transferring risk from the parent to your subside and you cannot do it. why we allow this fiction that they are separate taxpayers and this is what a venture capitalist would charge. i respect to foreign entity but i might need tough guidelines about what arm's length mean when i am dealing with a controlled or whole subsidiary. >> there is a whole bunch of steps along the way including presumption of rules. again, i was one of the people who thought the brazilians were nuts and i agree but they are

not as nuts as i thought. they have basic formulas and very ridged in their application of formula and they don't bend in treaty negotiations which i don't like. but it does seem you could go a long way with presumptive rules. that is the way the developing world is going. this brings me back to tax administration which is the elephant in the room. it doesn't matter what the rules are if you don't have anybody to enforce them. seriously. and that is where we are heading. >> on that note, i think i will throw it to the floor. >> on the question of the

business tax issues, and on the impact of foreign rules on the u.s.' system and reform. following up on something bob and john said and that is context matters and let's start outside the system. you talked about making up revenue on the individual side maybe. with the debate about wealth and equality we are hearing it is not what we are talking about exactly but when we think about what other countries do on the other side or the carbon tax side and how much of that should we be -- i was in europe and shocked to hear switzerland has a progressive fine if you get into auto accident. you may more the wealthier you are. wealth taxes you see around the

world. so what are the roles with this being part of the debate. >> we keep talk about corporations like they pay tax. we don't pay tax. i learned that from you a long time ago. not only do we not pay it but if we do it is born by people. we want to tax what is not mobile. people are not mobile. our top rates are getting to be as high as they can get and the

rest of the worlds are not any higher. it is where they take it in. the middle class in this country is getting a free ride. the top rates in foreign countries kick in around $120-$150,000. that is where the money is. it isn't capital gains really. if you raise the rate on capital gains we have to tax them at best. otherwise the walk-in will be terrible and over the bases and go on for a while. the answer is yes, if we cannot what is not mobile. i am not against taxing consumption. i am not sure it is pro-growth.

>> still, i thought the point you were making is we compare ourselves with other countries on one aspect of the spectrum and not the full spectrum. so if you say the middle class in other countries pay higher income taxes but they are getting a significant amount of services and other benefits. so if we were to compare the full spectrum of the financial impact on the individuals in other countries it is -- >> their government has a much bigger piece of the economy than we do in this country. we are catching up. >> i don't think we know ever

how the tax system in another country applies in full. in the actual application, we tend to impute our own understanding and practices and culture and it isn't found in other countries. i just saw, for example, or just read a paper done by, i think it was some economist in asia, on moving to territoriality and it came to the conclusion that didn't make much difference in japan on corporate behavior. that is fine. it is fine for japan. but to take that conclusion, and apply it outside of japan is crazy. i mean japan -- i dealt with japan enough to know it is the most tax compliant country in the world. you cannot take a study from japan and say the conclusions

you reached are applicable to us. >> and japan's territorial system looks very different than ours. >> i think that would be true in every county. i would be suspicious of any comparison of a part of a tax system. i lived through all of that about how the japanese were more generous when they had a credit system. sure, they were more generous but their credit system only went down one tier. taxpayers cherry picked. >> i find myself agreeing with david. it is really important we understand what other countries are doing and why.

as part of the global economy, all of the choices affect the u.s. and it dozen -- doesn't mean we are any less informed. >> seth green, i wanted to address the point john made a while back talking about it is not a race to the bottom looking at other countries. the question is, i would argue at head quarters taxation, and the remnants of a residence based system is a way of collecting rent from the rest of the world. you have your company head quartered in some place and take advantage of treaties and collect a sliver whether it is a small amount of residual

taxation or the tax on the salaries who moved because of the head quarters company. if you view it through that lens, isn't it not true that the u.s. is like every place else because we are bigger, so we can benefit from rent from other places less than they can benefit from renting us? >> there were so many double negatives there. i don't think this is about head quarters or inversion. i think they are a symptom of the problem but they are in the hands of someone who produced the highest after tax rate of return. if somehow we could just stop all acquisitions of u.s. companies, cross border merges, stop them that would not stop the capital from flowing out of

this country. it is assets, startups and what i call creeping acquisitions and slow loss of market shares.

we attracted real assets and would have a higher tax base today with more head quarters and more investment. in the global economy, you cannot keep mobile capital in a place taxed at a high level when other countries are not taxing. maybe when it was bermuda or the bahamas. but not when it is the uk and developed countries. you cannot do it. >> source meaning where the income is from? we did our own and the scientist were talking to each other on

the internet and the raw materials are sourceed -- sourced in one place. >> john, if you were looking at that question instead of sitting in washington, d.c., and you were in new deli and doing it for the tax administration, you would evaluate and say we want all of them. that is where the product is sold and consumed. >> not necessarily. you think the software that is developed in india is not taxed? they are finding a way to tax it it. i am not saying and i would conclude on any of these and agree with the proposition destination is part of the

source inquiry. i am saying that conversation is one we have not had in this country in 50 years. >> what we have left in this country is a huge market. china is throwing its weight around and india. why don't we use our youth market? >> any more questions? >> david, do you think increasing disclosure like announced and all g-20 countries have adopted, will that enhance enforcement and allow countries to better deploy resources? will it negate other rules?

>> our companies will suffer from that. i am not so much concerned about the enforcement abroad but i am concerned about the revenue in the united states. i think, just to put -- this isn't what you asked, but let me make this one point. in the revenue service, there are 85,000 employees and that is 15,000 less than we had years ago. of those employees, 250 are under the age of 25. they are not getting new people.

they are not hiring. it is not the most attractive place to work. people don't want to work in a place where people are yelling you about the terrible job you are doing. in addition, they don't have the money to hire people. this is not good. >> i would agree with david. but i would say the tax system is not only really enforced by the accounting firms, the law firms, and are withholding that system, but i think we really need more and better resources to the irs. >> we will need resources to help navigate all of those disputes that will arise in the authority case and so forth. >> of all people that need tax

cuts i am not sure the multi nationals should be first on the list. >> you are thrown under the trap they pay taxes. don't make them people. they are not. >> the other thing is that we live in a world where you set-up a shop in a tax haven or low-tax jurisdiction and pretend that is where your residence is and you do sales around the world and so you are selling stuff and doing other stuff and make a sliver of profit but the real profit is going to the tax haven. it is not surprising every country wants more than their little sliver. and you say the source is where the research takes place and maybe but ultimately i think you need to go to where the sales are.

it is not surprising these countries are saying they are being cheated out of taxes because they are not getting any. >> sure. you can pick of the dpt -- think -- as sort of that. the answer is yes, i agree with them. i am not saying this is the only solution. i am calling david to lead. >> i am not -- if for example, if research is done in the united states but sales are made around the world, i am not saying necessarily i would give up on the u.s. claims to that revenue on a source bases. i would be prepared to have a multi layered interpretation of source. >> that is not source. that is a different definition. it is not residence for sure. a source country in my experience typically looks to

whether it has to bare a deduction. if it bares the deduction they will tax the income and i don't think that is crazy. >> we are wrestling with a problem of income tax in a mobile capital world. when we sell something into the u.s. we collect the tax. but we are trying to do something that is impossible which is catch a light beam. his moderate income tax isn't

that at all. we are in the death rows of moderate income tax. >> if you want to tax income capital you have to tax it so it is not mobile by the owners. >> i am not taking a position on it. >> any other questions?

it seemed to me you came around. >> i am saying administratively. i was suggesting every economist will say that is because it doesn't tax savings and it will create a lot more economic growth and i am just saying i am not sure i agree with that fully. >> i understand when you can tax something and early income taxes paid on have a nice bang for the buck. but i don't know if the government takes money out of the economy in one form it make as lot of difference to me. that is my only point.

>> yes? one more question. >> we have a lot of international tax counselors in the room and they often look at the double taxation treaties not from the developed countries perspective but from developing countries. we came to the conclusion most of the double taxation treaties should be terminated as mongolia did and maybe where it can start is simple rule. if deducted it has to be someone's income. your reaction? >> i think it would be

unfortunate to do that. they serve significant administrative purposes and provide certainty and i think that certainty is to the benefit of developing countries and developed countries alike. >> it might be useful in practi practi practice. i can see why developing countries have an aversion to

this. there is a net revenue loss. it is a pretty chaotic situation. >> i think that is a last good word. let's end it here and thank the panel for a stimulating discussion.

[inaudible discussions] ...

[inaudible conversations] law professor john yoo talks about his book subsix. a former chair of the u.s. commission on civil rights talks about the history of -- and her book.