no taxation of dividends, no taxation of capital gains, zero. the flat tax is pretty close to that. that's a property of the flat tax. it's also a property of something else called the x tax recent a more progressive version of the flat tax. >> that doesn't sound to me like the buffett tax at all. except that in real life, i don't think warren buffett does pay any capital gains tax. fae, okay, we'll get back to that. steve forbes. >> well, that sounds like a flat tax single rate, generous exemptions for adults and for children. everything else is out of the code. on the business side, you have a loet 17% rate. instant depreciation. ie instant write-off. no tax on investments. whether it's interest, dividends, capital gains. and nom death taxes. you should be allowed to leave the world unmolested by the irs or as our founders would say, no

taxation without respiration. sneex sounds like your plan for 1996 and 2000 and even before that, right? >> hey, keep at it, you know the? >> john taylor? >> to be a little different, i'm very concerned with this unpredictability of the tax code. the first thing we could do is put it in place more permanently so we don't have 100 provisions of the code expiring each year. when do you this broadening of the base and lowering of the rates, which we need to do, i would emphasize don't broaden the base too much. don't trite to have a stealth tax increase in this tax reform. it should be revenue neutral and economic growth will generate more revenue so be careful with this tax reform. it's not a stealth tax increase. >> when you say don't broaden the base too much, are you saying that you should leave the kinds of exemptions, preferences

that -- and deductions that currently exist like the mortgage deduction? >> there's going to be a battle about broadening the base and lowering the rates. some people would like to just broaden the base without even changing rates. that's not tax reform. tax reform is where you lower the rates enough to stimulate economic activity but you don't broaden the base so much that you're trying to have a stealth tax increase. i will put it that way. when you do that, that's not good for growth. what you want to do, in fact, the ideal thing here is the tax reform which lowers these marginal rates, increases economic growth and that's what's brings the additional revenue, not a tax increase. >> alan? >> i would think that will something that looks sustainable which partially means we'd better move quickly, something that looks sustainable is more important in a lot of ways than exactly what's in there because if people don't know what the changes are going to be, that actually retards growth.

the one thing i guess i will say that i think i have changed my mind on and so i'm going to puttous verses where i've been my whole career is that i've always been in favor of lower taxes on capital gains and dividends. i believe that you know, as capital has gone global, politics stay local so we have to compete globally but have got to be able to sell this and i believe we're going to have to bring rates down in a way where we harmonize the rate for earnings and capital gains and dividends, i think there's a lot about dem graphics that says we should do that anyway. so i've changed my view on that, and that's different from the orthodoxy i've had. and the last thing i would like to see is i would like to see warren buffett take a new pledge on top of the one he had as his way to avoid estate taxes and i would like to see a new pledge that he will pay 100% of his income in taxes and then it will

be more than his secretary and we don't have to hear about her anymore. >> just to clarify, so you're saying that ordinary income rates and capital gains rates would be the same? >> yes. >> and dividends capital, gains, ordinary rates should be the same. i believe we need to bring down the marginal rates on corporations and need a territorial system, bring down the marginal top rate and the combined rate of dividends and capital gains will be close to where we are today anyway by even though we're taxing it twice. >> close to where we are now, not to where we're about to go like 15. kevin? >> obviously i agree with just about everything that's been said. therefore i'm going to rather than to say let's have a value added tax i'll raise another issue. you come to new york and get surrendered by left wingers like i am up here on the stage. but everyone here is kind of rejecting the design of the

founders. i think the reason why the u.s. code is so terrible and indefensible is that we abandoned the view of the founders. the u.s. is such a big economy that we've not been engaged in competition, in tax competition while everybody else has. so i'd like to go back to the original idea of what the federal tax needs to be if it's going to be constitutional and that is that the federal government figures out how much money it needs and mails a bill to the states and lets the states raise the revenue. then the states compete amongst themselves with the tax code. if you want to be a new yorker who redribs like crazy, then you can raise your federal tax that way. some other way in some other state, you can raise it the way you like. i think imposing this sort of central planning. >> depends on how much we want to send? >> he said how much we want to spend? >> no, the federal government mails a bill to the states according to the original design that has to be the same per capita for each state and the states can compete. if we do that, it would be much better than any design anyone on

this stage could come up with here because the competition wos produce the optimal code. >> what do you think of that, governor? >> sounds like -- >> you think it should be on a per capita basis -- >> i'd like for us to say how much we want to send. >> that's a good question. what would happen, kevin, if kansas decided not to the send anything? accepted the troops? >> -- sends the troops? ? >> there is historical precedent for that. whiskey rebellion. >> that's right. john stossel? >> i like kevin's idea. i hadn't heard that before but i would just say simplify the damn thing and whether it's flat tax or a consumption tax, get rid of all deductions and that will create growth. >> you know, lots of great ideas. we're going to explore. al and sworts raised this notion of something that is sustainable. and you know, we've heard this

time and time again today that there's a lack of certainty. how do you get certainty into a tax code you the know, without a constitutional amendment or maybe it does require a constitutional amendment? steve? >> you get it through a consensus. i think paul ryan made a point earlier today in one of his interviews that if you're going to make a substantial change whether it's entitlements or the tax code, you first have to take it before the voters the way ronald reagan did in 19 0 with a 30% across the board tax cut. you get the mandate for it. therefore, it has legitimacy. that's the only way you can do it. but if you want permanency, franklin was right. taxes and death are the -- other than that, you've got to be eternally vigilant when you get something good in to preserve it. there is no automatic mechanism to do it. constitutions can be changed as we saw with prohibition. >> anyone else have an idea?

>> i think the word certainty is overused. i don't think there is any such thing in anything. but except death and taxes i guess. but i think what you really want is something that people can look at and say at least it looks like a sustainable path. therefore, i can make decisions on my zaesment that that will path will stay in place. i think what you have is spending that, you know, a spending path and a revenue pathing that absolutely are impossible to sustain, and therefore, if you're a businessperson now, it's not that you want certainty. you have absolutely no idea what the rules might be as to what consensus will develop, how to deal with that cliff when we fall off. >> one of the things that undermine the code is it's perceived as corrupt, it's filled with special interests. therefore people can't understand it. they have no faith in it and therefore, you don't get the kind of self-policing that you'd have if they feel it was legitimate.

they can understand it, therefore, they'll go along with it. >> john taylor, you -- you're right on so many things i have to say. but you have been really pushing this whole certainty angle. it's in your book. what do you think about certainty or sustainability? >> i think the unpredictability of the tax code, that's my point. more sustainable tax reforms will alleviate some of that, it doesn't eliminate it. one thing you can do is get what think should be a consensus all right is like a temporarily cut in the payroll tax for two months? who could possibly think that's good for the economy? it goes exactly against the idea of sustainability. 1986 tax reform did last quite awhile. that was the kind of thing that was more permanent. so the you need to have consensus as best you can. it's not going to be uniform but the idea that some of these things just don't work, these temporary things in particular seem to be destructive and people can see that. >> it's so great to have all these smart people on the panel. i'd like to drill down on some

of the things brought up. the first one is larry lipped say's vat. which is kind of simplified way to you talk about value added tax, consumption tax. one of the arguments against it, larry is that when you look at what happened in europe, is they got a v.a.t. tax. yeah, that was fine and then they brought a personal income tax in on top of that. >> but they had the personal income tax and they have the vat. what i would do is get rid of the personal tax, the corporate tax, and social security tax. all of which are income-based taxes. and switch to a single business -- it's basically a gross receipts tax minus what you paid other businesses. and i think there's a three advantages to it. the first is with regard to sustainability. you know, bun thing we learned during the recent crisis is cash is a fact, income is an opinion. and when it comes to

income-based taxation, that is exactly the opinion that changes all the time. when you no longer have to define income, so is it a section 3 c sub 2 income? or is it a this kind of income? that's what they play with all the time. we have -- i just finished my taxes. we have to move away from this multidefinition of income. and i think the only way to do it is again to move to a cash tax. second for simplicity reasons. right now, we will raise about a trillion in individual income tax, about $400 billion in the corporate tax. . the compliance costs, not the economic distortions, the compliance costs on that are about $300 billion. so we're paying 22 cents in compliance for every dollar we collect in revenue. if you're looking for low hanging fruit, you want to minimize the number of tax pacers out there, you want a simple definition of income and again, i think you get rid of

these three separate kinds of taxes all of which define income differently and you move to a single tax basis. the third big piece of low hanging fruit has to do with border adjustability. which you can't do with any income-based tax. and here, i forgot who said the word territority. i'm going to be wonky but simple. candidates out there are all talking about a territorial tax. what will territorial means is within your territory. if you do it here, you tax it. well, what a dumb thing to do. i mean, we have a very high tax. why would you only want to tax things done in america? especially if you want things to be done in america? what you really want is border adjustability. you want it not to matter whether it is done in china or done in america.

and what you do with border adjustability is as soon as it hits the border, you impose the tax on the value as it comes in the border. that way, you don't discourage production in america. so three big advantages. first you define, get rid of the opinion about income. secondly, you cut compliance costs dramatically by reducing the number of taxpayers and third, you stop this discrimination we have about producing in america and your question was how do you get 4% growth. i think that's where the hanging fruit is. >> anyone have a reaction to that or the vat in the general? >> i have a thought on it. i certainly agree with his point. i think most economists like the vat because conceptualliulely it's the easiest to implement and it has the nice feature that in order to raise my taxes you have to raise your own because it's very difficult to do to raise it for one individual without raising it for another. problem is the practical

implementation of it. i think this is where we'd have to worry about it because when you implement it practically, what you tend to do with v.a.t.s and with retail sales taxes is tend to exempt certain things from it. that's the big problem. and if you look at the size of the base, these things tend to shrink so the question would be whether you could apply it universally across the board. if you couldn't exempt certain things, then you're almost asking for progressivity in the form of some kind of income tax. we'd like to assume that away. problem is, i don't think as a reality as a practical matter you can't assume it away. i've never seen a country that's done that. we would be unique if we were able to do it. i want kevin to respond. >> the first thing i wanted to add is that herman cain's 999 plan was essentially a v.a.t. it was so close to a vat, you could say it's kind of a debate. during the debate over the 999 plan, the distributional industrial complex came out

attacking the 999 plan and made a sort of glaring error that is an a point that's not well understood that i thought i raise right now. one argument against larry's vat that the people might make it, is oh, it's so unfair because a sales tax is going to be paid by poor people and they consume all their income and so on. when you make that observation, you forget the fact that right now, if warren buffett takes a dollar out of the bank and buys an airplane, i guess a lot of dollars, then he won't pay tax. but if you have a value added tax then he would. so you know, all economists would tell you if you introduce a value added tax today, it's in part a tax on old capital. and so it's a tax on wealth. so because your wealth is only useful to you if you can go buy something. so the wealthy folks who go buy things will suddenly pay a tax they weren't going to pay before. soapy think that the point i just wanted to make was that there's an economic efficiency

argument that larry raises, and the distributional arguments against the v.a.t. ignore the tax on wealth which is a really, really big component of it. so the i think if you look at a v.a.t., even if you're a fairness guy, then you should be willing to embrace a v.a.t. if it's designed correctly. >> larry, then al. yeah, i think exempting anything is a bad idea. and you know, and that includes, by the way, defining things as interest or dividends or whatever. i know it's tempting to want to avoid it, but if i get to define what interest is and by the way, if you just did your tax return, you know you go through that or i get to define what a dividend is, you don't do it. that's why you want to tax the cash. one other way of doing the progressivity piece would be i call it a two-stage vfrl a.t. where you have a basic v.a.t., then you subtract say $10,000 a month in income from all your

workers and then put a second stage v.a.t. on top of that so you have a two-stage v.a.t. i don't like it as well but if you have to compromise, that might be a way of going. >> i'm going to alan and then we'll talk to solutions that may be a little bit more practical than a v.a.t. >> i want to raise one thing i've thought about a lot and whether it's a consumption tax or a v.a.t. is that i think we have to address what was very different from let's go back to the reagan time when the baby boomers were entering the workforce and the things you were doing and we had much less total debt. so the looking at taxing income had one effect. baby boomers are leaving the workforce in record numbers every day. which means that you know, the main way we collect taxes now is through you know, social taxes or payroll taxes and income taxes and more and more people are going to be living off of their capital.

and those same people are going to be driving up the expenditure side of the equation. and so you know, while there is a sense of not taxing wealth again, if you don't find a way to have the my generation paying their fair share of taxes while they're absorbing so much spending, you're setting up a real battle. so almost everyone on this panel agrees to some sort of consumption tax? steve, is that -- i said that about you. you're talking about a flat income tax. >> flat income tax which is a variation of a consumption tax but i think much more palatable. the idea that you can have a single sales tax like the so-called fair tax once they got into the political realities, the thing fell part because they had to make exemptions, prebaits, another word for rebar rebates in advance and as soon as you go out on the campaign trail and say i'm proposing a 30i679% sales tax, you can talk

all you want about the embedded taxes and all that kind of thing. it is a killer. just ask some of the candidates in 2010, colorado and elsewhere who got tagged with that fair tax. they went down to defeat. it is toxic. and in the real world, if you have a consumption tax, i guarantee as you see in most states notice this country and most countries around the world, you end up with both and you get crushed by both. >> so one way to turn income tax into a consumption tax is by allowing deductions for anything that you invest? >> full expensing of investment? >> yeah the flat tax is the easiest way to get simplicity without putting on a brand-new tax, ie a v.a.t. or a sales tax. >> jim, can i jump in? i worked on this in congress for gosh, i bet we did it a decade going at it different times in different ways just from a political reality of how you can go at it. and steve's right.

when we first went out there, we said okay, we're going to abolish the income tax and go to a flat tax just a whole system. well, then everybody that had something stuck in the income tax code came out of the woodwork and said, okay, except for this deduction for their group, for general motors for the farmers for oil and gas. i mean, you've just got eaten alive by everybody that had the code for their little area just the way they wanted it. so we got it killed. so the next route we went which actually has some political sayability is you just create the optional atmosphere. say okay, leave the current code the way it is. if you want to use it, god bless you. it's yours. but anybody else, here's a flat tax. and you pick. which one you want to go to and using this and that's one you can actually sell in the political marketplace. and people will migrate. in my estimation and i'm almost certain this would happen and your compliance costs, they

don't go down to near what you would under what you're proposing, larry, but they go down substantially. >> hong kong has a variation of that. you can do a single rate or you can do their progressive system. that will for 60 years. >> what do you think of that, john? >> you choose your tax code. >> certainly moral sellable. >> maybe even more than two choices. >> i'm not qualified to add to the esteemed panel on that. >> sounds like a politician, my god. >> but what i would like to actually like to focus on, i'm glad the governor brought that up, is what is realistic. we've got a lot of -- we have thoroughlyists here on the panel but a lot of people, ma the majority of this panel has served in government, probably has a pretty good sense of the politics. we've got the bush tax cuts expiring at the end of the year. if nothing is done. pretty serious situation.

what can we actually get done in either a lame duck congress or right after the election? anyone have any ideas? >> so you have some proposal. paul ryan talked about a proposal at 2510, in the base and described exactly what that would be but it's not exactly a flat tax but it's moving in that direction. there's a proposal to reduce rates 20% across the board which is out there. those are seem to me getting pretty close to practical. you have the simple son boles talking about reducing rates. that's out there. so i think from a point of view of developing a policy, that's the most attractive way to go. >> but all those rate reductions are accompanied by a base broadening. and i know you said you don't want the base to be broadened too much but certainly the broadening would include things like ending deductibility of state income taxes or mortgage deduction and maybe even the

deductibility or the exclusion on medical insurance expenses? >> whatever it happens to be, it should be enough to match the rate reduction. what i think is if people think about a 25% rate or a 10% rate, they'll be saying well, i'll be willing to give up some of that stuff. and who knows what it exactly will be, but that's the debate we should be having. and it may not be 25. it may be this 20% reduction of the existing rates, but it seems to me that's where the momentum is going. that's where the discussion is going. and the biggestcrittism we have right now is tell me where the base broadening is going to be going. that seems to me something we can have as a broader discussion. >> and one point in terms of simplify indication. in 1986 when the top rate was cut from you 50 to 28, even though they kept deductibility of local taxes in state income taxes, it forced states to reduce their rates because suddenly you didn't get as big a

deduction. so new york under mario cuomo liberal cut their rate from about 10% it, i think 7.5% because the top rate on the federal level went from 50 to 28. so virtue begins at the federal level, it forces virtue on the state level. >> i'm worried we're taking our eye off the ball a bit because this is an opportunity right now. we're in a very low growth period. this is a time when we can focus on trying to increase growth. why do we need to do that? because wages are connected to productivity. and productivity is connected to investment. that we know. so the key thing is using this opportunity to try to get investment going and i would argue again for this is the time to propose not taxing investment. this is exactly the time that we should be focusing on cutting dividends, cutting capital gains taxes, and allowing full depreciation right away with infinite carry forwards because this is probably the best opportunity to do it. >> let me ask the panel whether

they agree. let's just say hypothetically that it was just about impossible to make any cuts in personal income tax rates but you could either eliminate entirely capital gains rates, dividends, that sort of thing that eddie's talking about. is that something you would go for? >>. >> as i said in the beginning, the thing i've changed my mind on after being fully on the side of encouraging investment, i think i joked about buffett but i think he has stolen the issue with the electorate. i think that the notion of people saying -- understanding that it's rich people who have capital gains and dividends and they're going to pay no income tax and i'm going to pay a much higher rate, i think it's politically still born. and i think it keeps us from getting to an answer. i will say on the other hand, the interesting thing for me is i will say being involved with business a lot, corporations more than i have ever seen in my career are embracing the idea of

losing their deductions and getting a lower marginal rate. and when you try and poke through why, i believe -- and by the way, from a bunch of companies that say if the rate comes down to let's say they pick between 20 and 257%, if it comes down to there, my tev tax rate for the last five years has been below that so my taxes will go up. but i think the reason they say that is their come compliance costs, the costs you don't see, all of the hours spent in tax planning. i was in a meeting today with a major corporation where one of the things we were talking about would save so much money to locate your plants here. they say yeah, about you, it will kill me in taxes because you know, i justify my profits having the plants in these low tax places. so there's so much in the way that i think you are getting a consensus that corporate taxes, lowering the rate and broadening the base i think all sides of the equation agree with that. >> we haven't heard much about corporation taxes here.

kevin has set has been the most tireless campaigner. we've heard from a few. how important is it to bring down the corporate tax rate in the. >> well, remember the flat tax, the x tax, all of these plans bring it down essentially to zero. that's the whole point is that -- once you allow for full depreciation of investment right at the outset, you're really not taxing capital. you're not taxing investments. that's the whole point of it. i think if you go that way, that's essentially the plan. and you know, when is we say let's bring it down to 25%, the idea is, well, if we look at our competition around the world, other countries have rates at that level. that will may be true, and capital will move overseas but i would be much more radical on this. again, i would at least push for going in the direction of wa we think is the efficient tax. we may end up with something that's not that, but i would at least start with that point. >> so may i jump in? first there's been a little bit

of misleading conversation today in the sense that people are saying the u.s. is the highest comp rat tax on earth. we're not, we're the third highest. the other two corrupts that are higher are the democratic republic of the congo -- and guyana. but -- >> our main competitors. >> but the status. >> how about iran? >> the status is high corporate tax places is clearly the most damaging policy area that we're making right now the. i had a recent academic paper they wrote up in the wall street jurm but will there was also a brookings paper that will showed there's a clear laugher curve supported by literature that the shows the taxable income with respect to the corporate is about 3 which means what he was saying, that the money goes to the low tax place really, really quickly. and so what that means is being 35% in the u.s., we're chasing account revenue away. we're on the wrong side of the

laffer curve. president obama says he wants a revenue neutral corporate reform although he proposed one that was revenue increasing. if you want the reform right now given the laffer curve we've estimated you have to cut the rate to 17%. if you cut the rate to 25%, you get showered with revenue because we're so far away on the side of the laugher curve. that's indicative of how terrible this policy is and harmful. we should go home and -- so fine, say the democrats don't believe the brookings paper on this. they still should be willing to let us cut the rate 2% this year and see what happens. what would happen would be we'd get a lot more revenue. cut it another 2%, we'd get a lot more revenue. we're going to keep having 8% unemployment if all the factors are being introduced overseas. >> i'm going to shift gears. go ahead, john. >> one thing on the cap gains and dividends, i mean, bush tax cu