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>> and now we want to introduce you to the lieutenant colonel director of the marine band. what is your job, lieutenant colonel? >> i'm the 28th director of the

marine band and my job is to lead the band and performances and i'm the commanding officer of this unit as well. >> and how big is the unit lacks >> we have 154 dedicated members and it's designed to cover multiple commitments at the same time and to cover a wide span of different types of performances that we are required to do for the white house and across the capital region. >> in a practicin the practice l we saw about 50 members and the band is about 154 mark 154? >> that includes the musicians and a chamber orchestra and a member of physicians that double one jazz instruments that may be required at any time and professional support staff that support the operations throughout the year. >> when you perform at the white house or on the south lawn or a correspondence dinner, how many members and how do you choose?

spin it depends on the needs and commitments. it can be a single performer at the white house anywhere up to more than 100 that might perform like we do for inauguration's. >> what's your favorite event? spinnakers too many to choose from. one thing i love about my position and disorganizatio dise variety of what we have an opportunity to do through the year. we appear over 200 times on average at the white house, but also performances on national tours across the country and ceremonies we perform at the arlington national cemetery and across washington, d.c.. every one of them has a special meaning to me and i love the diversity. >> does the band -- does what the band does change with each president? >> a little bit. there's a tremendous history we've been doing this more than two centuries. a lot of what we do especially at the white house does have a

foundation of tradition but we try to cater what we do to each presidency not only the musical taste of each president and first lady but the needs of specific events. the band has evolved as well as the national culture and what it means to perform american music. the band has followed suit so the capabilities and tastes and kind of things we do have expanded along with it. >> what is your background in this? >> i came to the band is a clarinet player. i didn't have aspirations to be the director. i was fortunate to win a position as an instrumentalist and i playe played four and a hf years before an opportunity arose for me to become one of the officers and assistant director. i have a background in music performance and education and conducting so when that

opportunity arose in 2001 it was kind of a chance of a lifetime and i jumped at it not knowing how competitive i might be to be given a position and then here i am as the director. >> did you have to go through basic training as every marine? >> this is one of the unique things we have a specialized mission to perform music for the president and as directed by the commandant of the marine corps said there's a certain amount of experience required to perform at the level the musicians perform and the expectations that would happen before he joined the marine corps we have a very rigorous process and so they are fully trained to do their job. basic training is an important rite of passage.

it's the level of commitment and the duty that they have in their commitment to serving the marine corps in whatever their particular job is and by that measure they are as dedicated to their specialized mission as all of our brothers and sisters across the core. >> you will not be directing at the white house correspondents dinner, why not? >> i have my fair share on a regular basis and around town for a number of events we have an association with and we have a history with a lot of events outside the white house that have some sort of presidential affiliation we perform at the gridiron dinner and for the first ladies luncheon and the white house correspondents dinner is a strong components to what we have done for the correspondents dinner so it is led by the senior enlisted leader of the marine band. it's a great opportunity to conduct the ceremony and the performance and have some

involvement of the presidential support as well. >> often the band is performing while something is going on at the white house can do some ceremonies. how do you keep your eye on what's going on in the band because you are kind of the conduit, the link between stopping and starting. >> there is a challenge to the operation and logistics of any event. we are responsible for providing the soundtrack to an event to make it even more special but there's a number of moving parts in any given commitment at the executive mansion and so we always have to be ready to change on a moments notice. that takes a little getting used to have th and that's the part y don't train you to do. that kind of thinking on your feet luckily i was an assistant director so i was ready to deal

with that when i became the director in 2014 dot it's become one of the most exciting parts of my job to see music and make music that can start up being in the background for the tapestry that at any given time it can become the feature and there've been so many moments at the white house where the music that started out as background becomes the central entertainment for any given moment. >> have you ever have a presidenhad a presidentwoke up ? >> we haven't had a president woke up and decided to conduct in the white house. we did have president george w. bush conduct a of the white houe correspondents dinner in 2008. we found out he had a little bit of conducting experience so we were looking for an opportunity he might want to conduct and it was decided that it might be a great opportunity for that and

so it's the only time that he's conducted at the marine band. >> it was but it was a surprise we try to keep it under wraps but then went to the white house to rehearse with the president and he practiced and did a remarkable job. and then the current opening after the remarks when the band was there he opened up at the perform stars and stripes. >> what musi music you music han and i presume you consulted with the white house on any offense but with musievent butwith musir this? >> we consult with the white house and social office to make sure the music we are choosing fixed the event and often times we will try to program things for each event. much of what we do at the white house correspondents dinner happened before the president takes the stage so we play a lot of music to set the tone for the evening and get everybody in the booth before the president is announced and i believe on this

particular event we will throw in some that have to do with chicago for the president's background and then when we -- when the president is ready we will take the full version and i know that one of the things that has been so special to them is the service of the members of the armed forces. they've gone out of their way on so many occasions to acknowledge the service of the men and women in uniform and we often play a medley and we do have a tradition at the correspondents dinner and i know that is special to this president and first lady and it's an opportunity for anybody that has had service to stand and be recognized. i know that it's very special. >> is your units responsible for the color guard that comes into the white house correspondents

dinner? >> we coordinate and work on a regular location. it's different services sometimes a joint color guard and we work with them for a number of different events and so always coordinating with them that does come from a different section but there's always coordination because the music dictates what the color guard does and how they move in any given ceremony. >> we have a traditional set of music that we play and the color guard does certain maneuvers when we play the service songs. >> master sergeant what is your job here with the band? and the drum major. i lead the ceremonies and parades responsible for the training. >> you will be conducting the

band as well correct flex why have you been chosen for that? >> they take the performance because of the ceremonial nature working with the color guard and the music that we do at the correspondents dinner. >> it's a traditional red coat with blue pants. >> how many members would do this? >> typically we would say 40 members. >> blair on the stage or at the hilton will you be settled? >> behind the head table performing as they arrive and then for the ceremonial portion in the beginning. is this the first time you've conducted at the association dinner? >> this is my third time. >> what is a particular

challenge to this event? >> fitting the band on the stage because it is a narrow area that we have to work with to be able to see things spread out left and right. >> so your back is to the dinner most of the night. how do you -- are you listening in your ea year to anyone sayine are about to begin? spinnaker they will wear a headset with the rest of the staff to get the queue when the president arrive arrived in whes ready to come on stage. >> when the color guard marches and who are they representing? they are representing all service so you will have the american flag than the organizations from each service and additionally the rifle bears

on each side. >> there's a lot of ribbons on top of those what are those? >> those are battle streamers that represent each that has taken part. >> so we are talking perhaps hundred in some cases. how did you get into this business? >> i started coming out of high school in the marine corps for the first 15 years or so and due to my height most people said you looke look good in front ofd so some of the leaders started to training on how to be a drum major. >> so on the training as a regular marine but you knew at that point you were going to be in the band plaques >> we had ten fleet of bands.

its loca local bandsit's local e stationed at different commands in the marine corps. we have camp lejeune, parris island, southern california, hawaii and japan. >> how did this get to become the president's own damned? >> jefferson gave us the name after the band was formed and started performing regularly and he was very fond and took us on as his own. do you ever hear john phillips in your dreams? >> i sleep pretty well at this job and i work with many people. >> will they get to eat at the dinner? >> not in the main room with everyone else we get that ahead of time. >> and at what point is the

evening done? >> we finish fairly early once the president comes on and we bring in the colors and play the national anthem and our armed forces medley they are typically done after that could close the curtains and begin the speeches and -- >> are you backing up during the speeches? >> we are. we get out of there pretty quick once the curtain closes we grab everything and silently make our way out. >> really punch those kind of aggressive. can we pick up the strings please? one, two, one. ♪ records indicate the first performance at the white house correspondents dinner was 1931 about ten years after the dinner started. we have a log that says we

performed in 1931. we performed relatively sporadically after that and then for the last 30 years or so we've had a regular appearance each and every year. music has always played an important role at the correspondents dinner. there've been a number of guests and artists and singers prior to thertheir being a regular canadn music was the entertainment for people like aretha franklin, van clyburn word at the dinner throughout century and there's always a strong military music component as well in addition to the marine band washington for firm at thperformed at the dinns always been a central part of the tradition to have military music as well. ♪

>> coverage begins tomorrow night at 6 p.m. on c-span. business owners and accountants talk about u.s. business tax law the latest research into ways it can be changed to be more competitive in the economy. the senate finance committee held a hearing earlier this week. >> good morning. it's a pleasure to welcome everyone to today's hearing which we have entitled navigating business tax reform. i think this describes the challenges we have before us and

moving forward on the business tax reform specifically and on comprehensive tax reform more generally. identifying and developing certain papers and policy proposals and moving them through the legislative process is difficult but i'm an optimist and i believe that we should find common ground for the comprehensive tax reform. as i said in the past successful reform will take priority and worked twork to get it over theh line. i think it's safe to say that we haven't meant that prerequisite with this administration which most acknowledge means that for now we have to wait but in the interim we will continue to lay the foundation and develop program proposals for when the appropriate opportunity arises. that is why last year the senator and senator and i askedf the committee to work on various

tax reform working groups to help identify issues and develop consensus as possible around the proposals. today we will focus our attention on business tax reform issues including topics that were covered in the report issued by the income tax working group. i want to thank the senators as well as other members of the group to me, coats, my own, casey, warner, menendez and nelson. a lot of time when examining these issues and compiling the report i appreciate everyone's willingness to advance the cause. ththe chief of staff chief of st committee is with us today to provide background on business tax reform issues and i will highlight some of the major topics reviewed in the report. we appreciate his work and we appreciate him being with us. we have a great group of

witnesses with us as well that will provide important insight and recommendations about the broad design issues of system and practical on the ground issues important for us to keep in mind as we develop and refine the proposals in the business tax status. i want to take a moment to propose one that was discussed in the working group report that i believe the consideration by everyone here. in general terms the corporate integration means eliminating double taxation of certain corporate business earnings and in the current folder corporation's earnings are taxed once at the corporate and entity level then again at the shareholder level when they are distributed as dividends. in other words if the business is organized in the corporation we tax the earnings of the corporation itself and the same

when tito t payout to the indivl owners of the business this creates a number of inequities and distortions and my staff and i have been working to develop a proposal to address this problem. i was glad to see the business tax working group addressed the integration in its report eliminating the double taxation of corporate income would reduce or eliminate for distortions built into the current tax code. the incentive to invest in the long corporate businesses rather than corporate businesses and the incentive to finance corporations with debt rather than equity and the incentive to maintain rather than distribute and the incentive to just read earnings in a manner that avoids or reduces the second layer of the text. depending on the design and corporate integration could have the effect of reducing the corporate tax rate and help

address the incentives we were seeing today for companies to relocate their headquarters outside of the united states in fact i think that is in the revision of the companies even considering that now but also the effect of making in a more attractive place to invest and do business. i have much more to say on this topic in the coming weeks and months but i plan to raise this issue in several terms in general terms here today. once again i want to welcome to the missuthemrs. and i look fora robust discussion and with that i am glad to turn over for his opening remarks and then we will hear from the two cochairs of the working group will give opening remarks after he completes his remarks. thank you mr. chairman and i look forward to working with you and our colleagues and i want to

commend the senator for their outstanding work. we have just the right people hitting that target the group and i appreciate it. colleagues, if you own a small business in america today often you go to bed at night believing that you are in danger of being ensnared by an outdated by the tax code americans spend 6.1 billion hours a come playing with each year. that's tax system they don't have a fleet of accountants into the luxury of time to plan investments on taxes. the american tax code tells small businesses that their dollar is worth less compared to the sophisticated firms that can afford to make the rules work

for them. that's why today i've released the cost recovery reform in 2016 this proposal is all about making the tax code more effective for the risktakers that go out and start a small business. people that are more often than ever before going to be minorities or women so this proposal would modernize the tax code and a strip away much of the unfairness to the business in the system of the depreciation. for the small cash firms to create jobs they need to invest in basic priority is making a cash register and office computer or farm equipment when it makes business sense not when

it makes tax sends a. to figure out these investments is the small-business person has to navigate more than 100% of tax rules. my proposal dumps that headache for the depreciation that are far easier for a business person to work with. today you've got to do the math as many as three separate times under different programs for each and every asset. my proposal says one around is enough. small businesses shouldn't have to do individual calculations gs for every car on the lot, every computer in the lab or every machine in the shop. today's rules come from the last

century stuck in the fax machines that predate the technology boom that has transformed the way in which americans live and work. my proposal says our business tax rules should reflect a 21st century economy and help the cutting-edge entrepreneurs thrive. there is some high-tech investments such as the mri machines and more than double the rate of other investments. a startup shouldn't be told they are not allowed to use a work laptop and a coffee shop otherwise they will face a big financial hit on their taxes and in my view it shouldn't ge get innovative public-private partnerships thainthe way of pue partnerships that want to build

new roads and 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 small businesses operate today. it is my hope that we are going to be able to look at these proposals and it is our committee considers again on a bipartisan basis how to bring the tax code up to date, so i very much look forward to today's hearings and i'm especially pleased that the farms in silverton oregon is with us today. the hundreds of acres they grow are a big part of what makes oregon beer the best that money can buy. and just for those kind of historians in the room, they just celebrated her 112th poppy

harvest. speaking for the small businesses we couldn't have had a better business than ms ms. "florida face to face" to " to have her represent. >> thank you jeremy and i think you and ranking member for the opportunity to make an opening statement today and for the opportunity to cochair the business income tax reform working group with the senator last year. while there are undoubtedly significant differences on the tax reform between the political parties i believe our working group demonstrated that there is genuine bipartisan agreement in a number of areas. the bipartisan agreement underscores the senators of both parties understand the importance of reforming the tax stump and willingness to think creatively about how we addressed the vexing challenges of the business tax reform. our report considered a wide range of issues from tax

policies promoting innovation to the simplification reforms to addressing the structural biases in the tax code. however, given that my time is limited this morning i want to discuss two areas the report identified this threshold issues gaining any successful business tax reform effort will need to resolve these challenges. >> i would like you to continue chairing this event until i get back. >> i would be happy to. >> first of those issues the working group report recognized was a more competitive u.s. corporate to modernize the tax system. america is losing ground as other nations continue to lower the corporate tax rate highlighted by the fact the u.s. combined state and federal rate of over 39% has 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 and we want the

country to be in a retracted location for the investment that the major competitors have demonstrated in recent years love wearing the corporate tax rate is achievable and the working group reported the notion while there are differing approaches to get their come at a lower corporate tax rate remains the center of the bipartisan approach to the business tax reform and second, the group expressed the view the business tathat business tax res to be about all businesses large and small. the reality is the businesses taxed at rates employed 55% of the private-sector workforce and earned more than 60% of all of the business income. if you includ include the sole proprietorships and they account for more than 90% of all businesses in america. as such by the report found, and i quote, clearly business tax reform needs to ensure that businesses are not to reduce the

corporate tax rate. the businesses need to benefit from the tax reform from any 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 the members of the committee and our colleagues our working group found that a modern and more efficient system for the taxing business income is critical to boost economic growth increase wages. we've recognized that achieving inning for tax reforms are on a range of complex issues and it will require leadership within congress and the white house. but we should remain optimistic becomes less a question of if and more a question of when and how. the question is holding america back into the recognition of the fact is one of the most important elements to come out of last year's working group process.

i want to thank the senator for his leadership and for the opportunity to work with him at all the members of the working group and the staff for their input and helping us lay the groundwork for future tax reform efforts. i look forward to hearing from the witnesses and the continuation of the robust debate over how to reform the business tax system. thank you and thank you so much for your leadership on the business tax work group. i want to join you in thinking the senators for the leadership and convening this hearing but also in establishing the working groups. our working groups produced a report of 140 pages. i particularly want to thank mr. speeeight and the committee for their extra benign progressive at the conclusion that i learned a lot and i thought that we were gaining the continuing education credits and

we didn't have to pay any tuition for it. i agree with the senator that our high tax rates on businesses in america is making america not competitive. we are definitely at a disadvantage in the international competition because of the high business tax rate anythin and i think democrd republicans agree that we have to do something about it. it is not 35% it isn't competitive compounded by the fact that the double taxation and the senator and others have brought forward a proposal in this regard is the chairman commented about it it is an area that we certainly need to take a look at set up a business entity form doesn't discriminate against the business and that is an issue we need to deal with. but as the senator pointed out 90% of the businesses don't pay

this rate and that is up 39.6 isn't competitive so we need to deal with the realities with business taxes in our country and although we want to talk about major tax reform we shouldn't lose sight of that during this process there are some smaller reform issues that can help a great deal of the corporation reform and we should try to get that done as quicklys possible to help america's businesses. the challenge is dealing with the hydrates are incredible and i want to put this on the table so our colleagues understand the challenges we have are going to be major reform for the business taxes in america. first, it is a huge revenue issue to reduce the rate under the structure. for the joint tax estimated it

would cost $100 billion over ten years. so you can do the math. those people want to reduce by as much as ten percentage points, that is a trillion dollars. that doesn't deal with the individual rate and as we talk about we need to understand that there is the need for help for business income that would be 60 to 80% less than the cost of the proposal that deals with reducing the rate so on the other side we say let's do what we did in 1986 and one that is just wha let's spread the burdef the rate that lasted until 1987. so i would suggest politically i'm not sure that is possible for us to bleed the tax code alone for any significant out of time so i just really want to challenge the committee with something that is counterintuitive. the united states for all of the countries is one of them will list some of the governmental

sectors for its services so why should we have the highest rate as we have the lowest marginal rates in the countries and the reason quite frankly as it was pointed out during the study is that we are the only one that doesn't have a national consumption tax. there's been 150 companies globally but use the consumption tax for part of the revenues so for those reasons and others in the last congress i introduced a progressive consumptiothe progrx that would replace some of the taxes with a national consumption tax. a dramatically simplifies the tax code on personal income by simplifying and starting at $100,000 of taxable income with the highest being 28% for families over $500,00 $500,000 d reduce the corporate tax rate to

17% giving us a significantly lower corporate tax rate using the invoice system which we think is the most efficient way to do it. it's progressive starting at $100,000 caching afeared income tax credit in the child tax credit to keep it progressive. and it contains a circuit breaker so there would be a mechanism to return to those excess taxes to the taxpayers. the result we woulas a result wt five percentage points lower average on all of our taxes income and consumption giving us a competitive advantage rather than a disadvantage on international issues. i just want to make this point i think the committee needs to be in the leadership of tax reform

and i think we can be and i think the work that was done we've become more understanding of the challenges we have and i urge us to work together so america can have a tax code that is a lot easier, simpler and more efficient on capital growth than the current tax code. >> first we are going to hear from doctor tom who is no stranger here and shouldn't be much of an introduction he's worked for the joint committee staff since 1987 when he started as a staff economist and he then worked his way up the ladder to become the senior economist deputy chief of staff before being named in his current position in may of 2009 prior to his work he was a member of the

economics faculty at dartmouth college with a bachelor's from northwestern and received his doctorate in economics from harvard university and i would add he's indispensable in terms of what we were doing on the working groups and providing inside counsel as we went through the process so it's good having you here. the second witness is the professor of economics and university of michigan. doctor hines serves as the office of policy research at the university of michigan and is a research associate at the national bureau of economic research coming research director of the international tax policy reform, coeditor of the journal of economic perspectives and once long ago was in the u.s. department of commerce. he's held appointments and telephone a berkeley and graduated from the university with a phd from harvard on economics. third we don't hear from doctor

eric toder a fellow and codirector of the urban brookings tax policy center. the recent work includes papers on with the u.s. can learn from other's territorial tax systems issues in designing the carbon tax, corporate tax reform that benefits the payroll tax expenditures and other issues. he held a number of positions and tax policy offices in the government overseas including services at the deputy assistant secretary for tax analysis and director of research and assistant director for tax analysis at the congressional budget office at the new zealand treasury. doctor toder received his phd from the university of rochester. the fourth witness will be mr. zinman has licensed in new york, florida connecticut and he is diversified clientele includes architectural firms, attorneys, child care providers, real estate developers, insurance professionals medical

professionals, restaurants and retail operations. he provides tax services for businesses and individuals among other things he's a membe he isf the conference of practitioners where he served as the chair of the tax policy committee and is a member of the american institute of certified public accountants and the national society and the association of tax professionals. mr. zinman is from the public accounting and finally as the senator pointed out we are going to hear fro from mrs. goschie, e president of goschie farms a fourth-generation farmer business owner in oregon and works with the two brothers to manage the operation of the farms inc. specializes in grapes and other crops. figure 550 acres at solstice some of the nations top breweries and grows 150 acres more than 300 of others including grass seed, corn and wheat. they've been a leader in

sustainable farming techniques including the portion of the operations through solar energy. he is goschie was the first woman to be awarded the international order in 2009. i want to thank you for coming i know this is an expansive topic and the more perspective we can get the better. we are grateful to have your expertise and experience to inform us on this tax issues and we will look forward to hearing from al all of you and hopefully you can come up with a way to make this more understandable and hopefully easier. i don't think it's going to be easier to get this done. there is very complex issues we found in the business text working group that it's a subject we need to tackle and as noted earlier the sooner the better so we will proceed from left to right starting with mr. barthold so please proceed with your statement. >> members of the committee

thank you for today's hearing chairman hatch and ranking member wyden asked me to raise the issues by the committee's bipartisan business income tax working group. i also noticed that my colleague is prepared more detailed background information released last friday and the joint committee document. it's important to remember that in assessing any tax system reform, there's kind of four dimensions we always look at. first, does the tax system promote economic efficiency and does the tax system promote economic growth and is it fair to. it's where we fit in the budget picture about invariably it's the case these different policy goals are in conflict to promote

economic neutrality they conflict with goals an the goald fairness and to promote fairness may lead to complexities and increased compliance costs so those are issues the business working group was grappling with thinking about the issues before them. some of the proposals undertake comprehensive tax reform by broadening the base and lowering the rate and as the senator pointed out, to lower the top rate by one percentage point from its current statutory rate of 35% to 34% we have estimated against the current policy baseline but at what cost $100 billion over the ten year period. by comparison the largest corporate tax expenditures only a modest handful in fact exceed 50 billion swiftly brought in the base to the lower rates it

takes a lot of elimination of the tax expenditures or other ideas. this was an approach taken by the ways and means chair man in his hr one that reduced the corporate income tax rate to 25% but did so by slowing depreciation rules and required amortization of advertising expenditures over ten years and required amortization of research and development expenditures and repealed the accounting and the lower-cost market methods of accounting, phased out section 199 for the manufacturing activities and a number of other base broad. it's important in this context when we talk about conflicting goals to recognize some of the trade-offs that can arise are exhibited if we lower the corporate tax rates that's good for investment but if we slow

the depreciation that's bad for the investment so there is inherently always a trade-off. other issues they work at are the differences between the pass-through entities in the united states and as the next slide notes it is earned by enterprises that are not in the corporations so some of the tax reform options have been proposed with the intent of maintaining a sense of parity between the taxation of corporate and pass-through entities however the working group founded isn't clear what they should mean and winners of the corporations as noted by the chair man. it's not distributed to the

current tax burden of those is up 35%. the pass-through entities generally do not bear the tax rate greater than 44% whether they are maintained it gives you a more detailed analysis that isn't a simple comparison as one situation to another become a consequence of some of the other complexities we have for the income taxation. recognition of the two levels of tax has led some to propose what is called corporate integration. the chair man described as basically two approaches one is referred to as complete integration and the other is partial. you eliminate the taxation of dividends by the shareholder income and the distributed and undistributed earnings of the

business entity this is the way we tax the corporations under present law. on the other hand partial integration is generally a form of the dividend relief reducing double taxation undistributed earnings with no change in tax. you might characterize the rate as a form of partial integrati integration. i am exceeding my time here and i know you want your other experts but let me make a brief note that is the role of integration in the u.s. economy and in the future growth. in the united states in number of countries established intellectual property regimes or patent boxes they've been called that offer preferential tax treatment on income attributable to the intellectual properties.

the goal here has been to increase domestic investment and research development work encourage the business enterprises to locate the ownership of intellectual property in a particular company. now in the united states, we do have incentives and significant incentives for research development in the path act in the research credit and we do allow the full expensing of activities. the working group explored the notion of the systems for the uniteunited states and i want te that adopting the u.s. innovation box presents some unique policy designed administrative issues to consider. including what is in the box. is it just happens for a broad range of intellectual property including trade secrets and how do we define those in terms of applying the system administratively.

other questions is what is the role of them access to. however the income from this to be taxed? the working group did interview a number of proposals including some that have been offered by the members of this committee that i know that you want to take more time dealing with the distinguished witnesses that you have before you to my left so i will conclude at this point and i'm happy as always to answer any questions the members might have. >> thank you mr. barthold. doctor hines. >> dot committee is looking into the business tax issues because the census currently faced tax burdens and peace tax burdens somewhat distort and as a result create fewer economic opportunities for the american workers. the challenge that faces the following. if you want to enact a reform

that is revenue neutral in the business sector, it is going to be impossible to know where the business tax burden very much. that is pretty much obvious because if you are -- if you implement a reform that is revenue neutral it will not greatly change the average tax rate businesses face. so there is good that can be done by the revenue neutral reform but let's be clear that there's a limit to how effective that is going to be. any event that is revenue neutral to lower the taxes and raise the tax on others and as a result the greatly changes the burdens. in the strains of the revenue neutrality we are ready for any business tax set up. there are smarter ways to tax the business income.

those efforts should be guided by principles and economic theory that says there are two principles we should apply. one, we want lighter tax burdens on activities that generate positive economic spillover and number two, we want lighter tax burdens on activities that are more responsive to the taxation. the challenge in taxing businesses or anything is when you tax income, you discourage the production of income and 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 the government. so, what does that mean in practice? on the spillover question, some of this has already been discussed this morning. there are strong reasons to have the favorable expenditures because research creates positive spillovers for the economy and contributes to

economic growth or low income housing because low-income housing offers spillovers to the communities. and two other activities that generate positive benefits that are not entirely undertaken in the activities. the second principle is that you want lower tax rates activities that are highly responsive to the taxation. an example might be domestic manufacturing. we currently have section 199 the domestic production activities that offers a favorable tax treatment of qualifying activities. there is pretty good evidence now that deduction has been successful in stimulating more manufacturing investments than we otherwise would have had an further evidence that manufacturing investments itself is more responsive to ask tax treatments and other investments in other industries. as a result, tax reform that would be directed at lowering

the tax rate in financing some of the production by eliminating the 199 deduction based on the evidence we had would have the effect of reducing overall investment in the economy. it's true that a lower statutory rate encourages investment of the problem is if you finance it by removing the deduction for the domestic production activities than you discourage so much by removing the deduction if you don't make it entirely back with the lower statutory rate. the issue of the corporate integration has come up this morning as well. economic theory doesn't actually say that we want equal tax treatment of the debt-financed investment. but it says that the difference in the taxation of the forms of investment if there should be one should be related to the responsiveness of this activity to taxation.

we have a different tax treatment in particular as noted the equity financed investment is taxed much more heavily and efforts to integrate the corporate and personal tax system thereby reduce the burden on the investment would surely be a direction and economic efficiencies. the general implication of the economic theory is that you do not want equal taxation of every economic activity. you don't. and the reason is that our tax system will discourage economic activity. it just does. that's the way it goes. what we want to do is discourage the activity as little as possible while raising the revenue as well and as fairly as we can and so, we should try to respond with the different activities in mind and that will be a nuanced system with

differences in the taxation between different activities but if we do it right we will preserve as much as possible in the economic vibrancy into the whole country will benefit particularly the american workers. >> thank you doctor hines. chairman hatch, ranking members of the committee thank you for inviting me to appear today to discuss business tax reform. the views and express them are my own and should not be attributed to the tax policy center or the urban institute or its funders. current u.s. business income taxes have many harmful effects. they discourage the domestic investment into place the us-based firms at the competitive disadvantage and having encouraged him to a crewe over $2 trillion in overseas

assets. they favor corporate debt over equity and the earnings over distributions in the past for businesses over companies that must pay corporate income tax. there is bipartisan agreement they need to be cut and the tax on the repatriated dividends reduced or eliminated. there is less agreement how to pay for the reduction in how to prevent additional tax avoidance through shifting the profits to the tax havens. 1986 style tax reform pays for the lower rates by eliminating business preferences is not sufficient paper the rate cuts in the long run

fit better into the global economy and taxes based on either corporate residence or corporate income. a corporations tax residents may bear little direct relationship to the location of its production, sale, shareholders or even top management. and the source of its income it's difficult to determine when an increasing share of profits reflects returns to intangible assets not tied to a fixed location.in contrast, because the shareholder level tax depends only on the residence of the shareholder, i the residence of the corporation or the source of its income would affect tax liabilities. alternatives are to raise tax rates on realized capital gains dividends, shift the

taxation of shareholder income to an accrual or mark to market basis or integrate the corporate and personal income taxes. in my written statement i discussed the advantages and problems with each of these approaches. another approach would replace a portion of the corporate and individual income taxes as senator hardin suggests with a new consumption tax rate such as the destination-based tax in use in over 150 countries around the world. unlike the corporate income tax, that would not discourage savings and investment and would not affect firms choice of tax residence or location of production. a final alternative would introduce a carbon 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 these options can be designed to raise the same revenues as 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 cuts us needs, requires that we look beyond the business tax base for additional revenues. i am encouraged that this committee is open to broader approaches. >> now take your statement. >> chairman hatch, ranking member wyden, members of the committee, thank you for inviting me to discuss this topic. i am the vice president in tax policy chair of the national conference of cpa practitioners . easy pat numbers serve more than 1 million business and individual clients and as long advocated for tax amplification and taxi quality. when taxpayers understand the laws, they are more accepting of the rules.

i will address the current business tax structure in the united states and its impact on the small and micro businesses. my 35 years as a cpa sole practitioner involves working with and advising of a variety of these businesses. what's already known is that small businesses make up an overwhelming majority of the number of businesses in our country. 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 percent of all businesses. that same report states that 69 percent of those small businesses are individual taxpayers while 31 percent, from partnerships and corporations. the report also indicates that 20 percent of small business populations hire at least one employee and produce at least 71 percent of total small business income. the small business community is vital to america. many mom and pop businesses

which i call micro businesses operate the same way they did 50 years ago. many are sole proprietors or subchapter s corporations. this to start a business, the owner often seeks advice from his or her attorney and just as often gets the opinion of a 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 micro business 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 accents and cost them the least amount of tax.of course, this is never a standard c corporation.

life was simpler 50 or 60 years ago but we aren't there anymore. new types of business organizations have been created. each one as potential benefits and potential pitfalls. the cpa will explain the nuanced differences between the c corporation, an s corporation, partnership, and 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 a business owners understanding of the tax law and tax regulations and only after conversations with the owner can acpa provide meaningful guidance. yet issues raised do 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 may meet the current needs of the owner, these needs may change over time. then the organizational structure which was originally correct may no longer be the proper one. the similarities and differences amongst 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 new forms of business organizations but congress can ensure a level playing field in business taxation. there are an unnecessary inequities 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 a single level of tax for all business sizes will provide an understandable equity. thank you again for the opportunity to present today and i welcome your questions. >> thank you mr. zinman. missdoshi , we you now? ask, ranking member wyden, cochairs of the business income bipartisan tax working group and members of the finance committee. i would like to thank you for giving me the opportunity to testify today.my name is gail, i am a fourth-generation farmer. i'm here today to represent gosche farms incorporated our family farm has a staff of 80 full-time and seasonal employees. our customers include breweries located in multiple states throughout the country. some of which you would be representing here today. we also grow wine grapes for three organ companies. as you all know, the business of farming is fraught with uncertainty. a growing season can turn

from it economic gain to an economic loss overnight. a change in the weather, product prices, labor supply or our customers needs can have an extreme, often unforeseen 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 type of crops we grow and our hiring and labor decisions. when there is uncertainty with taxes, we are unable to invest with confidence in our business. 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 and acted some changes that will have a positive impact on the farming sector. in december 2015, they

permanently extend the small-business expensing limitation and phaseout amounts 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 industry to the next. for example, a tractor in agriculture is appreciated over seven years. where that same tractor in construction would be over five. it would be helpful to have uniform depreciation's for similar items and allow items to be pooled together as opposed to being listed separately. expensing also impacts our development cost. there are a number of expenses that come with the development of a vineyard that include reproductive costs of land clearing, soil and water conservation, and direct and indirect costs of

buying trellis and irrigation systems. the pre-productive. of times must be capitalized into the cost of the mind. with perennial crops like wine grapes, they are not depreciated until their first commercial artist. the standard of three years. as you can see, the tax code for small business owners, farmers like me is complicated. goschie farms does not have accounts on staff to analyze every decision at it as it is made or to maneuver each decision to maximize the tax benefits. our time and effort are needed in the fields to meet the demands of our customers. the work we do every day it as farmers is a business story about the safe us grown quality products that are our livelihood. both hop and wine grape growers farm with certifications and best practices, sustainability and energy conservation.

with the hope of consistent energy tax incentives, these are just the beginning 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 bysenators wyden and blunt . through this legislation, though this legislation does not directly impact hop and grape growers, it would recalibrate the federalexcise tax for craft beer ,wine and spirits products . when the craft beverage industry finds relief through a reduction in excise taxes, the grower will findexpanding 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 armed groups like the hot growers of america, the oregon winegrowers association and the national barley growers association. with this unique example, a simplified tax code could bring relief to breweries, wineries, farmers and the consumer. thank you again for inviting me to testify today. >> thank you miss goschie and we appreciate all of you being here today and i apologize, i had to go to the senate. i have two articles written here by mister martin bloomfield, president of the american council for capital formation. one of the articles entitled bipartisan tax reform was printed in the wall street journal and specifically commented on the work of the business tax reform working group. i was pleased with that. the other article was featured in fortune magazine

titled, this is the fairest way to tax americans. this article is a broader commentary on the tax reform debate. mister bloomfield is no stranger to this committee. i appreciate his comments in these articles and ask unanimous consent that they be included in the record at this point sowithout objection , they will be included in the record. okay. let's start over on the time. mr. hines and dr. toder, and i saying it right? i was interested to read in both your testimonies the caution with which you suggest congress take in addressing revenue neutral business tax reform. lowering tax rates and broadening the tax base. you mentioned that corporate integration could potentially be a path forward. as i mentioned earlier, i am preparing a corporate integration proposal that i think will help address many of the problems we see in the business tax base today.

now, would you both elaborate on whether and to what extent corporate integration in general and its design in particular could strengthen the global competitiveness of us companies, encourage more business activity and in the united states and go a long way in helping to address multiple international tax issues that we are certainly going to be faced with and that we are seeing today including inversions and earning stripping? and doctor bloomfield, i would like to hear your comments as well. let'sstart with dr. hines and then dr. toder and then doctor russell . >> thank you. a thoughtful corporate integration reform certainly could address some of the competitiveness issues that face american businesses but as long as the united states maintains a worldwide tax system, we are never going to

be competitive relative to any of the other g7 countries or really any of the major capital exporting companies, many of which have territorial systems so i sort of understand the spirit of the question in that if we had corporate integration along with other beneficial reforms, would it be part of what contributes to the competitiveness of us firms, the answer was yes. >> i don't see any reason not to. i think they are complementary. both territorial changes and corporate integration. >> i see it the same way. >> keep going, i'm sorry. >> so look, the advantage of corporate integration is it lowers the taxation on equity finance corporate investments and we have a very had heavy tax for non-that as it currently stands but in addition we would want to address him of the specific international issues if we are thinking about competitiveness more broadly. >> yes sir. >> one of the, i think

advantages of corporate integration is by shifting the burden if it's designed in a way that pushes the burden at the individual level so individuals are taxed once ontheir business income , you get less determination of where the corporation earns money or invests as affecting its tax liability. that of course depends on the corporation being interested in the tax liability of the shareholders so one of the advantages of the australian system is if companies shift money overseas and don't pay australian tax, then credits don't go out to the shareholders when they pay dividends and only going out when the tax is paid so people can see that as one way of reducing some of the income shifting problems while maintaining a territorial system which is what they have .

i think there are several challenges that you have to deal with. one is, you are still going to have very high tax on corporate retained earnings so those companies that don't distribute profits are really going to, not necessarily the benefit of that assistance and that's going to be attacks at the corporate level which could

this kind of lala land of trying to guess what you are trying to go and making the best decision for your businesses and i gather that what you're saying is that small businesses really do not have much specifics about what the tax consequences are going to be when they go out

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

there are a number of issues that small businesses deal with and as miss goschie indicated, she is absolutely right. if you don't have a staff accountant with you, if you have a room of accountants here and you are asking questions about tax code and depreciation schedules, they'd say well, that's why god made computers and tax software but the reality is, that as a small business you are trying to wrestle with, do i have enough money today to what taxes will come up? in an s corporation, i constantly have at the end of the year owners who have a successful business and they pay themselves a reasonable salary and they are falling within the tax guidelines and yet all of a sudden, their business shows a profit. they have phantom income. they have to be taxed on that income that was unexpected and they haven't actually drawn 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 corporation and what to do with it. >> so you both have had a chance to look at the proposal that i've released today, the cost recovery simplification and reform discussions draft and the whole point of this is to end the water torture or small businesses. that's in a nutshell how i think we ought to look at this question and in particular to make sure that we end the day when a small business faces a situation where their dollar is worth less compared to a sophisticated firm that can afford to make the rules work for them. i'd be interested in your reaction because i know the staff has talked to both of you starting with you miss goschie and you mr. zinman. in the time remaining i'd like your take on whether the simplification proposal we released today at least begins to respond to your

concerns. let's start with you miss goschie. >> absolutely it addresses my concerns. again, it's simplification. it takes out the inequities and it puts us on a fair playingfield . >> 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 to people about accelerated depreciation, straight-line depreciation, 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 welcome by business owners. the accountants don't mind making a couple extra bucks by doing the projections and doing analysis work. the business owners do want the simplification. >> thank you both and the

point of this really is, i don't that you had multiple generations on the farm in oregon, miss goschie and we are so glad you're here. the point of this particular part of the proposal, this is a metaphor for what the date is going to be all about. the guys are going to have a lot of advocates, multinational companies, the c corporations. i'm so glad both of you have focused your remarks on the small business people. that's going to be my top priority in the debate and i thank you for beinghere . >> senator harper your next. >> thanks mister chair and i want to thank you and senator wyden for pulling this together. wethank our members , witnesses rather for joining us from across the country. and in the past four years due to this committee has attempted not once but twice

to reform our eye outdated and inefficient tax systems. i don't think we should give up. i want to especially thank my colleague to my right, senator harden and senator through was not here. he is here. for their leadership on the business tax reform issue for the last few years.one thing this process is made clear is the enormity of the complexity and structural obstacles to perform and for going to lower business tax rates, most of us on both sides of the aisle are interested in doing that, then we need to find enough permanent revenue to offset the cost of permanent rate reduction. that leaves us with a choice between base broadening or identifying an alternative source of revenue such as value added tax . both courses are i believe worth pursuing. neither are easy. even my persistent optimism is tested when i tried to fathom the likelihood of a tax overhaul within the next year so the question is, what do we do until then? in the meantime, while the

siness community waits for congress to makethe necessary trade-offs to achieve tax reform, us companies are choosing to in some cases being forced to choose between inversions , offshore and profit shifting.these ongoing and growing threats to our international competitiveness are one of the main reasons i continue to support the efforts of some of our colleagues, particularly senator schumer and others to enact a rifle shot international tax reform while we wait for and look forward to broader reform to occur. i think it makes sense to continue the reform process by first tackling some of our present international tax challenges.i have questions, i want to direct them to to our witnesses. one is dr. toder.the other is dr. hines. does tax reform be accomplished in one fell smooth or given political obstacles to comprehensive reform, is it possible to envision a multistage process whereby we do one piece at a

time, sort of like we eat an elephant, one bite at a time and i would welcome your comments on that. both of you. >> i guess i have two responses to that. one is, there's a lot of complexity we had in the tax law which unfortunately is going to be there because the world is complicated but there's also what i call fortuitous complexity where you could make things a lot simpler within the framework of current policy. i think of senator wyden's proposal as one that accomplishes that and anyplace you can do that you should do that. that doesn't require a large agreement on broad conceptual one direction so i think there's a lot of pieces both in the business code and the individual tax code where that could be done and i've always been encouraging that for years that taxpayer advocate has written about things like that and so i think a lot of measures.

the other area is international reform where there seems to be at least a conceptual agreement on measures that would accompany eliminating repatriation tax that is having a one time tax on excise abroad and having some minimum tax goingforward on profit . i think that would make our current international system a little more efficient than it is, lower the cost of this disincentive patriot. however i don't think it's all fundamental problem of either competitiveness inversions or the shifting of income overseas. so while i would encourage doing that, i don'tthink , i think you need togo further . >> would you term gratuitous, what is that term? >> i use the term gratuitous to refer. >> there is two words. >> complexity. >> what would be the opposite of that? >> i would say there's complexity that we just have to happen world is complicated. if you want to have an income

tax and i use a car in my business, you don't want me to deduct a car from my personal use. you do want me to deduct it from my business use. it's a little complicated to do that. >> thank you. same question please. >> sure. we can do international reform and we should do international reform if the alternative is to do nothing. but i think everyone in this room agrees that it would be nice to do more >> in fact i'm quite sure that they don't agree on that.

but this committee, i'm sure, would do an excellent job of hammering out the details eye international reform. >> your confidence is appreciated. thank you. >> thank you, mr. chairman. our group produced a little document here which i recommend for nighttime reading. but actually, staff did a great job of breaking down the issues related to business part of the tax code. we had a number of overlapping issues that were dealt with on some level in other committees as well. one of the issues we got out or tried to at least was this attention tradeoff when it comes to been cost recovery versus a lower base. and what is the best way to achieve economic growth? there are different proposals, some that call for full expensing right away, can proposal actually last year, slowed appreciation in an effort

to reduce rates in a revenue-neutral manner. my question is, of the two roaches in your view, what's the best way to generate economic growth, and if congress could choose either a tax reform plan that cutes the corporate rate more aggressively but lengthens deappreciatation schedules or cuts corporate rates less aggressively and allows -- i have another question so if you can answer that quickly. give me your best answer on what i the best way to get growth. anybody. >> oh, capital cost recovery, if you have more generous capitol cost recovery pro-provisions you stimulate investment. so lowering the statutory rate also stimulates investment but on the capital investment side will do so much less than dollar for dollar than you get by capital cost recovery. the thing about the lower rate

is it has effects on other decisions. debt versus equity, foreign versus domestic income. things like that. and so you sort of have to add them together. i think the thrust of almost all of the economic analysis is that it's not a very cost effective bargain to finance lower statutory rates with reduced capital cost recovery because you get a lot less investment, and it's true you get benefit us on other margins margins of beis decisionmaking but the cost of that reduced investment is substantial. >> i agree as far as what jim said. but i would actually caution you against going the other direction, to full expensing as well. that creates opportunities unless you restrict interest adoptions, and then if you move toward what might be called a consumption tax model at the business level, the

contradiction between how you're treating businesses and how you're treating individuals. so i get there's no real simple answer to this. don't think moving in one direction or another will improve matters that much. >> all right. the other thing i wanted to ask about -- because i did negligence my opening remarks that addressing the challenge of forming taxation of pass-through business if wore going to be disciplined and it seems to me at least that we want to do what we took reduce top individual tax rate, but going to be a very difficult proposition in this environment. so we didn't have jurisdiction over individual tax rates in our working group, but we did examine potential alternative approaches. one was a business equivalency rate where pass-throughs and corporate incomes are subject to the same rate. second is the target pass benefit approach involving higher expense limits and cash accounting business, or a flow-through deduction where pass-through businesses receive

a deduction on business income to lower their effective tax rate. which of those approaches do you think would be the most equitable for a pass-through business in an evident that is also cutting the corporate tax base. >> all right. i first -- dr. hines, correct me. i'm never a fan of targeted benefits but that's probably the best way in the alternative to approach this situation, meaning that more generous expensing and other kinds of cash recovery benefits for small businesses. i think the difficulty with a rate differential is it's very hard to tell what the difference is between a small business -- the margin between a small business and on employee when you get to closely held companies and have a lot of gaming between the rates on compensation and the rates on business profits, and i think that would create some very

difficult problems. would not go in the direction of the special rate. think also without that -- there's an advantage to being a small business -- or being a pass-through business youch pay a higher rate because you're not paying two levels of taxes. not paying a second tax of contributions so the real issue has to be with small companies who try -- if the corporate rate were lowered relative to the park-through rate. might have to have rules to define what entities could be pass-through and what would be corporations. >> dr. hines. >> if agree with dr.ed toder. the employees become self-employed and take advantage of the lower rate if it's sellable.

we should really apply the principle where you want the more favorable tax treatment is where activities generate economic spillover benefits or where activities are highly responsive to tax racing and is the both point in the direction of more favorable treatment of investments by small businesses. >> thank you, mr. chairman. >> thank you, mr. chairman. want to thank the panel. i found this extremely helpful mr. chairman, you mentioned mark bloomfield and the american council or capitol formation. it's worked bringing together many of us from both sides of the aisle to look at better ways to do our tax policy and i remember its predecessor very well as a person who provided a good deal of information to us. let me -- senator carp'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'll pass major tax reform proposals and we want to make progress where we can make progress, and there's been a lot of information, senator thune and i exploded work that could lead to some significant improvements in our tax code. i mentioned earlier the s corp. would help. we should get it done. the fundamental point this all raise which is high tax rate from business is not competitive. the lack of simplification so you need to have either an accountant in or the to get information or just figure it out, and i would also add the predictability of our tax code affects investor decisions, all with the goals of the 1986 tax reform, and i remember our predecessor was saying we accomplished it, and obviously did not accomplish it. it led to the tax code we have today.

so i want to get the proposal that i brought forward, that was discussed in our working group, that if we were able to supplement part of our income tax revenue with a national consumption tax that was at least as progressive as our current tack code so low income families are not more burdened. that gives rates that are five percentage points below the other countries as i explained earlier. what impact would that have on the type of questions from raising american competitiveness globally, on the international side, on dealing with the challenges of small businesses and giving predictability to investment in america. >> dr. hines. >> it would do all of that. a move like that would reduce the inefficiency thursday the current system, stimulate investment and growth and make

the system more competitive. >> dr. toder. >> i agree with dr. hines, but on all of his points. i would add, though, that you are comparing a system that is designed perfectly with not on exemptions in the value added tax, and when you get to the process here you might have some exemptions in the value added tax and might not look as good that's a caution. >> i'm not interested in getting rid of the senate's finance committee. i understand the challenges every year we have to deal with. let me just correct one statement. we use a credit method of value added, which is, as you know, a difference, and we feel pretty strongly that using a credit method is a better bay and a fairer way to have -- >> when i use the term, mean the credit. we're in agreement. >> i just want to make sure that point. anyone else want to comment? let me then raid the issue

directly dealing with small businesses. small businesses generally use the personal income tax rate. a lot of pass-throughs, a lot of them use the schedule of income tax for income. so, therefore, if we were to deal just with the corporate rate and not deal with the individual rate, what impact would that have, if any, on small business? >> you have to remember that a lot of small businesses are paying a higher rate because of the pass are- -- pass-threw and it is important to look at a broad spectrum and keep up a businesses competitive. when you've got an individual and an s corp's making a reasonable salary, whatever that may be, and is looking to reduce and stay out of the amt -- i come from the new york area and if you look at the new york area, an individual who is running a business, if he owns a house and two kids ready for

college, automatically he is paying amt. so, you're looking at what -- a way to provide equity to small businesses as well as the big business. the big businesses are hit with the double taxation, and that's absolutely true, and yet the small business owners very often wind up paying as high a rate as some of the top corporate rates. >> thank you, mr. chairman. >> mr. chairman, thank you. i'm juggling several things this morning so i wasn't able to hear some of the testimony by prior witnesses. one area i'd like to talk to goss to what has already been talked about so i don't want to duplicate that effort. as chairman of the joint economic committee, last week we held a hearing and were talking

about complexity of the tax code and its impact in particular on small businesses. we didn't want to cut down several capital trees which would have been necessary to provide an example of the number of pieces of paper and the number of pages of the current tax code so we had empty boxes stacked up and n the hearing room and it was a pyramid of some dimension. we had testimony from small business owner from indiana that i invited to come. the cyber security business. fairly qualifies as a small business. gave compelling testimony relative to what he has to go through in order to file his taxes. as you know, we have all heard this. the said the large corporations can have stables of tax accountants sitting at the back room to deal with the complexity. but i have to deal with a lot of

the same complexity and i can't afford to have a backroom of accountants working for me, and so there was an issue that i needed to make -- i wanted to make an additional investment in a certain business, and so i took it to a tax accountant who charged me a lot of money to give me advice saying that is what you can and can't do i thought i ought to double down and get somebody else. didn't want to make a mistake. i sensed it was -- the advise he had given me was -- the second accountant gave me exactly opposite advice. so, i got to break the tie here. so i go to a third, and he gave me a third indication of what it would mean for me from a tax standpoint. so, three highly qualified, all

totally qualified, highly paid, highly respected, tax lawyers, basic advisers, basically gave me three different pieces of advice. so i'm small business guy sitting here. die want to buy this d do i want to buy this -- i enter this new business would increase my employment or what? what do i do? i didn't have an answer. and we don't have an answer for him. and so whether it's a complexity, the need for simplicity, the differentiation between what the small guy and me big guy can do it's extraordinarily frustrating to the people i talk. to i know, miss goshi, i wasn't here. my staff says you responded to this. guess i'm their make more of a statement than i am to hear your answers because i don't want to duplicate what had already been said, but if it's been a long, long time of talking and not getting said. so, i am 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 the fate of my colleagues -- there really is an urgency in terms of maintaining the ability of small businesses to address something so complicated. i had three 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 here. know the chairman wants to do that. one question i have in the few second is have left is just your take -- i'm sorry if you have already talk about this -- separation of business tax reform from comprehensive tax reform. is this something that is desirable, something that is just absolutely necessary because we can't get there any other way? businesses are hurting. we're not competitive.

but there's a lot of concern among the small business people i talked to about we're going to be left out in the cold. any quick responses to that? >> very quick. i think i said that in my remarks also, that i don't think looking at corporate reform only is viable. think you need to go through to business, and you also need to go through to the owners of corporations as individuals. so, i don't think -- i think you really need to go broader than just business only. >> anybody disagree with that? >> i think there are valuable things we can do with business only tax reform but they're very limited and i agree with dr. toder. there's a limit to how much good you can do with business only reform. but there are ways to improve things that way, just 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 gets things more complicated. one of the things that -- matter of fact on the plane down here i was talking to somebody next to me. he started an s-corporation and says the whole thing with the two percent owner's health insurance and a lot of people don't understand it, accountants don't understand it, but basically what happens is if you're a two percent shareholder in an s corp corporation and you have health insurance paid for with the corporation you added back to your income and then put it in your tax return and then take it out. that's a band-aid. >> thank you, mr. chairman. >> senator heller. >> mr. chairman thank you, and thank you for holding this hearing and thank our witnesses for being here. we appreciate your insight and your help on these issues. want to thank senator thune and carper for their hard work in the working group for small businesses and also portman and

schumer, international task reform side. a lot of research has come on lately in this committee, whether or not some law or legislation, i'm not certain at this point but i think a lot of us know what the problem is. the problem is that we have more small businesses in america going out of business that new startups, and it's a historical data since world war ii we haven't seen that. so what's wrong? what's wrong? why are businesses -- more businesses going out of business as opposed to new startups in the second problem is inversions. over 1300 inversions in the last ten years. we're talking big companies, here in america, that have multiple accountants, so you have multiple accountants and still can make it work. what would you do when you're inverting, companies like louisville slugger, burger king, and problem is getting worse. we're going to see this continue to advance if we don't do something about the tax structure we have near this country. i want to share a quick story

bat company in nevada. a good company, not a multinational company, although they die international work. called the hamilton company. they do robotics and do medical devices, and the owner -- talking with the owner work sat down and he says, it costs me $10 million for my business to stay here in america. and he says i'm willing to pay it. but it costs me an additional $10 million to do business right here in the united states. he is a patriot, a good citizen, and so he is willing to pay it. says i will tell you what will what happen -- what will happen when i get to old to run the company, they'll move the company to -- outside the country because of more favorable regulations, tax rates and fees. so i guess my question is, how do you keep -- i know we're repeating this question over and over but i think it's the issue of this particular hearing.

starting with you, dr. hines, how do you keep the hamilton company in america? >> two things. one, we have to adopt territorial tax system like every other large country has, and, two, we have to lighten business tax burdens. if you do those two things, then you'll keep a lot more companies in america. >> i thought that would be your answer. dr., toder. >> i would add i don't think the territorial system is necessarily sufficient to accomplish that because foreign-owned companies operating here in the united states have a tremendous advantage with the ability to strip profits out of their u.s. subsidiaries. so i think you need to look at the issue more broadly of all the ways in which foreign-owned companies might be advantaged relative to u.s. companies, and some of that might have to do with limits on interest deductions.

the treasury has taken a step in that direction. think it's a rather blunt instrument what they have done, but i think a legislative solution to that problem -- legislative action in that area is strongly called for. >> dr., you talked about the corporate tax rate and the fact that individuals and pass-throughs pay a higher rate. if you were to lower the corporate tax rate would you see movement back to c corps from the past-throughs if the rate were to be competitive at 20%? >> and thank you for calling me doctor. i'm not there yet. >> i'm sorry. >> that's okay. we do have a distinguished panel. yes, 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 a building. we want to rent property. and often the attorneys will recommend the corporation because that's what they know.

llcs are around for quite a while but they're still somewhat new. there's more tax law and case study on corporations. so they go to the corporations and then they go to the accountant and say should i be -- my attorney told me to see you. should i be a c corporation or an s corporation? well, on a small business level, sometimes it's irrelevant because depending on the amount of income, depending on the shareholder, this owner, what kind of salaries they want to take, you can strip a lot of the profit out of the corporation just by paying salary, which isn't necessary lay bad thing because when somebody gets a salary, they pay into social security get pension benefits and et cetera. so if you lower the c corporation profit -- tax percentage, you might get some

turning toward that, and rather than using the s corporation as a device. >> thank you. >> we only have two more witnesses -- senators. to keep within the time so they can vote. senator portman. >> thank you mr. chairman. i've enjoyed the testimony and thank you for being here and thanks to my colleagues for put out a great report and thanks to senator schumer. we do have a lot of the information and i think we're poised to act. we just need a little political will to do. so mr. chairman gave a great speech on the floor last week and said there was a glimmer of hoch with the fine examination recommendations of the finance committees bipartisan international tax reform working group, however, it will be overtaken by the politics of the moment. if we get beyond the politics

because everything you said here today and with all due respect to my colleagues who say this is about small businesses versus big businesses, this is about people. this is about workers. and i will tell you in n my home state of ohio we are losing workers and losing investment because of the fact our tax code is not competitive. it's not about the boardroom. the boardroom will be fine. when you do the inversions, i couldn't agree more with mr. hell are, with mr. carper on this when he talked about the need to address this. if we don't address it you're going to continue to see more pressure on wages, salary. that's what the joint committee on taxations have said and what the cbo has said. the impact is on workers, and specifically when you have these inversions -- that's the tip of the iceberg. it's the foreign takeovers, the foreign acquisition office u.s. companies, they take workers with them, and as we site here today it's hoping in my home

state of ohio. the eaton corporation, great for in ohio, great storied hoyt, had to say uncle because the tax code was hurting them so much so they went to ireland and invert waived smaller company, going save hundreds of millions on the tax bill and now you see what is happening. workers are leaving ohio and going overseas to get away from the net of the u.s. tax code. this is outrageous. and we cannot let politics stop us from dealing with it. i'm a small business owner, i totally agree with his thoughts we need to help small businesses and all of you have said we need to simply identify -- simplify. but me at the head of the line. couldn't agree more. i'd like to have total reform of our tax code, of course. we know we need that. but we do not have the consensus on that at this point. the issue no one raid here 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 is in the president's budget. it's even higher than that this year and that's the reality. so we're not going to get to that. we cannot find common ground there where we can find common ground is to deal with simplification, particularly on the business sites, and she gave some great comments on that, and all loved your commentses on the computer. we have now 115 -- thank you for supporting the legislation. that's important to get past. but the second one is the international piece. we're going to continue to have more and more of our workers lose their job or not have their pay go up as good because of the fact that our tax code is not come petty. every single day these companies are competing with one hand tied behind their back. i want to thank you for being here and making this so clear to all of us. i love when you said we need dish think dr. hines -- a smarter way to tax business income. dr.ed toker you talked about the

$2 trillion overseas. another huge issue. not only are we looking walkers and it's happening right now in my home state, but we are not taking advantage of the $2 trillion plus locked up overassets that the europeans and other ares going after through the state aid cases. this is rev enough that ought to come back here, be invested in jobs and infrastructure. so i guess, mr. hines, just ask you a question if i couldment you talked about a adopting what is called a territorial tax system rather than worldwide tax system, what are the consequences for u.s. businesses and for u.s. workers if we do not move in this regard? >> the consequences will continue to lose out to -- in competition with foreign businesses, depressed investment in the united states, less demand for american labor. the more vibrant and competitive the american business sector is, the greater the opportunities for american workers. workers are paid based on the productivity, in a competitive

economy like the united states, and the more productive we can make businesses, the more productive is capital and labor. so, it's -- don't have a competitive system, and so it reduces the productivity of labor and reduces the job opportunities. >> so with we do nothing we'll continue with the loss of workers, and dr. toder i'd love to hear you comments if we do nothing. >> well, if we do nothing -- the territorial system by itself without safeguards to prevent shifting of process -- >> we have that in our report, and you need to do that as well, and i think that is necessary not just for u.s. company but for foreign companies investing here. thank you, mr. chairman. >> thank you. senator. >> thank you, mr. chairman. thank you for being here this morning and having an important conversation about issues that seems to be a burden to the taxpayers, the corporate perspective and also to every single american because at the

end of the day the biggest taxpayer is the individual who bears the burden of all the tax reform, all the taxes that we're talking about, all that conversation ended up on the shoulders of the individuals. back to south dakota where i'm from, we have wide range of life sciences companies that reflect the growing diversity of the life sciences industry across the united states. life signses sector employs almost 14,000 south carolinians and 8,000 are in the biopharmaceutical and medical device sectors if over time the life sciences industry has grown rapidly to include companies that are contracted to specifically oversee and carry out the development, commercialization phase of the company's development. these companies face the same pressures to compete in the global marketplace any other u.s. moment tie national company

is facing today, including the pressure to locate facilities and plants in the u.s. or abroad, thenning the livelihood of thousands of u.s. workers. one of the most effective tax systems used by several european nations is the tax box. my question to you, dr. hines, is given the growing diversity of companies in the life sciences industry and the increasing specialized roles of the company in bring itp to market and the hundreds of thousands or jobs in the commercializeddation development and marring of the productings how do you suggest we equitably allocate -- in a patent model and specifically related to our competitors around the world who are moving in this direction. this appears to be a complication to the tack code but without the companies we'll have fewer dollars coming cominn from this specific area.