>> it's very accurate. >> all that said, i know questions have been raised about the f135 performance and i take it from your testimony that quality has not been an issue so far as the supplier performance have been concerned. >> two or three years ago i would've told you i was worried about that. i will tell you that pratt & whitney have done a good job at standing up a quality organization within the military engines that have dug down deep into their supply chain and helped improve that significantly. >> their supply chain is a lot of it based in connecticut and i can tell you from my experience in connecticut that that our

suppliers and manufacturers have recognized the challenge we face for this century, literally this weapons platform will be critical to our national defense. we we can look back and draw lessons and we should from the challenges that cause that improvement to take place. maybe even the overall conceptual framework as you suggested should there have been more individualization of the platform for different services. but i can well recall that the conventional wisdom not so long ago was the services should get together and collaborate and the by a single fighter and that was the wisdom does your of contracting in its day. now maybe lessons point in different directions. i hope we will learn lessons from this experience but there

has to be a recognition that this weapon platform will do things that no fighter engine or platform has done in the past, would you agree doctor fillmore? >> the investment ranking is large and the need that we have is large to deal with the threats that currently exist. if you have 35 does not succeed, we'll be in a purple. we have a common national interest in making sure it succeeds. >> yes yes. >> would you agree mr. sullivan? >> yes, we definitely need to have this moving forward. this is the the fifth generation. >> think mr. chairman. let me just say in summary that it has been a scandal and the cost overruns have been

disgraceful in this committee and our authorization responsibilities we will take whatever actions we can to prevent a reoccurrence. it it should not take 15 years and still not have an aircraft ioc. with the cost overrun after cost overrun. so i guess my question finally mr. sullivan to think that we have learned the lessons and taken sufficient measures to prevent a reoccurrence or do we need to do some more? >> i think there's always room to do more. i don't think we have learned all the lessons yet but i would say that if you go back five or six years from now, go back to say 2010, we are not seen as many of 35's or these big programs with requirements that are not achievable so i think were learning some lessons that way. some could could be because

of budget constraints, some because of the work congress has done and frankly i think the department has done a good job of trying to implement and drive down into the culture some better practices, they talk about better buying power initiatives, we have a long way to go though. there's though. they're still way too much cost growth in these programs. were not using enough and looking at requirements and an incremental way, using open systems as senator was talking about. there's a lot of things we can do to creamer efficiencies. >> doctor gilmore? >> i think block four will be a good test. of whether we have learned lessons. as mentioned in my written statement, i see a number of unrealistic assumptions with regard to block four. so i hope as secretary kendall and general bog it didn't look at how to structure the program but they look at those issues

and they'll be good test. >> i hope you all pay attention to doctor gilmore's words, particularly given his responsibilities with the department of defense as well as to congress. i think the witnesses and i believe that most of the take away from this is that we are making progress, that we have challenges that lie ahead but there has been some significant improvement as opposed to some years ago. so i think the committee for their hard work, and the witnesses for their hard work and this hearing is adjourned. >> tomorrow the house services committee spends the day working on the annual defense spending bill including amendments on defense programs and military policies. our live coverage begins at 10:00 a.m. eastern on c-span three. also on c-span.org.

>> independent media is the oxygen of democracy. it is essential. holding those in power accountable. we are not there to serve some kind of corporate agenda, when we cover war and peace, were not talking about the weapons manufacture. >> sunday night on q&a, journalist amy goodman host and executive producer of the daily news program, democracy now talks about the book she is co-authored, democracy now, 20 years covering the movements, can change in america which looks back on some of the stories and people to show cover. >> the idea of democracy now starting 20 years democracy now starting 20 years ago it really has not changed. ringing out the voices of people at the grassroots in the united states and around the world, they very much represent the majority of people. i think think people who are concerned

deeply about war and peace, about the growing inequality in this country, about climate change in the state of the climate they are not a minority. not even a silent majority. but the silence to majority, silenced by the corporate media which is why we have to take it back. >> sunday night sunday night on eight eastern on c-span's q&a. business owners and tax policy analyst testified at a senate hearing about the future of business tax laws. they talked about tax law reform to talk make the u.s. more competitive in the global economy. senator or in hatch chairs at the finance committee, this this is just under two hours. [inaudible]

>> of morning, it's a a pleasure to welcome everyone to today's hearing which we have entitled navigating business tax reform. it's a big title. i think this title accurately describes the challenges we have before us. moving forward on business tax reform specifically and i can't comprehensive tax reform were generally. in the the recent past, identifying and developing certain bipartisan policy proposals and moving them through the legislative process has proven to all. i'm an optimist i believe we can and should find common ground on a fast-forward to a confidence of tax reform. of course as i've said in the past success of tax reform will take precedent which makes it a priority and work closely with congress to get over the finish line. currently i think it's safe to say that we have not meant to that prerequisite with this administration which most acknowledge means that for now we have to wait.

but in the interim, this committee will continue to lay the foundation and view the proposals for when the appropriate opportunity arises. that is why laster senator and i have asked to work on various reform groups to help identify issues and develop insensitive if possible around tax policy proposal. today, will focus focus our attention on business tax reform issues. including topics that were covered in the report issued by the bipartisan working group. i want to thank the cochairs of that working group, senator soon in cardin as well as other members of the working group, senators roberts, burke, isakson, foreman, to, isaacson, foreman, to me, stamina, carper, casey, warner, menendez, nelson. a lot of time and effort went into examining this issues in compiling this report. i appreciate everyone's that willingness to advance his cause. tom bartel, the chief is staff

is with us today to provide background on business tax reform issues and highlight some of the topics reviewed in the working group's report. we really appreciate you being with us. we have a great list of witnesses here today as well that will provide important when set insights and recommendations on broad design issues of the business tax system and practical, on the ground issues that are perverse to keep in mind to develop and refine proposals in the tax state. i wanted take a minute to discuss one particular business tax issue that was discussed in the working group report that i believe warren's believe warrants real consideration by everyone here today. very general terms, corporate integration means eliminating double taxation of certain business earnings. under current law, the corporation's earnings are taxed once at the corporate level,

with at the entity level and then again at the share holder level when those earnings are distributed to the share holders dividends. in other words, words, under our system of the business is organized the corporation would tax the the earnings of the corporation itself is earnings when they paid out to the individual honors of the business. this this creates a number of inequities and distortions. my staff and i have been working for a few years to develop and also to address this problem. i was glad to see that the business tax working group address corporate integration in its report, noting that eliminating the double taxation income would reduce or eliminate at least four distortions built into the current tax code. one, the incentive to invest in noncorporate businesses rather than corporate businesses. two, -- the incentive to maintain rather than distribute earnings and to distribute

earnings in a manner that avoids or significantly reduces the second layer of tax. now depending on its design, corporate integration could have the effect of reducing a corporate tax rate and help address strong incentives were seen today. for companies to relocate their headquarters outside the united states. in fact, i think it would make a big dent in the reversions of companies that are not even considering that now. it also have the likely effect of making the united states more attractive place to invest and do business. i much more to say on this topic in the coming weeks and months but i plan to raise this issue is general terms today. once again i woke my witnesses and i look forward forward to a robust and informative discussion. with that i will turn it over to senator wyden for his opening remarks and then will hear from the two cochairs from business tax working group will give

brief opening remarks. we'll start. >> thank you very much. i very much look forward to working with you and our colleagues and i to want to commend senator soon cardin for their outstanding work. we had just three people headed in that part of the working group and i appreciated. if you small business of america today, often you go to bed at night believing you are in danger of being ensnared by an outdated, overgrown tax code that americans spend 6,100,000,000 hours and more than $100 billion complying with each year. that tax system is punishing to those who don't have a fleet of

accountants and the luxury in time to plan investments around taxes. the american tax code tells small businesses that their dollar is worth less to sophisticated firms who can afford to make the rules work for them. that is why today i have released the cost recovery reform and simplification act of 2016. this proposal is all about making the tax code more attractive for the risk takers who go out and start a small business, people who are more often than ever before going to be minorities or women. so this proposal would modernize the tax code and strip away much of the unfairness to small business by radically simplifying our system of depreciation. for the small cash-strapped firm

to grow and create jobs they need to invest in basic priorities like a new cash register, and office computer, or, or farm equipment when it makes business sense not when it makes tax sense. today, to figure out the tax deductions on these investments a small business person has to navigate more than 100 sets of tax rules. my proposal dumps that headache and lays out six categories for depreciation that are far easier for a small business person to work with. today, you have to do the math as many as three separate times under different programs for each and every asset. my proposal says one round of a

math is enough. small businesses businesses should not have to do individual calculations for every car on the lot, every computer computer in the lab, or every machine in the shop. today's rules come from yesteryear, from the last century, they're stuck in an era of fax machines and vcrs that predate the technology boom that has transformed the way in which america's live and work. my proposal says our business tax rules that should a 21st century economy and help part cutting edge entrepreneurs thrive, not hold them back. it makes no sense to cling to an outdated system that taxes some high-tech investments such as computer servers in mr i machines that are more than double the rate of other investments.

a startup should not be told that they are not allowed to use a work laptop and a coffee shop or otherwise they're going to face a big financial hits on their taxes. in my view the tax code should not get in the way of public, private partnerships that want to build new roads, bridges and highways across the country. so my proposal would fix these issues with new rules grounded in common sense and a realistic appreciation of how our businesses, particularly the small businesses operate today. it is my hope that we will be able to look at these proposals and more as our committee considers again on a bipartisan basis how to bring our tax code up-to-date. so date. so i very much look forward to today's hearing and i'm especially pleased that gil goes chi of go chief farms in silverton, oregon is with us today. the hundreds of acres of hops they grow are a big part of what makes oregon.

the best money can buy. i'm just for the historians of the room they just celebrated their 112 hops harvest. so for small businesses we could not have better small businesses then you to represent. i like to extend our appreciation for the excellent work. >> thank you mr. chairman. i think you and ranking member wyden for the opportunity to make an opening statement today and for the opportunity to cochair the business income tax reform working group senator card last year. while there are undoubtedly remains significant differences on tax reform between the political parties, i believe that our bleed working group

demonstrated there is genuine bipartisan agreement and a number of areas. bipartisan report that we issued underscored senators in both of both parties understand the importance of reforming our tax per system and will think created lee on how we address these challenges of tax reform. report considered a range of issues from tax policies promoting innovation to simply vacation reform to addressing structural biases and tax code. however, given my time is limited this morning i want to discuss two areas with you that are identified as threshold threshold issues. >> i interrupted for a second. i. i have to go open in the senate, i would like you continued sharing until i get back, is that okay. >> yes, i'd be happy to. i appreciate it. first appreciate it. first of those issues that are working group recognized was a more competitive u.s. corporate tax rate is going to be integral into any effort to modernize our

tax system. america is losing ground as other nations lower their corporate tax rates highlighted by the fact that the u.s. combined state and federal rate of over 39% is the highest corporate tax rate in the developed world. this high tax rate is not sustainable. if we want american companies to compete and win in the global economy and if we want our country to be an attractive location for foreign investment. a number of our competitors is it proved its it achievable. it reinforces the notion that while there's different approaches to get their lower corporate tax rate remains at the center. secondly and just as important like him are group expressed the view that business tax reform needs to be about all businesses both large and small. the reality is the past businesses those taxed at the individual tax rates employee 55% of the private-sector workforce and whether 60% of.

as such, our report from that and i quote, clearly business tax reform needs to ensure that these businesses are not ignored in an effort to reduce the corporate tax rate. pastor businesses need to benefit from business tax reform from any such effort to be considered a success. i believe we need to keep this perspective foremost in mind as we move forward. so i would say to members of our committee and colleagues that are working group from a modern, more more efficient system for taxing business income is critical to boost economic growth, raising comes in wages. we recognize that achieving meaningful tax reform require difficult decisions on a range of complex issues and require leadership both in congress and the white house. i believe we should remain optimistic because with each passing day tax return reform becomes less a question of if

and more question of when and how. her outdated tax code is without question holding america back. the clear recognition of that fact is that one of the most important elements to come out of last year's working group process. i want i want to thank senator cardin for his leadership and from the opportunity to work with him. also thank you for laying the groundwork for future tax reform effort. i look forward to hearing from today's witnesses and for continuation of the robust debate over how best reform our business tax system. with that i'll recognize the senator from maryland. >> thank you so much for your leadership on the business tax working groups. i also also want to join you and thinking senators hatch and wyden for their leadership and convening this hearing but also in establishing the working groups.

our working group produced a report of the 140 pages, i practically want to thank mr. bartel and the joint committee attacks for their extraordinary work. i said at the conclusion that i learnt a lot so i thought we were gaining ascetic continuing education credits and he didn't have to pay tuition for. it was a great learning learning experience for us. i think you for that. i agree with senator thin that our high tax rates on businesses in america is making america not competitive. we are definitely at a disadvantage in international competition because of the high business tax rate of republicans and democrats agree that we have to do something about it. the sequestration rates that competitive compound by the fact that double taxation that others have brought forward in this regard and the chairman just

commented about it and its it area that was certainly need to take a look at so that the business entity does not discriminate against the business. that is clearly clearly an issue that we need to deal with. but as senator thin pointed out, 90% of american businesses do not pay the rate, they pay the individual rate. that at 39.6 plus is not competitive. we need to deal with the reality of the seed rate and the individual rate in dealing with business taxes in our country. although we want to talk about major tax reform, which are not lucite that during this process there are so-called smaller reform issues that can help a great deal, a corporation reform, that we should do. we should try to get that dennis quickly as as quickly as possible in order to help america's businesses. the challenges in dealing with high rates are incredible. i want to put this on the tables or colleagues understand the

caught challenges we have before really good to do major reform for business taxes in america. first, it is a huge revenue issue in trying to reduce the rates under the existing structure. we use the existing structure for every one percentage point reduction in the sea rate, joint tax has estimated that will cost $100 billion over ten years. you can do the math. most. >> host: are reduced by ten percentage points a trillion dollars. that doesn't deal with individual rate. as we talked we need to understand that there is need for help with individual business income. that could have between 60 and 80% more of the cost of any per puzzle that deals with reducing the rates. on the other side if we say that stewart we did and 86 and that is let's just spread the burden and reduce the rates, that lasted until 1987. i would suggest politically i'm not sure that is possible for us to leave

the tax code alone for a significant amount of time. so i just want to challenge the committee with something counterintuitive. that is that the united states among all the other countries is one of the lowest on its reliance on the governmental sector for its services. so why should we have the highest marginal rates, we should have the lowest marginal rates. we and the reason is pointed out during our study is that we're the only osc the country that just not have national consumption tax. there is been 150 countries globally that you said national consumption taxes part of their revenues to finance government. for those and many others, the last congress i introduced that would replace some of her income tax with the national consumption tax. it dramatically simplifies our income tax code

particularly in personal income by starting it at 100,000 dollars of taxable income with the highest rate being 28% for that taxable income for families over 500,000 dollars. it reduce. it reduce the corporate tax rate to 17% giving us a significantly lower corporate tax rate. it would establish a a national consumption tax using a credit invoice system which we think is efficient. it's progressive. starting at $100,000 and cashing out the earned-income tax credit and child tax credit are cashed out in order to keep it progressive. it is revenue neutral and contains a circuit breaker that in the event the joint tax numbers are not accurate and produce more revenue there would be a trigger mechanism to return the excess taxes to the taxpayers. the result would have on average about five percentage points lower average on all of our

taxes, income and consumption than the ocd countries given us an advantage rather than disadvantage on international issues. i just want to make this point, i think this committee needs to be in the leadership of tax report form. i think the work that was done we have become more understanding the challenges we've had. i urge us us to work together so america can have a tax code that is a lot easier, simpler and more efficient capital growth that our current texaco. >> thank you. i am just if i could take a couple minutes and introduce our panel of five witnesses today. we'll hear from doctor tom bartel who is been issued as

chief of staff of the joint committee on taxation. he is no stranger here and he should not need much of an introduction. he'd worse with joint committee staff since 1987 when he started staff economist. he worked his way up his ladder prior to his work in washington he is a member of the economic faculty. of dartmouth college. he had a bachelor bachelor degree northwestern university later received his doctorate in economics out at he's indispensable in terms of the amount of work he's doing with the working group and providing insane counsel as we went through that process. it's good having you here. second witness is the professor of live university of michigan he serves as the research director at the office of tax policy research at the university of michigan. he's research associate of the national bureau of economic research, research director of the international tax reform, and once long ago, was economist economist in the u.s. department of congress.

he held visiting appointments at various universities. he graduated with a ba and ma with yale university and a phd from harvard, all in economics. third will hear third will hear from doctor eric told her, and institute fellow and codirector of the urban booking. his recent work includes papers on what the u.s. can learn from other countries territorial tax systems, issues in designing corporate tax reform many other issues. he previously held positions in tax policy issues including service as a deputy service for tax analysis directory of research, clinical consultant to new zealand treasury. he received his phd in economics from the university of rochester. a fourth witness, sanford is

inferred mr. zinman is licensed in new york, florida and connecticut worked in public accounting for more than 30 years. he provides tech services for businesses and individuals among other things he's a member of the national conference of cpa practitioners reserves as vice president of the tax policy committee and is also a member of the american institute of certified public accountants, national society of king council and national association of tax professionals. so he hangs out with a lot of accountants. he graduated from iona college and finally as senator wyden pointed out, will hear from mrse president of goucher farms inc., she's a fourth generation farmer and works with two brothers to manage the operation and they

specialize in hops and wine grapes a long with others. they grow hops and sell some of the nation's top breweries. they also grow 150 acres of wine grapes and more than 300 acres of other crops. the farms have been an innovative and sustainable farmer techniques, she was also the first woman to be awarded the international order of the hop in 2009. i want to thank all of you for coming. i know this is an expensive topic and the more insight perspective that we can get, the better. we are grateful to have your expertise and experience to inform us on business tax issues and we look forward to hearing from all of you. hopefully he can come up with a way to make this all a little more understandable and hopefully easier. i don't think it's going to be easier for us to get done. there's very complex issues that we have found in our business tax working group but at the subject we need to tackle and as noted

earlier, the sooner the better. will proceed from left to right. my left and you're right and starting with mr. bartel. please proceed with your opening statement. >> thank you senator thing for your hearing. i've been asked to briefly review some of the business tax reform issues raised by the committee's bipartisan business income tax working group. also note that my colleagues prepared prepared for you more detailed background information that was released last friday. our joint committee. the important to remember in assessing any tax system or reform, there is really four key dimensions that we always look at. first, does, does the tax system promote economic efficiency?

does the tax system promote economic growth? is it tax system fair? and is it administrable both for the tax. for the internal revenue service. there may be other policy considerations asked where we've been in the budget picture, but invariably, it is the case that these different policy goals are in conflict. policy to mine designed to promote economic neutrality making clicks with goals of fairness. policy designed to help with -- those are issues that the business working group was grappling with when thinking of the issues before them. some of the proposals undertake comprehensive tax reform by broadening the base and lowering rates. as senator cardin pointed out, to lower the top rate of the corporate income tax by one percentage point from its current rate of 35% to 40%, we have estimated against the current policy base would cost $100 billion over the ten year period. by comparison, among our staff

estimates of the largest corporate taxes which are only modest info in fact exceed $50 billion. if we broaden the base to a lower rate takes elimination of a lot of tax expenditures. this was an approach that was taken by former house ways and means committee chairman dave camp and his hr one. that reduced that reduced corporate income tax rate to 25% but did so generally by slowing depreciation rules required issues they should over ten years, required amortization research and development, expenditures, repealed repealed lower cluster markets cost of accounting, phaseout section 199 deduction 99 deduction for manufacturing activities in a number of other problems. it's also important important in this

context we talk about conflict in goals, to recognize that some of the trade-offs that can rise are exhibited in hr one. if we lower corporate tax rates that is good for investment but if we slow depreciation and slow cost recovery of investment that is bad for investment. there is inherently always a trade-off. other issues that issues that the working group looked at as again noted in your opening statement is the difference between pass-through entities in the united states in the business for corporations. as as the next slide notes a substantial amount of business income in the united states is earned by industries that are not c corporations. some business tax reform options have

been proposed with the intent of maintaining a sense of parity between taxation and pass-through entities. however, working group found that it is not clear what parody should me. owners of c corporations as noted by the chairman gerald generally bear two levels of tax that can exceed 50 percent. however, if you if you look at in terms of earnings that are not distributed the current tax burden of those earnings is 35%. on the other hand, owners of pass-through entities generally do not bear tax rate greater than 44%. that tax rate may apply regardless of whether the earnings are distributed or retained. this line before you gives you more detailed analysis, it's not actually simple comparison of one situation to another situation, consequence of other complexities that we have. recognition of two levels of tax has led some to propose what's

called corporate integration, the chairman described this as basically two approaches, once referred to as complete integration and the other is partial integration. incomplete or full integration eliminate double taxation by including shareholder income the distributed and undistributed earnings of the business entity. this is the way we tax s corporations under present law. on the other hand, hand, partial integration is generally a form of dividend relief reducing double taxation undistributed earnings only with no change in tax on retained earnings. you may characterize your present law lower rate of tax on qualified dividends as a form of partial integration. i know i'm exceeding my time here and you want to hear from your other experts but let me just make a brief note of one other important area of the working group looked at and that was the role of innovation in the u.s. economy and the role of

innovation and future growth. it was noted in the working group that outside the united states the number of countries establish intellectual property regimes or patent boxes as they been called which offer preferential tax treatment on income attributed both to intellectual property. the goal here is to increase domestic investment in research and development or encourage business enterprises to locate the ownership of that intellectual property in that particular company. now in the the united states we do have incentives sensing significant incentives for research and development. the path act modified it may permit under section 41 research credit and we do allow full expensing of all research activities. working group is for the notion of creating a patent box type system for the united states. i wanted to note that adopted u.s. innovation u.s. innovation box at present some unique policy design and administrative issues for the members to consider. including, what is in the box.

is it just patents? is it a broader range of property like trade secrets of how we define those in terms of applying the system administratively. other questions are, what is the role of nexus which is been important in terms of european consideration of patent box proposals. and how the income from this property be taxed. the. the working group to review a number of proposals included summit event offered offered five members of this committee but i know you want to take more time dealing with the distinguished witnesses that you have before you to my left. i will conclude at this point and i'm happy to answer any questions the numbers might have. >> thank you mr. bartel. doctor heintz. >> of money. is terrific the committee is looking into the tax issues because u.s. businesses currently face heavy tax burden

sent these tax burdens depress business activities somewhat distorted and as a result create fewer economic opportunities for americans especially american workers. the challenge they face is the following, if you want to and i to reform that is revenue neutral within the business sector, it's going to be impossible to lower business tax burden very much. that is pretty much obvious because if you implement a reform that is revenue neutral, it it will not greatly change the average tax rate that businesses face. so, there is good that can be done by revenue neutral reform, but let's be clear that there is a limit to how effective that is going to be in addressing the problems of heavy tax burdens on u.s. tech businesses. any reform that is revenue neutral to lower the tax on some activities and raise the tax on others. as a result it doesn't that

greatly change the burden. now, with the street revenue neutrality there are smarter ways to tax business income. those efforts should be guided by principles and economic theories says there are two principles we should apply, one, we want letter tax burdens on activities that generate positive economic spillovers. two, we want letter tax burdens on activities that are more responsive to taxation. the challenge and taxing businesses or anything is that when you tax income you discourage the production of income. our goal should be to try to do the least damage to the economy that we can while raising the tax revenue that we need to fund government. so, what what is that mean in practice? on the spillover question some

of this has been discussed this morning, they're very strong reasons to have favorable tax treatment of research expenditures because research creates positive spillovers for the economy and contributes to economic growth. for low income housing because that offers a positive spillover to communities into other activities were they generate positive benefits that are not captured by the people who undertake the activity. second principles that you want lower tax rates on activities that are highly responsive to taxation. an example might be a mess of manufacturing. we currently have section 199, the domestic that offers a favorable tax treatment of qualified activities. there's evidence now that that did action has been successful in stimulating more manufacturing investment than we otherwise would've had. further evidence that

manufacturing itself is better than him investment in other industries. as a result, tax reform to be directed at lowering the statutory tax rate and financing some of that reduction by eliminating section 199 deduction, based on the evidence that we have probably would have the effect of reducing overall investment in the economy. it's true true lower statutory rate encourages investment, but the promise if you finance it by removing the deduction then onnet you discourage manufacturing investment by removing the deduction that you don't make it entirely back with the lower statutory rate. the issue of corporate integration has come up this morning as well. economic theory does not actually say that we want equal

tax treatment and equity finance investment. >> .. to discourage economic activity as little as possible while raising revenue as fairly as we

can, so we should try to define the system with responsiveness in mind and that will be a new one system. it will be a system with differences in the taxation with different activities but if we do it right we will preserve as much as possible the economic vibrancy of the country and the whole country will benefit particularly american workers. >> thank you dr. subset. >> chairman hatch, ranking member wyden and members of the committee thank you for inviting me to appear today to discuss business tax reform. the views i'm expressing are my own and should not be attributed to the tax policy center or to the urban institute or its funders. current u.s. business income taxes have many harmful effects. they discouraged domestic investment place us-based firms

at a competitive this advantage and have encouraged them to accrue over $2 trillion in overseas taxes. they favored corporate debt over equity retained distributions and pastor businesses over companies that take income corporate income tax. corporate income taxes to be tied and dividends reduced or eliminated. there is less agreement on how to pay for rate reduction and how to prevent additional tax through shifting prophets. 1986 style tax reform pays for lower rates by eliminating business preferences is not sufficient to pay for the needed cuts in the long run. some of the base broadening measures under consideration would reduce domestic investment and not necessarily make them more productive and more efficient. i suggest therefore that congress look beyond is this

only tax reforms to other revenue sources to pay for corporate rate cuts. one approach would raise taxes on shareholders to help pay for lower corporate rates. taxes based on shareholder residents fit better in today's global economy than taxes based on either corporate revenue or court -- source of income. the location of its production sales shareholders or even top management. the source of its income is difficult to determine when an increasing share of prophets reflects returns to intangible assets not tied to a fixed location. contrast the shareholder level tax depends only on the residence of the shareholder needed the president of the corporation nor the source of its income wood attacks -- affect tax liability. alternatives are to raise tax rates on realized capitol gains

dividends shift the taxation of shareholder incomes to an accrual or market to mark basis or integrate the personal income taxes. in my written statement i discuss the advantages and problems with each of these approaches. another approach to replace a portion of the corporate and individual income taxes as senator cartes suggests is that the new consumption tax such as the destination-based tax in use in over 150 countries around the world. unlike the corporate income tax that would not discourage saving and investment and would not affect the firm's choice of tax residents or location of production. a final alternative would introduce a tax to address global climate change and use a large share of the new revenues for corporate rate reduction. this approach though controversial could appeal to both business and environmental groups.

all of these options can be designed to raise the same revenues under current law and make the tax burden as progressive or more progressive than it is now. i conclude that paying for the major corporate rate cut requires that they look beyond the business tax base for additional revenues. i'm encouraged that this committee is open to broader approaches. >> i will take your statement. >> chairman hatch and ranking member wyden members of the committee thank you for inviting me to discuss this topic. i'm the vice president of tax policy chair the national conference of cpa practitioners. it passed members serve more than 1 million visitors and individual clients and has long advocated for tax simplification and tax equality. when taxpayers understand the laws there are more accepting of the rules.

i will adjust the current dismissed tax structure in the united states and its impact on the smile and microbusinesses by 35 years of cpa sole practitioner involves working words and advising a variety of these businesses. what is already known is that small businesses make up an overwhelming majority of the number of businesses in our country rate according to a gao report published in june 2015 small businesses as defined by less than $10 million in total revenue make up roughly 99% of all businesses. that same report states that 69% of those small businesses are individual taxpayers while 31% come from partnerships and corporations. the report also indicates that 20% of small-business populations higher at least one employee and produce about 71%

of total small-business income. the small-business community is vital to america. many mom and pop businesses which i called microbusinesses operate the same way they did 50 years ago. many are sold for private or's or s corporations. to start a business deal and are often seeks advice from his or her attorney and just as often it's the opinion of the qualified tax advisor usually a cpa. the form of organization is often irrelevant to the business owners. they just want to make some money. these microbusiness owners want to better their lives and keep as much of their profits as they legitimately can for themselves. that's the american way. when these individuals want to start a business the first thing they want to know is what is the simplest type of business to open which will protect their existing assets and cost them

the least amount of tax. of course this is never a standard. >> corporation. life was simpler 50 or 60 years ago but we are there any more. types of business organizations have been created. each one has potential benefits and potential pitfalls. the cpa will explain the nuanced differences between sc corporation, and s corp., a partnership, an llc. ultimately the differences are not extremely significant in the big picture however these differences can cause unnecessary complications in the decision-making process. in the interview process the cpa tries to determine if business owners understanding of the tax law and tax regulations and only after conversations with the owner can the cpi -- epa provide meaningful guidance yet issues raised not necessarily help the business owner in achieving his true objective to put food on

the table. additionally although the form of business entity chosen me meet the current needs of the owner these needs may change over time. then the organizational structure which was originally correct me no longer be the proper one. the similarities and differences amongst the business entities often make the choice a difficult one. there should be a simpler common approach to taxation of various business entities. thank you again for allowing me to address the committee today. we know that congress cannot stop people from coming up with clever reforms of business organizations that congress can ensure a level playing field in business taxation. there are an unnecessary in equities and complexities in our current system of business taxation which affect all businesses both small and large. a simpler equitable tax structure will allow business owners to better understand potential tax liabilities and

make better business decisions. allowing for single level of tax for all business sizes will provide an understandable equity thank you again for the end opportunity to present day and i welcome your questions. >> thank you. >> chairman hatch and ranking member wyden and members of the finance committee i would like to thank you for giving me the opportunity to testify today. my name is gail goschie i'm a fourth-generation farmer. i'm here today to represent goschie farms incorporated. our family farm has a staff of 80 full-time and seasonal employees. our customers include breweries, located in multiple states drought the country some of which you would be representing here today. we also grow wine grapes for companies. as you all know the business of

farming is fraught with uncertainties. the growing season can turn from an economic gain to an economic loss overnight. a change in the weather, product prices, labor supplies our customers needs can have an extreme often and for seen impact on our business. the agricultural -- the agriculture industry has many uncertainties. taxes should not be one of them. taxes influence how we invest in our business. tax rates affect the equipment we buy and when we buy it, the types of crops we grow and are hiring in labor positions. when there is uncertainty with taxes we are unable to invest with confidence in our businesses. fixing the present tax code is one of the ways congress can help ensure that farms like mine can be positioned to grow. congress has already enacted some changes that will have a

positive impact on the farming sector. in december 2015 is permanently extended the small-business expensing limitation and phaseout amount of section 179. prior to being made permanent the amount allowed to be expensed was unknown and needed investments were delayed. in addition hundreds of purchases needed to be recorded and tracked independently with inequalities from one into the next. for example a tractor in agriculture is depreciated over seven years. where that same tractor and construction would be over five. would be helpful to have uniform depreciation for similar items and about items to be pooled together as opposed to being listed separately. expensing also impacts our development costs. there are number of expenses that come with the development of the vineyard.

they include pre-protect the costs of land clearing soil and water conservation and direct and indirect costs of buying, trellis and irrigation irrigation systems break up reproductive period of buying buying must be capitalized into the cost of the vines with perennial crops like wine grapes they are not depreciated until their first commercial harvest, a standard or three years. as you can see the tax code for small-business owners farmers are coppa k.. goschie farms do not have accountants on staff to analyze every decision as it is made or maneuvering is positioned to maximize the tax benefit. our time and efforts are needed in the fields to meet the demands of our customers. the work we do every day as is farmers is a business story about the safe u.s. grown quality products that are our livelihood.

winegrape growers farmers certifications, and best practices, sustainability and energy conservation. with the hope of consistent energy tax incentives these are just the beginnings of ongoing environmental investments. another tax issue that would impact farms like ours is the craft beverage modernization and tax reform act which was introduced by senators wyden and blogs. through this legislation, though this legislation does not directly impact grape growers would recalibrate federal excise tax for craft beer wine and spirit tribe x.. when the craft beverage industry finds relief for a reduction in excise taxes the grower will find expanding markets, increased demand and a bolstered confidence in continuing to work

with craft producers. it should come as no surprise that in addition to the majority of the alcohol industry this bill has the support of farm groups like the hop growers of america, the oregon wine growers association and the national barley growers association. with this unique example is simplified tax code could bring relief to breweries, wineries, farmers and the consumer. thank you again for inviting me to testify today. >> thank you ms. goschie. we appreciate all of you being here today. i have two articles are written by mr. martin bloomfield president of the american counsel for -- one of the articles entitled quote bipartisan tax reform unquote was printed in "the wall street journal" specifically commenting on the work of the business tax reform working group that i was please with that in the other article was in "fortune" magazine and was titled this is

the fairest way to tax america. mr. bloomfield is no stranger to this committee and i appreciated his comments in these articles in ask unanimous consent that they be included in the record at this point so without objection they will be included in the record. let's start over on that time. doctors hines and dr., is it toder? am i sing it right. i was interesting in reading both of your testimonies that caution with which you think congress should take in addressing the business tax reform to lowering tax rates and broadening the tax base. you mentioned corporate integration could eventually be a path forward.

as a mentioned earlier after preparing a proposal that i think will help address many of the problems he seen the business tax base today, which he both elaborate on whether and to what extent corporate integration in general in design in particular can strengthen the global competitiveness of u.s. companies encourage more business activity in the united states and go a long way in addressing multiple international tax issues that we are certainly going to be faced with and we are seeing today including earnings -- let's start with dr. six -- doctors hines and then doctors toder and then doctors barthold. >> corporate integration reform could address some of the competitiveness issues facing american businesses but as long as the united states maintains a

worldwide tax system we are never going to be competitive relative to indie g7 countries of the major capital exporting countries all of which have territorial systems so i sort of understand the spirit of the question and if we had corporate integration along with other beneficial reforms were to be part of what contributes to the competitiveness of u.s. --. >> i don't see any reason not to. >> keep going, i'm sorry. the advantage of corporate integration is it lowers the taxation on the equity financed corporate investment and we have a very heavy tax burden on that as it currently stands but in addition we would not to address some of the specific international issues if we are

thinking about competitiveness more broadly. >> one of the advantages of corporate integration is by shifting the burden, if it's designed in a way that pushes the burden that the individual level so individuals are taxed once on their business income, you get less determination of when the corporation earns money or invest it affecting its tax liability. that of course depends on the corporation being interested in the tax liability is a shareholder. one of the advantages of the australian system when companies shift money overseas and don't pay australian tax than credits don't go out to the shareholders who may pay dividends. they are only going out when the taxes paid so people can see

that as one way of reducing some of the income shifting problems while maintaining the territorial system which is what they have. i think there are several challenges that you have to do on is you are still going to have a very high tax on corporate retained earnings so those companies that don't distribute proffers aren't really going to -- not necessarily get the benefit of that system and that's going to be taxed at the corporate level which could raise capital. a second problem is how to deal with the tax-exempt. the united states by our calculations only about a quarter of dividends go to taxable u.s. shareholders. the rest go to tax-exempt foreign shareholders or pension funds or retirement funds. so essentially what you are

doing, what you have to do is maintain -- currently you are taxing those funds under corporate equity because you end up paying the corporate tax before comes out. you have to deal with the issue that you might have to make that taxation a little bit marks the said or face a very large revenue boost so would be a matter of communicating to them. we are not really raising your taxes but i think that's an issue you will have to wrestle with. >> thank you very much mr. chairman. it's an excellent panel. i'm going to start with you ms. goschie and mr. zinman because for me the ballgame here is small-business. that's where you have most of the jobs in america. that's going to be the litmus test of real tax reform and i also want to note that "the wall street journal" recently said the number of businesses owned by asian-americans, hispanics

and african-american women who faster than almost any other group during and after the recession so what we are talking about is what the american economy is all about. that's our priority when we talk about small business. it seems to me there are really two tax codes in america. one of the large multinational corporations that have a fleet of tax attorneys and accountants who can figure out a way to manipulate the byzantine rules of the tax system to maximize their tax benefits and the other is what you described ms. goschie this kind of la-la land of trying to guess what you were going to go in trying try to make the best decisions for your businesses and i gather what you are saying is small businesses really do not have much specifics about what the tax consequences are going to be

when they go out and assess new equipment. that's what i read in your testimony sort of reading between the lines, is that correct? >> we don't have those accountants on staff so it does take a phonecall to be able to answer question, to be able to decipher the consequences of that decision and sometimes the business gets in the way. we just need to make that decision. >> you make the decision and kind of keep your fingers crossed. like i said my opening statement you make the decision, you keep your fingers crossed and you go to bed at night on that particular evening where you made this call without all the accountants saying i sure hope i don't hear from the irs in the future. >> that's correct. >> mr. zinman is that a fair assessment in your view with respect to what small business is her dealing with when they

are wrestling with their tax is? >> is a very fair assessment. there are a number of issues of small businesses deal with and as mrs. goschie indicated she's absolutely right if you don't have a staff of accountants with you -- but if you have a rim have a room of accounts here and you are asking questions about tax code and depreciation schedules they'd say that's why god made computers and tax software but the reality is as a small business you are trying to wrestle with do i have enough money today in what taxes will come up? and s corp. i constantly have at the end of the year honors to have a successful business and they pay themselves a reasonable salary. they are fallen within the tax guidelines and yet all of a sudden their business shows a profit. they have phantom income. they have to pay tax on that income that was unexpected and they haven't actually drown out the money at that moment, and

they have to wrestle with understanding the tax code and the complexities of what is supposed to be a simple s corp. and what to do with it. >> so you both have had a chance to look at the proposal that i released today the cost recovery simplification and reform discussion graph and the whole point of this is to end the water torture for small-business that is in a nutshell how i think we have to look at this question and in particular to make sure that we and the day when small businesses face a situation where their dollar is worth less compared to sophisticated firms that can afford to make the rules work for them. i'd interested in your reaction because i know starting with you ms. goschie and you mr. zinman

in the time remaining i would like your take on whether the simplification proposal we released today at lease begins to respond to your concerns. >> absolutely it addresses my concerns. again if simplification. takes out the inequities and it puts us on a fair playing field he. >> okay mr. zinman. >> years ago i went through hours and hours of training on acres and acres and trying to figure out and trying to explain how to go about accelerating depreciation, straight lined appreciation section 179 and how it plays into the tax return and we wind up as accountants doing a lot of work in the depreciation area and in projections for our clients because of the complexity of this depreciation. any kind of simplification would be welcomed by business owners. the accountants don't mind making a couple extra bucks by

doing projections and doing an analysis work. the business owners do want simplification. >> thank you both and the point at this really is i know that you've had multiple generations on the farm in oregon ms. goschie and we are so glad you are here. the point of this particular part of the proposal, this is a metaphor for what the debate is all about. the big guys have a lot of bad, multinational companies and. >> corporations. i'm so glad that both of you have focused her remarks on the small-business people. that's going to be my top priority in this debate and i thank you for being here. >> senator carver. >> inky mr. chairman and i want to thank you and senator wyden for pulling this together and we thank our witnesses for joining us from across the country. in the past four years this committee has attempted not once but twice to reform our outdated

tax systems. i don't think they should give up. i want to especially thank my college my right senator cardin and senator thune for their leadership on the business tax initiative. one thing this process is made clear is the complexity and the structural obstacles to reform. if we are going to lower business tax rates and i think most of us on both sides of the aisle are interested in doing that than we need to find enough permanent revenue to offset the cost of permanent rate reduction that leaves us with the choice between base funding or identifying an alternative source of revenue such as the value-added tax. both courses i believe are worth pursuing. neither are easy. even my persistent optimism is tested when i try to fathom the

likelihood of tax overhaul within the next year. the question is what do we do until then? in the meantime while the business committee waits for congress to make the necessary trade-offs to achieve tax reform u.s. companies are choosing or in some cases being forced to choose between versions of offshoring and profit shifting. these are ongoing threats to our competitive -- one of the main reasons i continue to support the efforts of some of our colleagues particular senator schumer and senator portman and others to an act that international tax reform. while we wait for broader reform to occur i think it makes sense to begin the reform process by first tackling some of our most pressing international tax challenges to questions i want to directed two of our witnesses. one is dr. toder in the other's dr. hines tax reform be accomplished in one fell swoop

or given political obstacles to conference informants it too possible to envision a multistage process one piece at a time? one bite at a time and i would book love them your comments on that. >> i guess i have two responses to that. one is there is a lot of complexity we have in the tax law which unfortunately is going to be there as the world is complicated but there's also what i call gratuitous complexity where you can make things a lot simpler within the framework of current policy. i think that senator wyden's proposal as one that accomplishes that and any anyplace you can do that you should do that. that doesn't require a large agreement on broad conceptual reform so i think there are a lot of pieces in business code in the individual tax code where that could be done.

i've always been an courage in that for years taxpayer advocate has written a lot about things like that so i think -- for better areas international reform where there seems to be a least a conceptual agreement on measures that would accompany eliminating the repatriation tax that is having a one-time tax on assets abroad and having some minimum tax going forward on foreign profits. i think that would make our current international system a little more efficient than it is , lower the cost because you wouldn't have this incentive to repatriate. while i don't think it's also fundamental problem of either competitiveness in versions or the shifting of income overseas. while i encourage doing that i don't think. >> was your term gratuitous, what was that term? >> i use the term gratuitous. >> you use two words.

>> or two it is complexity. there is some complexity we have to have because the world is complicated stuff you want to have an income tax i use a car in my business. you don't want me to deduct the car for my personal use but you do want me to detect detective for my business. it's a little complicated. >> thanks. dr. hines same question. >> we should do international only reform of the alternative is to do nothing but i think everyone in this room agrees that it would be nice to doore than just that to try to address a lot of issues including the complexities that small-business owners face and lots of other ways to -- the tax code but would it be better if the choice was nothing versus moving in the direction of the territorial is texas a mic every other capital supporting country has? the answer is yes. again i'm not sure that

everybody agrees on the details such as the need for minimum tax abroad and things like that. in fact i'm quite sure that they don't agree on that but this committee i'm sure would do a good job of hammering out the details of international reform. >> your optimism is appreciated. thank you. >> thank you senator. >> thank you mr. chairman. in our group b. we produced this document which i recommend for nighttime reading but actually staff did a great job of breaking down the issues related to the business part of the tax code. we had a number of overlapping working groups on some of these issues that were dealt with on some level and other committees as well. one of the issues that we got after try to release was this tension trade-off if you will when it comes to faster cost recovery versus lower base broadening. and what is the best way to

achieve economic growth? there are different proposals out there summit called for expensing right away. the proposal last year slowed depreciation in an effort to reduce rates in a revenue engine neutral manner so my question is of those two approaches in your view what is the best way to generate economic growth if congress chooses tax reform plan that cuts more aggressively but lengthen schedules or cut the corporate rates less aggressively but allows the business to write off their investments more quick wit what factors do want to consider making that decision and i have another question so they could answer that quickly. give me your best answer will on what is the best way to get growth? anybody. >> capital cost recovery, if you have more generous capital cost recovery provisions you stimulate -- lowering their rates stimulates investment

blood on it capital capital investment side will do much less than dollar for dollar then you get by capital cost recovery. think about the lower statutory rate as you have all kinds of other decisions to foreign domestic -- foreign versus domestic income so you had them together. i think the thrust of the economic analysis is that it's not a very cost-effective bargain to finance lower statutory rates would reduce capital cost recovery, because you get a lot less investment in its sure you get in it that's another margins of decision-making but the cost of that reduced investment is pretty substantial. >> do you agree generally? >> i agree as far as what jim said but i would caution going in the other direction to pull expensing as well because that creates sheltering opportunities

unless you restrict to interest reduction and then if you move toward what might be called a consumption tax model at the business level you have contradictions between how you treat business and how you treat individuals. i guess there's no simple answer to this. i don't think moving in one direction or another is going to improve matters that much. >> the other thing i wanted to ask about as i did mention my opening remarks addressing the challenge of performing the taxation of past businesses is the key up we are going to get this done. it seems to me at least we want to do her thing we can to reduce the top tax rate but it's going to be very difficult proposition in this environment the didn't have jurisdiction over individual tax rates and are working group but we did examine some potential alternative approaches one was the business equivalency rates for past use of the corporate income user subject of the same rate and the

tax benefit approach for pass through's involving higher expense limits or for flow through business reduction whereby businesses receive a reduction of business income so as to lower their tax rate. which of those approaches do you think would be the most equitable for pass through businesses and the business tax reform effort that is also cutting the corporate tax rate? >> i will try first and let dr. hines correct me. i am never a fan of targeted benefits but i think that's probably the best way given the alternatives to approach the situation in more generous expensing and other types of overturned dates. i think the difficulty with a rate differential is it's very hard to tell what's the difference between a small business and an employee when

you get to closely held companies and you have a lot of gaming between the rates on compensation in the rates on business profits and i think that would create some very difficult problems. i would not go in that direction of the special rate. also i would point out there's an advantage to being a small business or being a pass through is this with a higher rate as you aren't paying two levels of tax. you are not paying the second pack some distributions but the real issue has to be with the small companies at the corporate rates were lower relative to the pastor ray to the pastor ray tube incorporated you might have to have rules that define what kind of entities could be passed through his and what could be corporations. >> dr. hines. >> i agree with dr. toder the targeted benefits make more sense than the broad rate differential because of the

endogenous formation of small businesses that people who otherwise would become self-employed and take advantage of the lower rate if it's available. we should really apply the principles. where you want a more favorable tax benefit is where activities generate economic spillover benefits or were benefits or -- more favorable to businesses and tax reduction. >> thank you mr. chairman but i want to thank the panel. i found this extremely helpful. mr. chairman i appreciate you mentioning the american counsel for capital formation. it has worked in a bipartisan manner bringing together minibus from both sides of the aisle on better ways to do our tax policy and i remember his predecessor as a person who provided a good deal of information to us.

senator carver's point all of us are interested in making progress whenever we can. we understand it's unlikely in the next month or two we are going to pass mage or tax reform proposals and we want to make progress where we can make progress. there has been a lot of information presented thune and i explored work that can lead to significant improvements in our tax code. i mentioned earlier that reform which is not controversial which would help as you get it done but the fundamental points you all raise which is my tax rates on business which is not competitive, the lack of simplification so you need to have either an accountant in order to get information because you can't just figure out this and i would also add the difficulty britax code which affects investors decisions all the goals of the 1986 tax reform

and i remember our predecessors saying we accomplish in the obviously we did not accomplish it but the text that we have today. they really want to get to the proposal that i brought forward and that was discussed in our working group that if we were able to substitute part of our income tax revenues with a national consumption tax that would at least -- was at least as progressive as her current tax code so low-income people will not be more burdened and gives us rates that are on average five percentage points below the oecd countries as i explained earlier. what impact would that have on the type of questions we were raising on american competitiveness globally, on the international side on dealing with the challenges of small businesses and complexity and giving predictability for investment in america? your hines? >> you would do all of that. a move like that would reduce

the inefficiencies in the current system stimulate investment and growth and make the system more competitive. >> dr. toder? >> i agree with dr. hines on all of his points. i would add though that you are comparing a system that is designed perfectly with no exemptions in a value-added tax and when you get through the process here you might have some exemptions in the value-added tax might not look as good. >> i'm not interested in getting rid of the senate finance committee. i understand there are challenges every year that we'll have to deal with but let me correct one statement. we use a credit with but not of value-added. we feel pretty strongly using the credit method is a better way in the fairway.

>> one i use the term i met the credit method. >> i just want to make sure that point was -- anyone else want to comment? let me raise the issue directly dealing with small businesses. small businesses generally use the personal income tax rates. a lot of them just use the schedule of income taxed for income so therefore we want to deal with just incorporated not deal with the individual rate. what impact would that have on anyone owning a small business? >> we have to remember a lot of small assistants are paying a higher rate because of the pass through and it is important to look at a broad spectrum and keep all businesses competitive. when you have got an individual in an s corp. is making a reasonable salary whatever that may be and is looking to reduce

and stay out of amt -- that come from the new york area if you look at the new new york area an individual who is running a business if he owns a house and has two kids ready for college automatically he's paying amt so you're looking at a way to provide equity to the small business as well as the big business. the big businesses are hit with double taxation and that's absolutely true and yet the small business owners very often wind up paying as high a rate of some of the top corporate rates. >> thank you mr. chairman. >> mr. chairman, thank you. i am juggling several things this morning so i was able to hear some of the testimony by her witnesses and i think one of the areas i would like to talk goes to what is argadon talked

about so i won't duplicate that effort. mr. chairman we held a hearing and we were talking essentially about the complexity of the tax code and its impact in particular upon small business. we didn't want to cut down several capital trees necessary to provide an example of a number of pieces of paper in the number of pages of the current tax code so we had empty boxes stacked up in the hearing room and it was a pyramid of some dimension. we had testimony from a small-business owner from indiana that i invited to come. he has a cybersecurity business that clearly qualifies as a small-business pretty gave a compelling testimony relative to what he has to go through in order to file his taxes.

he said and we have all heard this, he said the large corporations could have tax accountants sitting in the backroom to deal with the complexity. he said but i have to deal with a lot of the same complexity and i can't afford to have it backroom of accountants working for me. in so he said there was an issue that i wanted to make an additional investment in a certain business and so i took it to a tax accountant and he charged me a lot of money to give me by saying this is what you can do this is what you can't do. he set out to double down and get somebody else because i didn't want to make a mistake. i sensed that he wasn't totally certain the advice he had given me was corrected by spray the second accountant gave me exact date the opposite advice. so i have got to break the tide

so i go to third and he gave me a third indication of what it would be like for me from a tax standpoint. three well-qualified, all totally qualified highly paid highly respected tax lawyers advisers basically gave me three different pieces of advice. i am a small-business guy sitting here. do i want to buy into this new business which would increase my employment or what and what do i do? i didn't have an answer and we don't have an answer for him. whether it's complexity and the need for simplicity, the differentiation between what the small guy in the big guy can do is extraordinarily frustrating to people that i've talked to. i know ms. goschie i'm sorry i wasn't here with senator wyden my step tells me they asked the question responded. i guess i'm here to make more of a statement than i am here to to

hear your answers from what has already been said. but it's been a long time talking so i'm hoping this committee can take action with the house. obviously it's going to have to be after the election in a new year. i won't be here but i guess i say to my colleagues there really is an urgency in terms of maintaining the ability of small business is to address something so-called bouquet. i had pre-tax courses in law school. i would be in jail if i did my own tax returns, so i think it's time that we stepped up to the plate. another chairman wants to do that. one question i have been a few seconds that i have left is just your take and i'm sorry if you've already talked about this, the separation of business tax reform to companies of tax

reform. is this something that is desirable, something that absolutely necessary because we can't get there any other way? businesses are hurting. we are not competitive but there's a lot of concern from the small-business people i talk to but we are going to be left out in the cold. any quick responses to that? >> very quick that think i said that in my remarks also, i don't think looking at corporate reform is viable. i think you need to go through business and you also need to go through the owners of the corporations and individuals. i think you really need to go broader in just -- than just the business only. >> that think their valuable things became too with business only text of form but they are limited. in essence i agree with doctors toder. there's a limit to how much good you can do but there are ways to improve things that way.

it's just you will do better still if you integrate the whole thing. >> one issue that i want to raise, when you start putting band-aids on some of these tax rules it hits things more complicated. one of the things as a matter of fact on the plane down here i was talking to somebody. he is has an s corp. he said this whole thing with a 2% number self-insurance and a lot of people don't understand it and accountants don't understand is sometimes a basically what happens is if you are 2% shareholder in s corp. have health insurance paid for by the corporation you go to your personal tax return and you take it out of her income and that's a band-aid approach to what happens. >> thank you all. thank you mr. chairman. >> mr. chairman thank you and thanks for holding this hearing. i want to thank her witnesses for being here and everybody else on this committee. we do appreciate your insight and your help on some of these

issues. i want to thank senator thune and carver for their hard work in the working group for small business and senator schumer of the tax side. a lot of research has come on mainly in this committee. whether or not it becomes law or legislation i am not certain at this point that a lot of us know what the problem is. the problem is that we have more small businesses in america that are going out of business then start up and the historical data since world war ii we have not seen this. so what's wrong? wire more as this is going out of business as opposed to startups in the second problem we have is conversions. we have had over 1300 versions of the last 10 years. we are talking big companies care in america that apple to pull accountants so you have multiple accountants and you still can't make it work. companies like louisville slugger, burger king and the

problem doesn't get better. the problem gets worse. we will see this continue to advance. we don't do something about the tax structure we have in this country. i want to share a quick story about a company in nevada. a good company, not a multinational company. it's called the hamilton company and they do robotics. they also do medical devices and it's the owner talking with the owner. we sat on a couple of weeks ago they said you you know it costs me $10 million to stay here in america. he says i'm willing to pay it but it cost me an additional $10 million to do business right here in the united states. he's a good citizen so he's willing to pay it but he said what will happen when i get too old to run this company and we get, we emerged or get a buyout and moving this company outside of the country because of more

favorable regulations tax rates in these great i guess my question is, and i know we are repeating this question over and over but i think it's the issue of this particular hearing. starting with you doctors hines how do you keep the hamilton company in america? >> two things. one we have to adopt a territorial tax system like every other large country and two we have two lighten up business tax burden. if you do those two things then you will keep a lot more companies in america. dr. toder. >> outthink the territorial system is necessarily sufficient to accomplish that because foreign owned companies operating here in the united states have a tremendous advantage of with the ability to strip the process out of the u.s. subsidiary and so i think you really need to look at the issue more broadly of all the

ways in which foreign companies might be advantaged relative to u.s. companies and some of that might have to do with the limits on interested actions. the treasury is taken a step in that direction. i think it's a rather one's instrument what they have done but a legislative solution to that problem or legislative action in that area certainly called for. >> dr. zinman you uptight about the corporate tax rate and individuals pay a higher rate if you were to lower the corporate tax rate but the sea movement that to see corpse from these pastors at the rate were to be competitive at 20%? >> thank you for calling me dr. zinman. >> i'm sorry. >> that's okay. yes, you know when people want to start a company the first thing they do is they go to an attorney and they say we want to

open up a restaurant. we want to own the building. we want to property and often the attorneys will recommend a corporation because that's what they know. llc's are around for quite a while but they are still somewhat new. there is a tax line case study on corporations. they go to the corporations and then they go to the accountants and they say my attorney told me to come over and see u. should and see u. should i be a. >> corp. or should i be in s corp.? on the small-business level sometimes it's irrelevant because depending on the amount of income, depending on the shareholders, the owners, what kind of salary they want to take you can strip a lot of the profit out of a corporation despite being the salary which is in necessarily bad. if somebody pays a salary they pay into social security and pension benefits etc. sell yeah

if you lower the. >> corporation profits, tax percentage you might get some turning toward that and rather than using the s corp. as a device. >> mr. chairman, thank you. we only have two more senators. if you could keep within the time limit i think we can make it senator portman. >> thank you chairman. i have enjoyed your testimony today and thank you all for being here and thanks to my colleagues finn and carver and thanks to senator schumer. we do have a lot of the information and i think we are poised to act. we just need a political will to do so. you gave a great speech on the floor last week. he said there was a glimmer of hope with the findings and

recommendations of finance committee's bipartisan tax reform working group however as is too often the case will be overtaken by the politics of the moment. we have to get beyond the politics of the mom because everything is said here today. with all due respect to my colleague saying this is about small businesses versus big as this is, this is about people. this is about workers people. this is about workers in i will tell you in my home state of ohio today we are losing workers and losing investment because of the fact that her tax code is not competitive. the boardroom is going to be fine. when you do these inversions and i couldn't agree more with my colleague with mr. heller on this, couldn't agree more with mr. carper when he talked about the need to address this. if we don't address this what's going to happen is you're going to continue to see more pressure on wages and salary or that's what the joint committee on taxation has said and that is what the cbo has said. at the impact on workers and specific way we are actually when you have these versions and

this is the tip of the iceberg. support takeovers and the foreign acquisitions of u.s. companies. they take workers with them and as we sit here today it's happening in my home state of ohio. a great corporation in ohio, a great story history had to say uncle because the tax code was hurting them so much so they went over to ireland and they are going to save hundreds of millions on a tax bill. workers are leaving ohio going overseas to get away from the net of the u.s. tax code. this is outrageous and we cannot cannot -- i'm a small business owner. i totally agree with we need to help bonds ball businesses. put me at the top of list in the head of the line. i couldn't agree more. let's do that and i would like to have total reform of our tax code. we know we need that but we do

not have a consensus on that at this point. the issue no one is racier today is the other side of the aisle and the administration insists on a couple of trillion dollars of new taxes in order to do reform. that's what's in the presence of budget and it will be higher this year. we are not going to get to that. we can't find common ground there. where we can find common ground is to deal with the simplification as you said particular on the business side and ms. goschie gave great comments on that and by the way we look your comments particularly on hops in beer or that was my favorite part. we have 150 craft brewers in ohio. thank you for supporting legislation but the second one is international. we will continue to have more and more of our workers lose their jobs or not have their pay go up as it should because of the fact that her tax code is not competitive. every single day these companies are competing with one hand tied behind their backs so i just want to thank you for being here and for making this so clear to all of us.

i loved when you said, think it was dr. hines and got her toder he talks about the $2 trillion locked up overseas. not only are we losing workers and again happening right now in my home state but we are not taking advantage of $2 trillion locked up overseas that the europeans and others are going after through not just the best best -- but this is revenue is about to come back here and used in jobs and infrastructure. mr. hines would ask a question if i could he talked about adopting what's called a territorial tax system rather than a worldwide tax system. what are the consequences for u.s. businesses in u.s. workers if we do not move in this regard? >> the causes of quinces we will continue to lose out to competition with foreign businesses. investment in the united states less demand for american labor.

a more vibrant and competitive the business sector is the greater the up or tune it is for american workers. workers are paid based on their productivity and competitive economy like the united states and the more productive weekend make it the more productive is this capital and labor. we don't have a competitive system and so it reduces the burden and reduces job opportunities. >> we do nothing we will continue to have lost workers sent doctors toder i would love to hear your comments on that. >> well, the only thing that's going to happen if we do nothing to territorial system with itself without safeguards to prevent shifting of profits and investment overseas. >> we have been in a report and we need to do that as well and that's necessary not just for u.s. companies but for foreign companies. thank you mr. chairman. >> thank you mr. chairman. thank you for being here this

morning and having an important conversation about an issue that seems to be in burdened to the taxpayers from a corporate perspective but also every single american. at the end of the day the biggest taxpayers in the country are the individuals to bear the burden of all the tax reform and the taxes we are talking about and all that conversation ends up on the individual. speaking of individuals think that to where i come from where we have a wide range of companies that reflect a growing diversity of the life sciences industries across united states. the life sciences at or employs almost 14,000 south carolinians and specifically about 8000 are concentrated in the biopharmaceutical and medical device sectors paid overtime the life sciences industry has grown rapidly to include companies contracted specifically to oversee and carry out the development and commercialization base of the

other companies developed ip. these companies face the same pressures to compete in the global marketplace and any other u.s. multinational companies including the pressure to locate facilities and plans in u.s. or abroad threatening the livelihood of thousands of u.s. workers pick one of the most effective tax systems utilized by several european nations if the patent box. my question to you dr. heinz is given the growing diversity in the life sciences industry and increasing specialized role of the companies in bringing ip to market and the hundreds of thousands of high-paying jobs in the commercialization development and manufacturing of these products how do you suggest that we equitably allocate benefits in a patent or innovation box model and specifically as it relates to our competitors around the world who are moving in this direction

this to me appears to be a complication at the same time that the companies we have fewer dollars coming in from a specific area. >> we can't ignore international competition. the question for the committee is if the united states is it going to adopt some form of intellectual property box and what are we going to do? are we going to just ignore what's going on in the rest of the world? it hardly seems like a good idea but the downside and people have noted this, of the patent box or intellectual property boxes is that unless they are carefully crafted you can have a serious problem of thing converging too much property being included in the patent box and to get a lot of revenue that way and it's pretty undesirable. the issue really is what are we trying to achieve with the intellectual property box and i think the answer should be that

we want to encourage activities that we would otherwise lose. we find ourselves in that situation we should try to figure out a way to draft one of these things. the rest of the world is doing it and we ignore them at our peril. >> i think i have a different perspective on this. i've seen the articles by marty sullivan that describe a lot of the problems with tax boxes. i see this as something that may end up not creating innovation and just being another vehicle for corporate income shifting and i would much rather increase in the patient to have more, and a current sense strong enough that you will want to have more tax credits and more generous tax credits are two bunnies in the united states. with regard to what other countries are doing there is a race to the bottom to try to subsidize their multinationals in various ways but also moving

towards taxing our multinationals. i think we may need to start going after some of theirs before the situation comes back in balance but it's a troubling situation. that's why i'm very much in favor of moving away from the corporate level and taxing of individual incomes on corporations. >> that depends on how you would attract other companies to our 35% tax rate and remain competitive. >> it's hard if you have a 35% rate that's for sure. but you know the issue with the intellectual property the justification, the strongest justification is not the thing courage research activities but these are businesses you wouldn't otherwise have been less you offer to have favorable treatment. not that anyone business would necessarily do more intellectual

property development is a result of the box but the whole package in attracting companies. >> thank you for the time. i would suggest we don't figure out how to engage this conversation. it appears to me manufacturing may be the last and ultimately they are all gone. >> senator schumer. >> i'm going to be very brief because we only have a minute have a manner to soil as questions in writing. for someone to welcome mr. zinman a fellow new yorker westchester county. thank you for being here. second i want to say i heard what senator carper senator portman and senator hatch said on the floor but i i believe an international report that i believe we got to do something about it. i believe that to make her company's competitive. international reform is a lot easier to bite off the broad tech super forum even though that is desirable in my opinion as well. i'm still ready to work with the

chairman and with all the others and i know senator wyden is as well and senator carper and senator brown people who are part of tax reform to get something done even if we could get it done this year. i'm game to do it because i think it's really important for american competitiveness and my advice would be let's do the international side first and then we can deal with all the copper traded issues elsewhere. without mr. chairman going to yield that i time because i know we have a boat coming on. >> i appreciate your hard work in this area and we will find ways of doing it. i want to just thank all of you for being here. mr. barthold five questions for you about i have run out of time. this is an interesting hearing from my left to the right here and i appreciate the time you give and did i just wish we had

more time. we have three votes and i guess we will have to recess until further notice. thanks so much for being here. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] c-span's "washington journal" live every day with news and policy issues that impact you. coming on wednesday morning "washington journal" will spotlight realclearpolitics political news and polling web site. i guess include tom bevan's co-founder of real clear media group and carl cannon executive order -- real clear politics.

our c-span campaign 2016 plus continues to travel across the country to honor winners from this ear studentcam competition.

today to senators discuss the constitutional role of the u.s. senate and confirming judicial nominees including nominees to the supreme court. democrats patrick leahy and republican orrin hatch both members of the judiciary committee discuss their views on judicial nominations and supreme court nominee of eric garland. hosted by the edward kennedy institute, this is just under an hour. [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> good morning. on behalf of the edward m. kennedy institute for united states senate i welcome all of you to the kennedy caucus room for this timely and important discussion of the senate's role in advising consent role in connection with the president's lifetime appointment of individuals to the supreme court of the united states. the mission of the kennedy institute is to educate the public about the important role of the senate and our government doing courage participatory democracy, to invigorate civil discourse and to inspire the next generation of citizens and leaders, to engage in the civilized civic life of their

committees and of our country. to that end in addition to our hands-on senate experience in boston we host a series of public programs that highlight the role of the senate and the focus on the issues of the day. while i think you'll agree that the senate advice and consent role in confirming nominees to the supreme court certainly qualify as an important issue of the day. we know however that the public does not only understand the senate in portland at vice and consent role. indeed and polling just completed by the kennedy institute we found only 36% of americans understand the role that the senate plays in confirming supreme court nominees.