemental information to the members of congress, relating to tax policy changes that they are considering. we routinely support our domestic product changes, employment and investment and also report what this could mean in terms of feedback effects on revenues because the general premise is that national income

growth, the tax base will grow and so there will be more income subject to tax. so invariably stearns, the answer to your question is yes, this is not reported for a budget scores keeping purposes or for house or senate will score keeping purposes, points of order in the light. >> i see them running out of time. i want to -underscore think this is a problem with the scorekeeping methodology. , you acknowledge that the reduction in marginal income does not have a linear impact in reducing revenue because of the positive feedback effect that offset at least some of that, but we don't capture that. we don't quantify that. your process that's going to given change in tax policy. >> macroeconomic analysis is not part of scoring for congressional scorekeeping and

services. >> thank you, mr. chairman. >> the cochair now recognizes mr. van hollen. >> thank you, mr. chairman. i want to briefly turn to the question of pass-through entities because a lot of people have described these pass-through entities as if they were all small businesses. i would just like to read from your testimony before the senate finance committee july 14, 2010, where you say the staff of the joint committee on taxation estimates in 2011, just under 750,000 tax payers with net positive business income, 3% of all taxpayers with net positive business income would have marginal rates the fell about 250,000. is that correct? >> if you're reading from something. >> i just want to make sure that fact remains true. you have this important caveat in your testimony. the figures for net positive business income do not imply of

income is to entities that might be considered small in quotations. for example, in 2512 dozen 62 as corporations and 12,006 mpt partnerships have received more than $50 million. now my point here isn't that these are good businesses. we should get over this conversation and all of these are small mom-and-pop entities because they are just not. if you have a washington law firm with 500 partners and those partners each took a draw at a million dollars, under this analysis they would be included as 500 distinct business entities, correct? they would be included in your figure of 750,000? >> how did you structure your law firm? as a partnership. >> we did a number of accounts

and actually to refer you to some more recent work that we've done, appendix tables in the prepared testimony that i have before me today, 10, 11 and 12 show you some ways that you can distribute partnerships and s corps. >> is just going to ask you that. >> just the members realize this we have this conversation on page 54 if you look at your charts, you'll see the top 2.2% of the s corps with gross receipts of more than 10 million received 61.7% above the gross receipts of s corps. very small group. if you got the top 20% of partnerships with gross receipts of more than 10 million, they received 83.4% of all gross receipts, offers truce eats.

83.4 came from the top .8%. so we should remember when we are talking about this issue that we are talking about, in many cases, individual partners at big law firms and considering each one of them some kind of small business generator. i think people need to take that into account. >> mr. van hollen -- >> i'm sorry, got a few minutes. >> i want to ask you about the modeling because dr. elmendorf testified before the committee and said if we were to keep in place the tax cuts implemented in 2001, 2003, rather than allow them to lapse in our current law, we would have much larger deficits in the out years, cumulatively 4.5% of this is. alexander senior testimony, higher deficits come especially during a period of time a full employment, which we'll have to get back to higher deficits can

have a check on the economy. is that correct? >> the higher deficit requires higher government financing and potentially long run crowding out private investment. >> crowding out is true and full employment, correct? >> is not good any time. >> not to get back to your scoring though, when tax cuts are scored, with their 2001, 2003, because you do not take into account some of those macroeconomic effects, you also don't take into account the fact that those tax cuts could contribute to larger deficits in the out years of slow down the economy in terms of gdp, right? >> are macroeconomic analysis will be provided to the ways and means committee is as you know, fire, accounts for what is happening with the depth it can have the packages funded. so it does reflect potential

crowding out. >> but it does not take the next step, what should be analogous to the points being raised, which is that cracking up is to lower gdp, which then moves to lower -- >> are macroeconomic analysis will show that. >> would show the feedback -- the feedback loop in terms of growth, in terms of your scoring? >> i'm scoring, getting emphasize the point just made to senator to me, we use our conventional as the congressional budget office, we as congressional models which are scored against the congressional budget office, macroeconomic waistline word gip aggregate investment inflation rate, none of those factors -- >> i hear you. i'm cbo, when they score investment, cbo looks at the

infrastructure and education. they don't take into account either the positive economic road benefits of that in terms of receipts, judaic? >> in our conventional estimates, they do not account for positive effects for the potential crowding out. >> it is analogous on the cbo site in terms of investment to what she do an attack tax side, correct? >> correct, sir. thank you, mr. chairman. >> that completes the first round of questioning for the first panel. we will go to the second round of questioning. the cochair will yield to himself. dr. barthold, in my opening statement i quoted from a letter from former cbo error, dr. peter orszag and i believe under a current policy baseline, it's solved on the tax side, that the tax rate for the lowest tax bracket would go from 10 to 25.

the 2563, 35% bracket 288. the top corporate income tax rate would also increase from 35% to 80%. as the joint committee on taxation performed any analysis that is similar to dr. orszag to be analysis? or would you have an opinion? >> i can clearly say no because i'm actually not even sure what he did and what he quoted. so i know we haven't done anything quite analogous to that. >> i'd be happy to have my staff colleagues. we can take a look if you'd like. >> perhaps at a later time. i would appreciate that. let me go to another subject manner. and that is, who actually ends up hanging our corporate tax rate in america?

i suppose as a practical matter, many view corporations as tax earth and not taxpayers. clearly there is some impact on consumers, perhaps in the form of higher prices depending on the elasticity of demand for the product or the service. workers and lower wages and certainly to shareholders in the form of potential lower stock prices. the last date of this has come across my desk is a congressional budget office analysis of about four or five years ago entitled and international version of the corporate income tax seemed to indicate in your analysis that 70% of the burden, of the corporate income tax falls on labor in the form of lower wages. i don't necessarily believe he'd be familiar with that city, but is gct undertaken a similar study, do you have opinions?

have you read the academic literature? do you have an opinion? >> and income you are discussing one of the big longtime important questions in economics and that is what is the incidence of any tax or in particular the incidence of the corporate tax. some of the economic literature has an ebb and flow in terms of its view. it long been thought that perhaps substantially all the burden of the corporate tax felt not just on corporate shareholders because at its simplest terms, the corporate income tax is a tax on the income earned by the equity owners of the firm. more generally, it would have an effect on the overall i'm all owners of capital. but some of the more recent empirical work and theoretical work, some of which you just cited and theoretical work, some of which you just cited the increased cross-border mobility

of capital can any fixed capital relocation of factories from one country to another country, to suggest there's a greater responsiveness to after-tax returns the capital and perhaps tax returns of labor. , to come up to perhaps a daschle announced that it falls on labor. if we make capital sleepy u.s. commanders last capital of the u.s. it is capital and key to buy productivity helps determine wages. >> dr. barthold, my time has expired. let me yield to senator murray. >> thank you very much. we hear any tax reform must erupt in a mutual. as our nation faces $14 trillion in debt, we need to be focused on job creation and long-term

debt reduction. your predecessor and gct, dr. clayburgh testified in the finance committee last week and he said quote, we have to abandon our nostalgia for the tax reform act of 1986. the tax reform effort was revenue neutral because it could afford to be and was also of course preceded and followed by major tax increases. we hear a lot of stories about profitable corporations, even major corporations using tax expenditures in order to reduce and in some cases eliminate their tax though completely. this is infuriating for average taxpayers who are dutifully paying taxes and don't benefit as much from his big loopholes. i'm not talking about failing companies he reminded rate. i'm talking about large profitable companies. during this economic downturn, congress has provided generous incentives to encourage business

activity, namely through the tax code and even before the downturn there were corporations that were very profitable, but paid no sure a federal corporate income taxes. i wanted to ask you if you have an assessment of what it costs our treasury in terms of lost revenue from profitable corporations that don't pay corporate income taxes. >> basically our tax expenditure analysis provide most of the assessment that you're asking about. but it does on a provision by provision basis. you can't because of interactions between them come you can't really add them up and say this is the ever get them outlaws. but the way we as the main and measure the tax expenditure is we look at what the businesses tax liability would be with and without the provision in question.

so if it's a corporation that is in a locked position, they would be no tax liability regardless of the provision. so it's only looking at where there are otherwise, you know, would be positive taxable income. i hope that's responsive. >> it is a response. in my last 30 seconds, what to ask you about the repatriation issue because we hear a lot about that. some people say raise revenues. some people claim that loses revenue. what is your take? >> we have undertaken some estimates of a particular proposal or a couple of different proposals. our assessment is that if we repeated the section 965 repatriation holiday that was an act in 2004, then under the current baseline, that would lose revenue.

they would be short on revenue increases, but long-term revenue losses generally frowned longer-term erosion in the corporate tax place. >> thank you ran much. appreciate it. >> the cochair recognizes mr. coll of arizona. >> thank you, mr. chairman. on the ask one follow-up question in the interest of time here. you've heard a lot of frustration appeared about the fact that while you can provide estimates to us of some of the behavioral impacts that they are not reflected in the official estimates that you provide to us. my question is how we could change that or how we could better take advantage of the behavioral estimates that you do provide. would it require a statutory change or simply some kind of change within joint tax committee to provide those

behavioral effects, those feedbacks that you talk about is part of your official scoring estimates. >> well, just as a reminder, we do provide information to the members now. >> understood. made it clear they're not part of the initial. >> the budget rules are -- i'm not a budget will ask your and i am not sure if you wanted to -- if you wanted to change budget rules or have information reported in a different fashion for us. i mean, we try to provide information to the members in a form that is useful to them. so i'm really not sure how to answer your question about what to do about budget rules or decision. >> appreciated. what would it take for us for you to include the sustenance that she talked about, the feed

back effects and so on in your official revenue tables come in your official scores of tax changes quiet >> well, as i had, for the ways and means committee now underreported though, we do provide the macro in accomack analysis for sensitivity. though it's available for members of congress to read the conventional estimates in the macroeconomic analysis and then make their decisions based upon that. so as a mechanical feature, there's really nothing. >> a package of cigarettes, you understand our problem, which is that people are going to look at the score. how much of a ten-year savings did we achieve? did we meet our goal of 1.5? if we can't score, you and cbo are the arbiters here in some sense of the success of our policies in terms of everybody

being willing to agree that it had set aside. the estimates to give this a very useful to us, but it's not going to counter the score if there isn't a way to include it. i'm just asking, is it a matter of policy and this? isn't something cbo has the policy we need to change? is a statutory change to a document to include this? and if you know what i wanted to think about it, could revisit with you somewhere so we cannot figure it out? >> mine suggests that mr. van hollen is on the house committee and would probably know more about this. >> will put the burden on him to answer the question. >> you don't have to know the answer. >> i'm not a budget law expert. i think the question you are posing, senator khan has won about house and senate rules and about budget law. the macroeconomic analysis we

provide currently is under a requirement under house rules. the complexity analysis that we provide with any bill was the result of legislative statutory action that senator portman was one of the primary voters in the 1990s. some of the things we were porcher members are the statute. some are a result of role. >> we can answer that question. i appreciate your response. >> the cochair of the recognizes commerce minister of california. >> mr. barthold, we have interested entered this interesting realm of asking you to predict the weather. we know this is a large economy. when it's intertwined with the economies of the rest of the world come it becomes very difficult for you to come up with estimates of what a tweet here will do or each week there will two. but you do have conventions used to help you make decisions and

we have to rely on us. we have to rely on the congressional budget office working with you to get as good as you can estimates of what might have been. he developed his ideas, have you not? bennett guess, we tried to a data modeling, data, the thinking on a continuous basis >> are using what you believe are the best models we have today? >> we think we have very good models. they are more sophisticated than they were 10 years ago, 15 years ago. we have outdated and a number of areas. you could use some of the less conventional, some of the unconventional models that are out there that haven't been as grotesque as the models you use. they may show to be more accurate than yours, but they also may show the will of been less accurate than the ones you use. >> we look at work by outsiders

all the time to help inform ourselves. >> a nasty taste. in 30 days can you come up with a better model than what you are using now to tell us that the impact will be as anything we do on tax policy or budgetary policy? >> well, i'm sorry to say, mr. becerra, but in a 30 day time. you're probably stuck with us as we are. >> okay. >> as you have noted, yesterday i tried to outline, you know, some of the bread tonight with the sophistication of our modeling. >> from what you do will inform us as we try to move forward. we may look at which you do and say we agree completely. we may disagree that it some point we have to make a decision, what we will use as the model of what you say is you given us the best model you can only see the next 30 days.

using mambo, we have heard this discussion about corporate tax reform. there's talk about eliminating those tax breaks that curt certain come companies get over other companies and using the money to help reduce the rates for other companies. that we broaden the base and make it a fair tax for all companies. if you are to eliminate all the tax breaks that right now corporations take advantage of and put the money into lower rate, using the model we have, does that help us, the 12 of us reduce the deficit that we currently see? >> lorraine if you did something -- >> all the money you get from removing all the tax breaks into lowering rates, using the current model used to reduce the tax rate -- the deficits, excuse me. >> let me make an important point and i hope i don't -- i guess i will probably access your time for which i apologize.

as we've noted a couple times, one of the large corporate overall business tax expenditures is accelerated depreciation. as i've noted cost recovery feature cost of capital. it's not just looking at the statutory rate. it's also with the statutory rate and had eager to recover costs were invested capital that determine the profitability of investments and said the decision to invest. if you scale back accelerated cost recovery and use benefits to reduce the corporate rate come you are on one hand a senior make an investment less attractive based galang back capital recovering on the other hand, make it more attractive to reducing the marginal rate was ultimately passed.

i'm not in itself is automatically progrowth. you go in one direction with cost recovery and the other direction with the rate. >> witness can finish, please. >> we have done some preliminary work. a couple of my colleagues presented some of this work just last spring licenses and in the national tax association. and it suggested within our corporate model that getting rid of accelerated dish appreciation and putting just that money back into corporate tax rate is probably not going to be progrowth. it's going to be much more neutral. >> the time of the gentleman has expired. the cochair wishes to announce to members that a vote for house members is about 1:30.

doing a rough calculation in consultation with my cochairman, i would like to ask unanimous consent that the first round of questioning be five minutes in the second round be limited to one minute in a rough calculation means that all members would be able to ask their questions. without objections ordered. members are also encouraged if they so choose to consolidate questions they may have on both panels at this time in the interest of time. the chair now recognizes congressman upton of michigan. >> thank you, mr. chairman. i just want to say i am one of those folks not only on this panel, but i think in entire congress that wants to simplify -- knows that in real tax reform but to broaden the base and add to economic growth. it would be great if we could do admit in this panel.

if we can't come up to a long-term plan and work with chairman camp to make sure that happens. in michigan we've had some really tough times. our unemployment is over 11% in the third 32 consecutive months of unemployment. my district is on the state binary of a new governor, new legislature and they began to pick up the pieces in the past tax reform and got rid of some. the person that was listed for was the governor of indiana because the elders of my district of michigan businesses, come on down. and they did. so as i look at what we have to do on tax reform, we know we have to compete with other nations around the world. and i'm going to yield back to you and then give up some of my time. in the last congress who passed a currency manipulation milk into china, h.r. 2378.

msi headline today and some of the news and some of the business groups were very cute errand but if this legislation came about again, it would perhaps lead to retaliation by chinese companies against american firms. i am wondering if you wanted a steady as to what the impacts of the chinese currency manipulation really means as it relates to u.s. businesses that export or involve in china. do i think i am not? >> we work with the congressional budget office on what we call indirect tax effects of nontax legislation. but i do not think that we did any work on the currency bill commissary. >> would it be possible to ask

you -- do i do go through camp? >> we work for other matters of congress. i'm not that familiar with the legislation, so i'll ask a couple of my colleagues to look into it. >> okay, i got that. throughout the cochair recognizes senator baucus of montana. >> thank you, mr. chairman. mr. baucus, it has been thrown around here by several people that there is about $1 trillion worth of tax expenditures annually. could you tell me -- i assume that it's just a total, but those provisions are not all scored as if you are to score others, your numbers maybe the same as or slightly different. >> a tax expenditure estimates are not behavioral estimates and

they are really just a measure if you are claiming this particular tax benefit, given your current text position, what is the value of that benefit to you? it is not to say if you were to eliminate that benefit, that everything else the tax payers doing that remained same commute be able to recoup all of that money. for example, in the business tax expenditures, just to pick on one, the low income tax credit. businesses that invest in low income housing, partnerships featured review that is a profitable investment. so if we were to repeal that imparted the way its

profitability because it is tax-sheltered, we asked the question, where does that money go? what else happened? >> that does raise revenue. the repeal would raise revenue. >> it would raise revenue, but not equal to the value -- >> if you total up all the reductions in credits and just take itemized deductions, standardized inspections, what would that be roughly? >> will have to luck, senator. >> therefore you can't answer the question country and next question, which is revenue neutrality, how much would the lower rates come individual rates? >> i'll have to -- will have to undertake that analysis. some are in process trying to do something. >> the first cut is just the

itemizes are the standard deduction. the next slide exclusions above the line measures to repeal those. and to some degree come you get the business income. interest, expense, 199 in its referral and so forth? is difficult because some of them use the courts and some of them don't. the major categories show with the revenue effect is. they are all repealed in category one to the standard deduction and itemized deduction. the next is exclusions. and so forth. the health care exclusion, for example. and the other with the business income. of course what they are corresponding to rate reduction would be.

>> i will follow-up with your your staff on that. >> the cochair now recognizes the senate from ohio, mr. portman. >> thank you, mr. chairman. i think all of us will be really interested that information because that goes to all the issues we talked about earlier about a more efficient tax code and how low can break it to broaden the base? want to go through specific tax reforms that, today in future quick response if i could because they think we had a good hearing today on the big picture, but leeson things unanswered. sometimes so-called passers. it's more than 80% is the latest numbers for proprietors and partnerships. postseason might state. if you lower the corporate rate and did so by getting rid of some of the existing preferences and those preferences also

applied to the pastors, it would seem unfair. they would still have a relatively high rate and yet they would not get the advantage of the changes in preferences. how would you address that appeared inequities to be sure that our smaller businesses who are pastors on organized, not as the corpse -- c corps junot find themselves by corporate reform. >> well, senator portman, i noted earlier i thought it would be technically, extremely difficult to wall off the elimination of preference items to one business entity and not that it would create a lot of behavioral questions that you might or might not want to address about are you forcing people to change their choice of their preferred business entity for which you try to prohibit people from switching entity

form? as to whether options, i imagine you could think of things that could provide a new preference as some sort for the pass-through entities. we could explore our options with the one that appeared one of the reasons i emphasize the business income is taxed as c. corporation and business income is also taxed on the individual returned us to make exactly that point, which is business income to get some of the reforms that you have in mind. >> mr. barthold, my time is short. so you wouldn't apply it to individual rates. >> it's very difficult. c. corporations participate in partnerships, for example, i'm

research ventures with individuals and other non-c corps. >> if you could back to us, there are a number who have comes to. we need to follow-up on that picoseconds. second is the expiring preventions. certainly the issue of certainty and predictability everyone raised and some of these provisions because companies can't rely. what is that an impact in terms of economic growth and terms does revenue. to talk to bed in response to becerra come would love to see to talk to bed in response to becerra come would love to see to talk to bed in response to becerra come would love to see to talk to bed in response to becerra come would love to see it's not accelerated depreciation. its capital capital investment information. it's also got a lot of complexity, which makes it less efficient than it could be.

finally the territory of sight to much we don't have time to go into. evidently chaired untrendy cherries really stopping me. we have other ideas there. >> gentleman from south carolina, congressman clyburn is recognized. the >> thank you, mr. chairman. mr. chairman, in 1986, a republican president in the democratic congress found common ground and came to the bipartisan agreement at some of us didn't know where we are trying to get to today. in that agreement, capital gains rate as low as income tax rates were the same. i think it was 20%. it stayed the same for about four years. could you tell us about the significant decrease in unit status during those years? >> i don't know the answer to that question of the top of my head between 1886 in 1990, the

economy generally grew at a reasonable pace. >> that same four-year period? since 1990 we've had subsequent reductions in the capital statutory rates. have we seen any significant increase that can be attributed to that, chevette reduction? >> well, attributing broad macroeconomic outcomes to specific provisions is always very difficult. of course in 1990, 1991, we did have an economic downturn. we then had strong growth. we had a downturn again at the turn-of-the-century. >> thank you, mr. chairman.

>> cochairmen recognizes congressman camp in michigan. >> thank you, mr. chairman. the administration has expressed interest in reducing the corporate rate, although we've not seen any detailed proposals or formal proposals, but most analysis is that just seen a corporate rate somewhere in the mid-20s. and the administration has suggested raising the type redone individuals who passed entities to 40% or more. figure seven of your handout shows how many more past are returned in c corps returns to the number pass through returns and declining shows the income as a percentage of gdp a pass-through entities has been a significant player in the economy. regardless of size, my point is there is a lot of economic dignity and a lot of jobs in the u.s. connect it to passers.

my question is what are the economic questions of taxing individuals and pastors at a rate that is about 15 percentage points higher than would be a rate on c corps and how would that distort conditions on how they were organized if you have an opinion on that. in fact i think the economics are largely as he laid out, mr. camp, one additional factor to add an c corps income tax as a second-level attacks. shareholders to receive distributions, dividends or capital gains. there's corporate tax and tax of an individual level. so to sum, if we were to reduce the corporate tax that would make pc corporation relatively more attractive than other business entities, we might see

some change, might see some diminished growth in one form at the expense of the other. >> all rights, thank you. the other question i have is again, since 1940, there has been a budget surplus of about 11 years in the u.s. and looking at your figure three charlie in federal deeds as a percentage of gdp. and only one of those years, 2000 was over 20% and now is largely as a result of capital gains. outlays are spending in that same. since 1940 never exceeded 19.4% of gdp of our economy. is that correct? >> that sounds right, but i did not produce the figure, so i assumed that elmendorf resented that to the joint select committee. >> does not suggest that if we been able to have a budget surplus in 11 years 1940, yet we

never had spending about 19.4% in those years and revenues were only as a percentage of her coming there were only once in the year 2000 above that amount, doesn't it suggest that the answer has been to controlling deficits to control spending rather than increase revenue to unsustainable levels? >> well, i am here to just be the tax mr. camp. i really don't have good answer for that. >> thank you. >> chair recognizes senator kerry of massachusetts. >> thank you very much, dr. barthold. how do you give them a nonpartisan status of the joint tax committee ever compiled a list of those quotes incentives that are not having either the intended economic impact or that

are worth the level of foregone -- a forgiving revenue? do you have a list of suggestions you might make to the committee about -- >> not in recent memory how we published a hit list of the type that you are suggesting. i mean, we have this background work for both the ways and means committee and the finance committee, when they have reviewed different provisions in the code -- >> would it be possible for you? given the work you've done, and also see done, various modeling is done, do you not have a ready a foundation of conclusions on evidence that was at those things? >> probably not as many as there

are. we work on some we can present. >> it could be helpful to have your judgment on that. money is your question. for couples able to significantly lower by offering offshore subsidiaries to reassign the licensing of their intellectual property? >> we have done some exploratory work on that and there are certainly cases where that appears to be the case. we can't conclude that is generally the case of all multinational corporations, but there certainly is evidence that income is being shifted abroad to foreign jurisdictions to lower overall worldwide. >> window for instance there is one single famous building in the cayman islands, which is maybe 35,000, 40,000 registered companies that are not companies at all. >> are referring to a courthouse

they believe believe is its name. >> yes, i am. >> the point you are making is what is the ability under present law to take income that would otherwise be part of the u.s. tax base and have it be reported offshore? that is just not as simple as the existence of oakland house. >> could you share with the committee? congressman camp asked you a question about pastors and how they're treated relative to the c corps. could you share with us your perception of one factor for one of the most critical factors that have contributed to the growth of the pass-through's and the limited liability corporations? >> well, there's not one. i think there is a number of

factors. you used to do c corps, all public corporations are see corporations. if you are seeking that if you are seeking that, it is small or be they large to access broader not necessitated them to go it has certainly been one factor. the 1986 tax reform act repeal the which was one of legal doctrine that essentially made will do for him to well, we'll follow up with you.

to the chair recognizes senator to me of pennsylvania barthold, we both suggest brought items that are often described as tax reduction of which the case of how we treat income that's earned overseas coming you make the point of but there is another entire category that does cost virtue of their to me we have as green energy amount of $2.5 million have domestic manufacturing reductions with credits for rehabilitating

question be certainly not to the government picking winners and losers within i think the precise point was made earlier by one of the other members losers, they all by congress me ask you this. to these features what it would otherwise be? >> searchlight, that's part of what the tax expenditure if you favor one factor over another sector. >> is a gently likely that if we of the tax code to distort economic us economic growth than we would you to allocate capital

of the political people. >> is a general matter, abstracting from potential for what general economic market outcome allocates in a specific case when it comes to these credits as they got it, if we they're going to the tax code to use of less efficient sources we poor as the site and balance as a result, you say by

so that we can make sure we understand the interrelationship between those things. looking at the corporate side because i think there's consensus that at the top rate, 35% as has been said, is, you know, it's obviously higher than competitors, much higher. effective rates aren't necessaral