battlefield. and then ralph nader and grover nordquist discuss asks the state of bipartisanship in government. treasury secretary jack lew spoke about actions his department could take to bolster corporate tax accountability and make the u.s. a more attractive place to invest. he weighs speaking at the tax policy center in washington, d.c. his remarks are followed by tax law experts discussing the issue of corporate inversions, which is when a company tries to ease

its tax burden by rye incorporating its affairs from one country to another. this is just under two hours. there's some standing room in the front there on the left, if there are people feeling a hill crowded back there. you can come on over here. yes. okay. good morning, everyone. i am sarah rosen moretell. and i have the opportunity for welcoming everyone here, including those of you standing in the back to, for joining us, a special welcome, of course, to

our guest of honor, secretary jack lew. it's an enormous honor for us to have you here. also welcome the audience on the web. for those of you watching live let me indicate that you are welcomed and encouraged to send us e-mails to events @urban.org. we can at that point talk about your questions and comments on the entire program. and if you are following this discussion on line or in person, let me encourage you to tag your social media posts with #live at urban. the prognosis for business tax reform and controversies will be our subject. there is too little agreement, yet, on solutions.

most say we should start by lowering the rate and eliminating preferences, as if that were, itself, a simple task. but there's also an even bigger challenge with our international rules. specifically, a major concern with how the current tax system treats cross-border, income of multi national corporations. these problems have grown as companies have become more globalized. and it's the share of returns that has increased. this morning we will hear first from secretary lew who will start us offer with a broader context and speak on the importance of tax reform and describe the administration's goals to level the playing field and make the united states a more attractive place to invest. the secretary does not have time this morning to take questions, but a terrific panel will take your questions later, and we can reflect there on his remarks. specifically, i'll lead an armchair discussion on one current manifestation of the

challenges we face -- corporate inversions, and discuss whether there's any way in which this discussion can help us drive towards solutions to the larger issues. we hope to add some clarity to the public debate about what these transactions are and how they reflect the larger challenges in the taxation of international business. and we hope to clarify the alternative fast forward. comprehensive tax reform by congress does not seem imminent. so what are the alternatives. we want to explore the questions raised in july by steven shay about whether congress should use its regulatory authority. we hope the discussion will shed light on differing views of what authority treasury does or does not have under you current law. more over, what might be the consequences for treasury to use

this authority. what impact would they have on business planning practices, what consequences would such action have on business tax reform, and how might use of this authority fit within the larger debate about the appropriate use of executive action. today's discussion will fit squarely in the mission of the urban institute and our tax policy center. a joint venture with our partners at brookings. that mission is to elevate the debate. so when clarity is lacking and rigorous analysis can help shape better policy we try to be there. of course even our own experts don't always agree. but as a think tank without our own agenda, that's something we embrace at urban. a healthy debate can contribute to better policy results when views, even different views are grounded in evidence and analysis. the center led by lynn burrman

have produced a wealth of resources on business tax reform and inversions. copy of many of these are outside the room and you can find them on the tax policy website. taxpolicycenter.org. it is grounded in the work of a well-rounded model. today, tpc is deepening its analytic look. i bring your attention to a structural reform of the tax. but before we get there, let's start with our star attraction, and it's my pleasure to introduce the secretary. when the secretary lew left the job of white house chief of staff, having earlier served in this administration at the state

department and omb and in a host of other administrations as well, and arrived at the treasury department, even a seasoned cabinet pro such as himself could not have anticipated the enormous slate of international issues that he would find awaiting him at treasury, from developing new sanctions regimes emerging from the crisis in ukraine to the ongoing battles of international terrorism, trade and other challenges. in the midst of all of these, however, the secretary has remained focus on the u.s. economy and moving forward on domestic priorities like tax reform. those were laid out in february 2012 when the framework was laid out for business tax reform. the tax reform outlined there provided their description of the problem facing the businesses, both corporate and non-corporate and offered a framework for reform which would

include lower tax ractes, a broader tax base and simplification in a revenue-neutral package. there has been significant bipartisan interest in tax reform. and secretary lew's the reform holds out that hope. and perhaps today's discussions help moving forward. on a personal note, let me just add that i was privileged to work with secretary lew as was another one of other panelists. he never forget fundamentally what it's all about. he has a remarkable ability, deep in a conversation, whether it be about global capital flows, international trade, federal revenues or complex

corporate structures to retain a focus on the shareholders, the employees, the small firms on main street and ultimately the families and individuals who make up our economy. he balances this clear sense of mission with a deeply pragmatic approach to problems. and we are lucky to have him in this post and lucky to have him here today at the urban institute, please join me in welcoming secretary jack lew. [ applause ] >> thank you, sarah for that introduction, and thank you to the urban institute for having me here this morning. for nearly half a century, the urban institute has applied rigorous research and analysis to help advance our understanding of the public policy challenges facing our nation. and we'll keep looking to your work and to the work of the tax policy center as we continue to move forward and make progress on behalf of the american people. let me tart by talking about the economy, which continues to

strengthen, thanks to the incredible resilience of the american people, our unique capacity to innovate and the bold and effective policies put in place by the president to bolster our response to the financial crisis and lay a foundation for the future. gdp posts a robust gain. and our economy is 6.6% larger than the recession began in 2000en 7. private sector economists expect this to grow. in addition, the private sector has created over 10 million new jobs in 52 months. the auto industry is thriving. manufacturing is rebounding, and the housing market has recovered. we sell more goods around the world than ever before. we produce more oil at home than we import, and we're now the world's leading producer of petroleum and natural gas. household wealth is at an all-time high.

with the affordable care act in place, millions of americans no longer have to worry that health care crisis can land them in bankruptcy. financial reform has not only made our financial system stronger and more resilient, but consumers have a watch dog in place looking out just for them. on top of that, over the last four years, the government's finances have improved. and our budget deficit has been cut by more than half. we have more work to do to keep this going and make sure the benefits of growth are broadly shared. and the president's strategies are developed to grow our economy even more. one important strategy is business tax reform. it's clear that our business tax code has become more and more distorted. the united states is an attractive lace to do business in spite of our tax code, and that's something we know how to fix. today the united states has the highest corporate tax rate in the developed world, but because

of special interests and roop holes, some businesses pay the full rate and others nothing at all. more than two years ago, the president put forward his framework for business tax reform to level the playing field and he's consistently called on congress to get this done. we want to eliminate wasteful expenditures and establish a top rate of 28%. this will make the united states a more attractive place to invest. when we reform our broken tax code, there will be one time transition savings. the president's plan+oq?rçwh w these savings to invest in america. we want to make critical repairs and upgrades to you are o country's roads, bridges, tunnels and airports. we can compel our country far into the future. the need for infrastructure improvements has never been greater. we will host a summit with

business officials and government officials to help infrastructure and expand private/public partnerships so we can clear out the backlog of work needed to keep our economy competitive in the future. the guiding incentive is to make decisions for business reasons not for tax purposes. the ultimate goal of reform should be to increase america's competitiveness. and the path to getting there is to close unfair loopholes and loopholes which are not even helping our economy. earlier this year chairen in camp put out a tax reform proposal, and there are key areas of overlap with our business tax man, including using one-time savings from tax reform to invest in infrastructure. the administration is committed to completing pro-growth business tax reform. and there is strong support across the business community for getting this done. still, it's going to take more time for congress and the

administration to compete tax reform. and while that happens, there's one loophole that should be shut town immediately. right now, our tax system rewards u.s. corporations when they buy foreign companies and then declare that they're based overseas. this practice of corporations acquiring foreign businesses and then switching their citizenship outside the united states is known as inversions. and the pace of these deals has accelerated in recent months, with an increasing number of corporations on the verge of completing such mergers, and many more across a variety of industries in the works. make no mistake, there's nothing wrong with genuine cross-border mergers. our country is better off when companies can invest overseas and when foreign investment flows into the united states. but these transactions should be driven by genuine business strategies and economic efficiencies. the problem is, with many inversions, the change in residence is ton primarily for tax purposes, and the new entity

is for all effect and purposes effectively just changing their address. this practice allows the corporation to avoid their civic responsibilities while continuing to benefit from everything that makes america the best place in the world to do business. our rule of law, our intellectual property rights, our support for research and development, our universities, our innovative and entrepreneurial culture and our skilled workforce. this may be legal, but it's wrong, and our laws should change. by effectively renouncing their citizenship but remaining here, these companies are eroding america's corporate tax base. that means that all other taxpayers, including small businesses and hardworking americans will have to shoulder more of their sonbility of maintaining core public functions that. we're talking about defense, education, medical research, courts and vital infrastructure such as roads, bridges and airports. and if we allow the incentives

to pursue these deals to remain in place we run the risk of undoing the progress we've made to lower the deficit. these provisions will need to be in place even after we move to a reformed business tax system because there will always be countries with rates lower than ours where companies can establish residence for tax purposes. at the same time, we cannot wait to complete business tax reform before taking action to fix this problem. that's why the president laid out a legislative plan to end the inversions. under his proposal, a company would not be able to claim foreign residence if it is still managed and controlled in the united states, does a significant amount of its business here and does not do a significant amount of its business in the country it claims as its new home. on top of that, to make sure the country is truly a foreign-based

entity, the original shareholders of the foreign firm would now have to own at least 50% of the country rather than just 20% which is the current legal standard. now i've been urging congress to move forward with legislation to rein in these transactions. congressman levin and van holland have put forward strong legislation. lawmakers on both sides of the aisle have expressed their dissatisfaction. so it should have bipartisan support. keep in mine, it was president george w. bush who tined the first anti-inversion law into effect in 2004 to keep companies from setting up business in the cayman islands for tax reasons.

mother over, when this 2004 law established the current anti-inversion regime, it also worked retroactively. in order, the law was signed into law in october of 2004 but had an effective date of march 2003. and this is a critical point. the same principle's same today. to prey vent a rush of corporate inversions to get in under the wire it should work retroactively applying to any deal back to may of this year. i want to emphasize how important it is for congress to solve this problem. it's imperative the ha makers get this done. still, the administration is clear-eyed about the possibility that congress may not move as quickly as necessary to respond to the growing wave of inversions. given that, the treasury department is completing an evaluation of what we can do to make these deals less economically appealing, and we plan to make a decision in the

very near future. any action we take will have a strong legal and policy basis. but will not be a substitute for meaningful legislation. it can only affect part of the economics. only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that lead to inversions. he in closing, let me thank everyone for being here. tax policy has serious consequences, and it highlights the important choices we face as a nation. that is when we have the resources to make the investments that will make our economy more competitive. whether we make it possible for more businesses to grow, innovate and hire. and whether we make sure everyone has a fair shot at suck sis -- success. but if we move in the right direction, i'm confident that we can make enormous progress. thank you very much.

[ applause ] as we say thank you and express our appreciation to the secretary, let me encourage our panelists to m could on up and take their seats. give us 30 seconds please. in the meantime, there are now a few seats in the front. again, there's a little more wall space for those who need a little support for their back over there. so let me encourage people.

looking at what is possible within their current authorities. we'd like to explore with an

amazing panel about what that might mean and the reactions might be. let me take a moment to introduce our participants. i believe each of you have their bios in more detail. i won't spend too much time. but let me give you a quick idea of who we have here. to my right is john samuels. he is a vice president in ge. the international tax business once described john as the most influential person in the tax world. no offense intended to anyone else in the room. the new york times once called the ge tax department the best tax law firm in america. he is an expert in the field and explicitly not talking on behalf of his firm or any other firm. and let me say that applies to all of our panelists here who are not only not speaking for their employers, but also not

for any other affiliations that all of them may have. they're speaking on their own views alone. next to john we have steve shay, a professor of practice at harvard law school. steve is one of our country's leading tax authorities, serving at the highest levels of government and academia as well. he recently shook up the corporate world with his article "mr. secretary, take the juice out of expatriation." to his right is sally catsen. she is a leading expert on executive branch authority, having advised three presidents on the use of executive power and testifying before congress more than 70 times. i also had the privilege to have sally as a mentor and adviser when i was in the white house a decade and a half ago, and i am much the richer for that

experience. finally, we have the senior fellow, steve roysenthal. he spent 25 years practicing tax law in washington, d.c., and he also had a stint in developing tax information. i'm going to pose questions to the speakers and try to get them to pose some questions to each other and we'll bring all of you in after that. if you are online, submit your questions to events @urban.org. and i think each of you may have had or picked up, if not on your chair, what i hope is a simple descption what we're talking about. and remember that while we have some of the world's leading experts in this room, we probably have a few people for whom this is a new topic.

so, john, can you just start us with a very simple description of what is an inversion and what we're talking about today? >> thank you, and i can try. but let me first say that thank you for your kind introduction and note that the nyu magazine that called me the most influential tax person in the world, i'm an alumni of nyu. they're in a fund-raising mode, so take that with a grain of salt. i want to put the issue of inversions in perspective. and i want to do that by quoting some testimony before the house ways and means committee. i'd like to start with that. so here's the quote, first paragraph. my name is john lafrido. the merger of chrysler and

dangler benz, it puts u.s. companies at a decisive disadvantage that became a major challenge. management chose a company organized under the laws of germany. now the testimony goes on to explain that the principle reason was that it had been formed in the unit, all of the new daimler-chrysler would have been subject to the u.s. corporate rate regardless of where it had been formed. where if it had been formed in germany, germany has a territorial system and the only tax imposed by germany would be german tax. now this testimony was given in 1997. 15 years ago. more than 15 years ago. and i wanted to call it to your

attention to show there's nothing new about u.s. companies being acquired by companies based in foreign jurisdictions with territorial systems so that the new companies, worldwide income will be subject to u.s. tax. daimler is not an isolated event. the data shows that company-based interterritorial systems are much likely to be acquirers than the targets. the data shows that from the 22 years fromús> xqx sorry -- to 2012, 57% of the cross border acquisitionis were foreign companies acquiring u.s. companies. and the academic literature supports this. there's a recent study showing that in japan, japan changed its system from a worldwide system

to a territorial system. this study concludes that in cross border mergers, after they dropped their worldwide system, japanese companies were the acquirers in 31% more transactions than they were before. and the study also estimates that if u.s. were to adopt a territorial system, u.s. companies would be the acquirers in 17% more of the transactions, cross-border transactions. and of course none of this is surprising to even the most junior tax lawyer. you know if you're structuring a deal involving a u.s. company and a cross-border merger, you want to do whatever you can to make sure the acquirer is a foreign company not a u.s. company to avoid having worldwide income caught up in the u.s. tax net and subject to the u.s. tax rate, the highest corporate tax rate in the world. i type of a class at yale law

school. and often on my exams i give students a question, asking which one should be the acquirer and ultimate parent. which would be the most tax efficient way to do the trans-a. the ones who conclude that the u.s. companies are to be acquirer generally don't do well. so while foreign acquisitions, there's clearly been a dramatic increase in the size and number of these transactions recently. and i think this trend is only likely to continue. and maybe accelerate, at least until the u.s. reforms our international tax system it to bring it more in line with the rest of the world. so what's going on? how can we explain this recent wave of foreign acquisitions or so-called inversions. in my opinion there are two

things driving this increased activity, and maybe a third factor as well. the first factor driving i believe, is virtually every major developed country in the world has dramatically reformed its tax system to make it more business friendly, and they've done so with the explicit goal of attracting and retaining headquarters in jobs. the u.k. abandoned its worldwide system for a territorial system, reduced its corporate tax rate to 21%, soon to be 20%. and adopted a patent box. and the u.k. government was unabashedly explicit as to why it was making these changes to its corporate tax system. in announcing these changes, u.k. government said the government wants to send out the signal loud and clear that britain is open for business. and then the u.k. government went on to say we want our tax system to be considered an

asset, not a liability in retaining u.s. companies, because companies had begun to leave the u.k. and attracting new ones to set up their businesses here. some do decry the fact that these countries are designing their tax systems to attract companies and jobs. saying it is a race. i suppose it is if you define the goal of the race to attract as much revenue as possible. something that's very difficult to accomplish in today's global integrated economy where capital flows across borders like liquid mercury. but what if these countries don't view the goal of the race as trying to extract as much revenue as possible from global revenue capital, something they might consider to be a fool's errand. but what if they think the goal of the race is to maximize --

>> i want to bring in everybody else if i could. one more comment. >> i have a lot more to say. >> i know. you'll have a lot more chances, i promise. >> this is a fact, my oiled boss used to like to say whatever you think about this, you have to take the world the way it is, not the way you want it to be. so i think the first factor contributing to these new inversions is u.s. companies have many more countries to choose from into which to relocate their head quarters, and they're attractive countries. countries with stable governments, rule of law, major universities and research centers, great the workhorses, terrific infrastructure. so the whole world now is open for relocation and really aggressively trying to court u.s. firms. the second factor, major factor is the percentage of income of u.s. companies that are outside

the united states has increased dramatically. in 1982, 23% of the u.s. profits of u.s. firms were outside the u.s. today more than half are. so the stakes are higher. u.s. companies have a lot more to gain by moving to a, relocating hid quarters to a foreign country and a lot more to lose, conversely by staying in the unit. and this is a trend that's only going to continue because 95% of the world's population and 72% of the world's purchasing power are outside of the u.s. so it's combination of these two factors. many more places to move and together with an increasing portion of your income outside the u.s. that are really almost secular droivers that are going to keep this trend moving. one more possibility pushing this trend is tax reform. it may be that some companies

have lost hope that tax reform is going to come, and they've decided to take matters into their own hands and adopt self-help tax reform by reh relocating to a country that has already reformed its tax system. that's one possibility. and another is, perhaps more importantly, some companies have got and glimpse of what u.s. tax reform might look like, particularly as how it will affect their international operations, and they don't like what they see, because under every proposal that's been proposed so far, the u.s. system would still be far from being aligned with international systems. so these companies may well have concluded, it's a lot better, even after tax reform, it's going to be better to be in a foreign country, so we might as well get out of dodge now before the new sheriff comes to town. now what's important about this as the sent noted, if and when we get to tax reform, the tax

reform doesn't align our system with the rest of the world, inversions are going to continue. and i don't think -- and we'll talk more about this later -- any anti-inversion activity can be effective in a global economy where capital is quite mobile. so let me jump in to what inversion is or let steve or -- >> why don't we turn, steve, can i ask you? i want to make sure we'll give everybody a chance. steve, do you want to take a crack at first just the description and then, if you would, offer your perspective on this question, whether this is a symptom of a large erycette of problems and is this troubling or not, or is this something that we should be tackling. >> sure, can we have the diagram put back up on the screen? so i guess the first question you're asking is what is an

inversion. and for purposes of today's discussion i think we can keep it very simple. and by the way, for my students who might be watching, i'm not going to signal the answer to my exam questions or even give you what my exam questions will be. all of that would increase the viewership perhaps. so what happens with respect to an inversion is if you look at the diagram, there's a u.s. parent, a u.s. parent group. we've kept it simple. there's a foreign business. tax lawyers call them foreign targets. and you acquire a foreign target. and in this case, in recent deals and in some very large deals, special efforts have been made to try and have the acquisition vehicle be a foreign vehicle so that a number of tax benefits can be achieved. so this is, since 2004, all of these inversions have involved

the acquisition of a sub stantive foreign business. these have been what you might think of as real deals. they involve something a quarter the size of the u.s. company. so the question is, what's wrong with that? and i think, at secretary said before, there's nothing wrong with the business deal. there's nothing wrong with the business acquisition. where the tax policy issue arises is when the transaction is driven by tax avoidance. so the question, what's been pretty prominently displayed in the press and some of the disclosures of recent deals is the extent to which the objective of these deals is not to have a simple business transaction but to take a u.s. company out of the united states. and so that's that careful line that the treasury, i think, is working on. what are things that can be done and should be done that would,

as i put it if my article, take the juice out of tax inversions, but i don't think anybody's saying take away all cross-border acquisitions. so what is troubling about tax inversio inversions? they're troubling to the effect that they're tax motivated and the result is a loss of income tax base. there are essentially try tax benefits of substantial amount from inverting a u.s. company to combining with a smaller company, which is what these deals have been. find a smaller company that gives you the act to avoid some restrictions on turning into a foreign parent, acquire it in a way so you can have a foreign parent, and then what are the benefits from doing that? first benefit is the ability to exert excessive debt to reduce the u.s. tax base. you can use intangibles and

rela realties. in 2007, a treasury study found that for the year study which involved inversions before 2004, u.s. subsidiaries that were owned by inverted companies had higher levels of debt than other foreign-controlled u.s. companies. and that rules were not effective. natural naturally what spawned the budget proposals to change the earning stripping rules. the second benefit is a little more complicated. if you look at the screen, the foreign subsidiary, which is the little parenthesis cfc controlled foreign corporation. foreign sub sid yare eyes of u.s. companies do not have to pay tax on their active business earnings until they have di

dividends. as long as they're under a u.s. parent they cannot be used for the u.s. parent, so the u.s. parent can pay dividends or stock buybacks without it being treated as a dividend. the ability to use the offshore earnings for which the unit tax has been deferred is the second major benefit of these transactions. it's not quite as simple as what's been discussed in the press but we're not going to get into the weeds as to the different issues that aride. we'll come back later to some enforcement tools under existing regulations that could stop some of the simple use of those offshore earnings, but the reason i think regulations are needed is because it's needed for decontrol that could end run even that anti-abuse rule.

what's the third benefit? the third benefit is to be able to earn foreign income that is totally outside the u.s. tax net and as a result to encourage even more shifting of income and investment from the united states. in my article, where i was talking about regulatory as opposed to statutory changes, i only suggested taking on the first two issues. my thinking about the third issue has been limited so far to tax reform proposals, but with respect to the first two issues, i believe there's regulatory authority to take steps that would reduce the tax benefits that are indeed consistent with each of the major potential tax reform proposals for reasons we can talk about as we go along. >> that's very helpful, and i'm going to give everyone a moment before we move on. we're going to come back -- i promise -- to a conversation about whether or not taking on these tax advantages in the

regulatory manner makes sense. but let me just ask, is there anyone who wants to add to the description of the transaction itself and what the benefits, the tax benefits are that people are pursuing? and these are comments are going to be 60-second limited comes. anyone add anything to steve's description? >> i agree with what steve said, but i would emphasize that the second tax advantage is bringing capital back to the united states. ibo back to the united states. and these have been described as capital flowing to the u.s. so i think the advantages are potentially to strip the tax base the same way other foreign companies are doing, not just inverted companies and also to bring cash back to the united

states. >> so we're going to spend a couple minutes talking about the tools, if you describe those, and we're going to take for the employment the assumption that the treasury secretary laid on the table, which is that it is in the interest of the united states to try to stem these transactions. let's just describe, take that as a given for the next period, and we're going to come back and question that proposition. but for the moment, if you assume that, let's talk about what tools the treasury might have. and to give us a backdrop to that conversation, i'm going to turn to sally first, to talk more generally about the authority that executive agencies have when statutes have been on the books for a long time and practices arise that, or questions or issues arise that may mott have been on the table in the current form at the time the statute was enacted. and agencies have a variety of regulatory tools to act in those

cases. some of them are given more credibility and have more legal authority than others. can you kind of give us an administrative law overview? >> administrative law in two minutes. >> only sally could do that. >> well, i was die heighted to be invited, and i felt a tad like an outlier, because there's all this substantive expertise, and i'm kind of a process kind of gal. and going with the administrative law. but in the general administrative state, agencies have a whole variety of things that they can do to confront what they perceive to be a problem. from the very soft jawboning or lifted eyebrow to encouraging private/public partnerships to talk in round tables or to have some sort of voluntary

standards. to a little harder things like enforcement actions or other adjudications that will lead to precedent setting provisions. but the preferred route for almost all of this, for most executive branch agencies, and independent regulatory commissions is the old-fashioned rule making, the rule making that also notice, where the agency says what it's thinking about doing and why. and opportunity for comment. public participation to help educate the agency, to think about things that the agency may not have been thinking about. and to get the buy in that is often critical for subsequent compliance. and the agency considers these comments, issues a final rule, and it becomes effective 30 or 60 days thereafter. now, for the tax practitioners

here, you may think, hmm, that's not quite the world in tax law, in tax land, where sometimes there's temporary regulations that are issued, simultaneously with a notice of proposed rule making. and then think become final later. or the whole issue of retro activity, which we can come back to at some point as to when the law jack spoke about with legislation, you can make it retroactive under certain circumstances. and the regulatory world, ordinarily it's perspective only. there are certain provisions in the tax code, however, that allow the final regulation to be made effective as of the date of the notice. or even an announcement, if it

has sufficient specificity, and we can talk about those. the underlying proposition is that the more process that is given the more deference a court will ultimately give. and we found this recently in a case, for those of you who are not lawyers, the supreme court a couple years ago basically said that there are general principles of administrative law, and they pertain to the tax world. they did not want to have a carve out, i think it was called tax exceptionalism by some. they didn't want to have a carve out for different administrative processes. if that's the wave of the future, i belong here, i mean, this sh good. i'm part and parcel. the key issue in the rule making, though, which i think would be the step that we have to talk about, is what the agent

s sy wants to do. and we'll come back to the what, but there has to be authority to do it in the tax code, in the underlying statute. there has to be authority. an agency can't just do whatever it wants. it can only do that which it has been delegated to do. and so what it is doing is critically important. there are, we will talk about what the tax code provides, but there are a couple of markers. one, the agency can't re-write the statute. i heard this morning about the 80%, 50%. that would have to be done legislatively. that cannot be done throughout a regulation. you can't re-write. you can flesh out the statute. you can elaborate on the statute. you can fill in gaps in the statute. you can't re-write it. that's kind of a given. another consideration is that you can change your mind.

the agency might have said, yes, yes, yes and now saying no. that's okay. you're allowed to change your mine. you have to explain why you're changing your mind. you have to provide information that justifies that change in position. but changing minds does not disqualify any kind of regulatory action. and the third marker that i want to lay down, that i hope we'll come back to, is just because you have the authority doesn't mean you have to use it. and one of the issues that was discussed continuously within the executive branch is, yeah, you can do it. do you want to? what are the consequences? what are the intended consequences and the unintended consequences. forgive me, but what are the costs as well as the benefits of

proceeding. i say forgive my, because i come from a administrator of the office of information and regulatory affairs and we routinely would think, cost benefit analysis. so i slip into the jargon from time to time. and one of the interesting issues on process is that tax regulations often do not go through oira. we can talk about that later because that is also a departure from the typical administrative practices. >> all right. great, so within that broad context of administrative flaw, steve rosenthal, steve shea has written an article that suggests -- and he gave us a preview of it, that the treasury actually has authority to take the juice out and i think some of the conclusions there have been contested by some. but first, why don't you just describe what those are. >> sure, happy to do that. could i slip in a quick question to sally. secretary lew told us that he

thought any legislation tackling inversion should be retroactive to early may. was that sufficient pronouncement by the secretary that if he wanted to issue regulations to take the juice out of inversions that he could yet write regulations retroactive to may? was that clear enough in terms of the information provided or is that still to be determined? >> um, not willing to give a legal opinion here, but i would say that specification of a date without the accompanying what it is that he wants to be made retroactive would somehow fail to be sufficient notice. >> okay. thank you, sally. >> but i didn't say that. well, i did say it. yes. >> let's talk about what treasury can do once they're ready to do something. as sara mentioned, professor

shea wrote a nice article about a month ago on this topic. if you forgive me, i'm reminded of the annie hall movie in which woody allen is standing in a theater line describing and listening to someone pontificate about what the director might have intended and then woody allen pulls marshall there. i'm going to make a few observations about professor shea's article, but he's right here to speak for himself. so professor shea highlighted for us a couple of the key problems, stresses on the tax system that inversions present. after an inversion, an inverted company has been documented to increase the leverage that it has, loading up with debt.

so that there's in effect many more interest deductions out of the u.s. tax base, what's known as earnings stripping. sort of like if you take your left hand and put your right hand, deducting your payments in your left hand and because your right hand happens to be across the border, excluding the interest income. and so that's one key problem that professor shea highlighted. the second problem was the whole notion of companies fleeing america before they repatriot the earnings that have accrued offshore. again, sort of like you contributing to your i.r.a. and before you start withdrawing funds from your i.r.a. and including those funds as income, you move to bermuda or cay mens, as a caution, you cannot do that as an individual, this is not legal advice, corporations can

do that. most directly tackling those economic aspects of inversion, there are a couple of easy tools that you might yet use out of the tax code. i work for the joint committee on taxation for six years. we regularly granted authority to treasury to write regulations, sometimes to interpret a word, sometimes to prevent abuse, sometimes to fill legislative gaps because we viewed treasury with the great expertise it has and the process that they have available to themselves notice comment in a transparent fashion as a useful tool to develop legislation. that's been going on the 100 years the code has been in place. there are over 500 specific grants of authority and one general grant of authority. let me just mention too that professor shea noted in his

article that address most directly the economics here. first, what can be done about this loading up of debt that u.s. companies undertake once they've created a foreign parent for which they can borrow money? well, professor shea observed -- and i think correctly -- that there is a code section that was enacted by congress in 1969 -- i'm a tax lawyer so i'll sneak in the site -- section 385. at the time in '69, congress thought about how do we distinguish debt from equity, debt from stock because in mergers and takeover situations companies were often loading up with debt. deducting a lot of interest and reducing their corporate taxes. so congress enacted this code section that gave treasury extensive authority to write regulations as treasury deemed

necessary or appropriate to determine whether an interest should be treated as debt with payments deductible or stock with payments not deductible. congress has revisited that code section three or four times since original enactment and never once has it reduced or taken back any of the authority that it granted. this code section is rather unique. it's only purpose was to grant authority to treasury to think about when an instrument should be allowed as a debt instrument to facilitate deductions, including factors that treasury could think about but need not think about, one of which was whether the payments on the debt instrument or whether the debt instrument paralleled the instruments paralleled the ownership of the stock or things of that sort akin to the kinds of circumstances we have here. second, another piece of authority that professor shea

highlighted in his article was something known as code section 956, which, as professor shea described, when these earnings accrue over seas and are used in the u.s., sort of akin to withdrawing from your i.r.a., used in the u.s. in a variety of ways, whether they're paid back to the u.s. company or the u.s. shareholders, whether they're loaned back to the u.s. company, or in a number of different other circumstances guaranteed debts and alike. inclusion of these deferred income that's been allowed to accrue tax free just like your i.r.a. has been allowed to accrue tax free. and in code section 956, congress authorized treasury to write regulations to prevent the avoidance of the provisions of the section through reorganizations or otherwise. so, again, treasury has been given authority under this code section to tackle the kinds of

problems, economic challenges that the inversion phenomena exists. as i mentioned, there are over 500 specific grants of authority. i'm only highlighting two here. i could speak to many more, but i'll let the discussion continue. >> thanks. so i'm going to return back to steve again. steve, i want to ask if there's any other tools you want to add to that list and then we'll spend a few minutes talking about first the impact of using those tools and then secondly how we think that would -- the wisdom of doing so. go ahead, steve, if you will. >> i just wanted to mention that one of the tools an agency always has is enforcement of the law as it is. and my article was directed at going -- expanding regulations to address issues that might not be able to reached under current law. but i didn't discuss in that

article an anti-abuse regulation under section 956 that as i read it, on its terms and because of some peculiar aspects that are quite expansive could actually be used to treat what is called a hopscotch loan from a controlled foreign subsidiary. if we had the picture back up -- i don't know if that's possible -- up to the new foreign parent as in many cases, not every case, but in many cases as a deemed dividend to the u.s. company. so, the real need for regulations, in my view, is cases where that regulation with respect to using the offshore earnings would be cases like that regulation would not reach or that the i.r.s. which has great discretion under that regulation chooses not to apply it and in particular cases where

there's post inversion planning, that would without triggering a u.s. tax, allow those old earnings to no longer be subject to u.s. tax jurisdiction. i've been called professor a lot today. i've been a professor -- this is my fourth year. i spent 30-plus years advising companies, so i really -- my dna is much more in the tax planner mode than it is in the professorial mode, just for what that's worth. and i see lots of tax-planning opportunities. as to any of the transactions that are out there, that have been proposed, i would be happy to discuss things that i would do as a tax planner that would allow post-conversion effective tax rate of those companies to be reduced. and that's why we're talking about this subject. >> so it appears that having a bow tie is not an indication of

prof sor yal stature but tax planning. john, you started us off by talking about the fact that your view, this set of practices were a symptom of a larger set of drivers in the corporate tax structure and that ultimately -- and i think you wouldn't get any disagreement with anyone here -- we need to be addressing those larger drivers. but in the context of the current debate, first of all, can i ask you to ask would the measures that steve and steve have put on the table be effective and then we can go beyond that to say should treasury take it. let's start with the effective. >> so the answer is i don't think so. but there's an overarching point before i get back into the weeds which is why are we trying to raise the bar so it will be harder for companies to leave the united states. why aren't we trying to do

something to make it more attractive for them to stay here. it's just -- we are really losing our focus. but coming back to whether there should be targeted regulatory action, the first suggestion steve and steve made is to use a code section called 385 to characterize debt as equity to limit the ability of these companies to reduce their tax with interest deductions. that isn't why companies are doing these inversions. if you look at the administration's proposal, the camp proposal, that's chairman camp, senator balk kuss proposal, they all propose to tighten 163 j. that's a targeted section limited interest deductions. companies can read the tea leave. they won't make a big deal into what is likely coming down the pipe.

i don't think they have the legislative authority under 385 and i will admit, i was at the treasury and put out the first 385 res which were ultimately withdrawn. but there's nothing in the statute or legislative history that says you can target 385 to a subclass of transactions involving foreign lenders and borrowers. when we put out the rags, we weren't even sure they applied to foreign transactions. when you read the preamble, they did not apply to foreign transactions. there's no application, treasury will consider this. that was 34 years ago. 1980. lot of time has gone by, treasury has been thinking about it, they obviously haven't thought up until now they should use this tool. >> so let me just -- i want to get you to your second point. >> let me just stop on that point. i turn to sally to make an observation here. it strikes me the plain reading

of the statute of this code section 385 is so directive and so broad -- and i've read the legislative history of 385, other provisions, i've gone through everything for the last 40 years, i don't think -- i this is an easy question that of course treasury has the authority here. but here is the question which i would like to pose to sally. in 1969, there was no notion of inversions. i agree completely with john on that. and so when congress delegated broad authority for treasury to tackle what -- when should instruments be treated as debts so payments are deductible and when as stock payments are not deduktdable. congress, yes, did not have inversions in mind. sally, what happens in these circumstances? does congress need to have a crystal ball when it writes authorizing legislation so that it needs to expressly anticipate

marked developments and what happens with other agencies? this can't be unique to treasury. >> i want to make it easier for sally to answer the question. >> it's really easy right now. >> okay. harder. >> you want to make it harder? i'll speak first. why should i let you do that to me. the answer is, no, congress doesn't have to have a crystal ball. if i could refer to climate change, for example. when they wrote the clean-air act, they won't thinking greenhouse gases and yet the supreme court has said that there is the authority there. things will change. and one of the markers i laid down earlier in my overview, my two-minute overview of administrative slau that agency can change its mind. it could say 35 years ago, we're not sure this covers foreign corp. rags and now it can be damn sure it does. it can change its mind and that won't impair its credibility and

that won't cut into the amount of deference that it might receive. i don't know what would happen in this particular instance because the tax may venns know the code, not but. but as a general proposition, the answer would be no, congress does not. >> why do you think that is? >> i think we have an incomplete record because 385 was enacted in 1969. in 1989, congress enacted a specific code section aimed at related foreign related party debt to limit interest deductions. very targeted to this particular perceived abuse. not aimed at companies across the board. treasury did a study in 2007 and thought, gee, inverted companies -- 163 j is not tough enough on inverted companies and recommended and therefore in the last two budgets the administration has recommended

that legislation be enacted to restrict interest interest deduktdability by inverted companies. i'll read here, the treasury explanation, the administration explanation say it is necessary to amend section 163 j to fix this problem and they score revenue of $4.6 billion, which i think the convention is you can't raise revenue unless you're changing current law. so, against the record of treasury saying we need -- asking congress twice, we need to change the law to address interest-stripping on inverted parties, how can they then go back and say, a-ha, i didn't really need to change the law, i could have done it all along using 385. there's a very recent case, the most recent case striking down an i.r.s. rellation in the d.c. circuit said administration can always change its mind if it goes a very long time and

indicates it doesn't have the authority and then all of a sudden decides that it does, it's at least a telling factor. >> john had a second point on the question. i want us to get past the all of the statutory interpretations so we come back to the policy. >> but the larger point here is i actually don't think -- we'll get into whether treasury should. i don't think the authority exists under 385, most tax lawyers think 385 was aimed at something different. if treasury wanted to put out -- >> second point. >> a broad 385 rule on all related parties, not just foreign, but to all, then maybe. but not a targeted sub-class. >> you had one other question on the whether work and then we'll get steve in here. >> i don't think it would work because i don't think it is what is driving these transactions because companies aren't counting on this benefit going forward. >> okay. steve? >> i think we have two threads and i think i want to stick with the authority thread so we

finish that. i'm happy to defer to steve first. >> short points. short points. one of the interesting things is administrative law in the tax areas quite settled. and especially now that we've imported sally into the tax world, we've got it made. the mayo case said it didn't matter how long a statute sat out there. it can change its mind. so the point of length really is irrelevant. second, yes, there is a specific regime to address earnings stripping by foreign companies generally. and there's a specific regime to address a variety of issues dealing with u.s. companies that invert. but the 385 debt regime was left in place throughout. in 1989 when the specific regime was added for interest stripping, congress also amended 385 and left in place the full

authority. indeed, if you look to the legislative history of 163 j they elude when they grant treasury authority to address guaranteed debt as a means of a u.s. company withdrawing foreign earnings, they say in passing, of course, we're not changing treasuries' authority to figure out what is debt and equity. so i'll leave it at that. john and i will disagree and i'm happy to -- >> let me ask a question. >> certainly. >> do you think treasury was then wrong in its budget proposal saying it is necessary to amend section 163 j to address earnings stripping by inverted companies? because that is the language, it's necessary. >> i'll defer to steve this time. >> if you classify debt as equity under 385, you are not doing what 163 j does. you are saying an instrument to the extent that you're

reclassifying it, should be treated as equity for purposes of the code. one affect of that is to transform a payment on that instrument from interest to dividend to the extent of earnings or profit or other outcomes of payment on stock. the other is it has an effect on with holding taxes. the other is it's interested differently under the nondiscrimination article of treaties. the whole argument that's being made so far that congress spoke to 163 j therefore you can't use 385, then there are several major problems with that argument. first, congress didn't say that when they enacted 163 j and we can turn to sally what the implications of that might be without getting her into the tax weeds. second, there is evidence that steve has deduced and referred to on his blog that history suggests they didn't intend to restrict treasury's ability to

use 385. third, 385 is different. it does different things. and in some respects it's actually a better tool than 163 j and in some respects it's less flexible. but in terms of authority, to my mind there's no doubt. for that, i just turn to the statute itself which in 385 b says among the factors taken into account in determining with respect to a particular, a particular factual situation, whether a debt or creditor relationship exists. a particular factual situation. that givesñbóyódn treasury the authority to distinguish inverted from non-inverted cases. having said that, john and i actually agree on something. >> bow ties. >> in addition to the bow ties. i think that if we get into debt equity rules with respect to inverted companies, i think the better answer over time -- and i

said this in my article -- they should apply to all foreign control companies. but -- and here is the problem, when the patient is bleeding an artery is open, you put on a tourniquet and then you have to have time to come back. now, the u.s. tax system falling apart because of inversions? no. but the corporate tax base is risking an irreversible decrease by reason of companies taking assets out from the reach of the corporate tax face if they both invert and then decontrol their foreign corporations and take assets that have been earned while in the u.s. corporate tax base as to which the united states reasonably was expecting to -- a tax to be paid ultimately and denying that ultimate conclusion. that is why acting now is important. it's important to the corporate tax base and the things i've suggested i would argue are consistent with good policy and future tax reform. >> so let me use that as a way

to move us to -- i want to make sure we get the audience in here in a few minutes. let me use that to align -- use that to move to a line i heard in the treasury secretary's remarks. he said, i thought, clearly, that -- i'm trying to find exactly in my notes. but he said that we wanted to act in a way that was clearly within the realm of sort of undisputable authority of the treasury department. and i apologize that's not a direct quote, but that was clearly -- he is saying that there's a difference as to what we don't know for sure how treasury will interpret it's own authority. he said he wants to take an action that he thinks will be carefully within indisputably within treasury's authorities. so let's take that as an asujs for the moment. let's assume that whatever action he takes will be one that he feels and perhaps even john

will feel is within consistent with his authority. question is, if that action is one that is sufficient to reduce the level of economic incentive for inversions, to make it perhaps can't prevent them certainly and i don't think he would want to, but to make it less economically attractive to do this for purposes of reducing your u.s. tax burden. is that a good policy to take? and this is what i think steve you were starting to get at. in an ideal world we would have a tax law that's not designed to be aimed particularly at this transaction. we would have our interest provisions and others be more universally applicable. john, you said we all think we should be dealing with the incentive issue, not the deterrent, not the punishment issue for people that move overseas. but congress does not seem likely to be comprehensive tax reform in the near term. so each of you, if you would,

give me your views on the merits, the policy merits of acting now and let me just ask the second question so you can choose which one you want to answer, the political merits. does moving forward with a provision to address inversions now make it more or less likely that the change that everyone up here believes is a good idea, which is to deal with comprehensive business tax reform, does it more or less likely to happen if the administration uses its executive authority in this way? john, first we'll go down the row. >> you ask a number of questions there, but -- >> three-minute answers. >> the answer is i do not think regulations would be effective, which is really important because the transaction, would just morph into another form. i think to the -- i think they would make tax reform -- i am more optimistic than you on comprehensive tax reform sooner rather than later. i think the president wants to do it. >> how soon is soon?

>> the next two years. i think the administration wants to do it. i know the republicans in the house want to do it and i'm sure ron widen wants to do it and certainly warren hatch does. and the business community does. i want to be very clear on that. so i do think -- i'm not a pessimist. i'm an optimist. i think regulations would make tax reform more difficult, not less difficult because, a, to the extent they were effective, and i'm not sure they would be. transaction would morph into another form, they would antagonize the congress. the political comity would be destroyed. speaker boehner has written an op ed saying, please, mr. president, don't rewrite the tax code yourself around inversions. so i think it would be a bad idea in terms of moving us to where we need to be as a country. i also think it would be bad --

this is in the long run maybe the most important factor -- create a dangerous precedent and damage the institutional integrity of the office of tax policy at the treasury. there was a letter written to tax notes by dennis ross a former tax official, expressing dismay over the use -- potential regulatory use of 385 to stop inversion. as dennis pointed out, there's enormous value in the policy and technical integrity of the office of tax policy calling it the way it sees it. and anybody who has served in that -- and not interpreting the tax laws to advance whatever the political or policy issue du jour is. anybody who served in that office knows the policy of that mission. there's been pressure, for example, to index capital gains

through regulation. there's been pressure to call an unborn child a dependent. office of tax policy has always resisted that. and i think to twist the tax regulation process to attempt to stop and i don't think you would stop these transactions puts our tax system over the long term at greater risk than inversions do in the short term because i'm confident inversions will be dealt with in tax reform by the congress. >> steve, two years soon enough? sally? >> he's yielding to me. >> only temporarily. >> i guess i have three reactions. if john is right that doing any of the things that have been suggested will not decrease the amount of inversions and so it will have no practical effect, then a regulation, such as this, would not have any benefit. it would have some transaction

costs and other down sides and in a cost/benefit analysis, one would say don't go ahead. i don't know whether he is correct that it would not work, but that is the issue that would have to be addressed. in terms of the regulars issuance of the regs antagonizing the congress, which otherwise loves to work hand in glove with the administration, i have to say that that is not very persuasive as i look at the grand scheme. again, i'll return to the epa, which is the poster child for the hatred of the congress and their work on greenhouse gases, for example. climate change. they begged the administration begged the congress to enact climate change legislation. they were passionate on the

subject. they said, as secretary lew said today about tax reform, much better if congress does it than if we have to do it. but congress didn't do it, wouldn't do it, couldn't do it, you supply the verb in there, but in any event, epa felt it had to go ahead. did it alienate the congress? yes. is that the reason we don't have climate change regulation? i would submit, no, you wouldn't have it even if they had not gone ahead. what it does show is what the administration is prepared to do, so you know the other marker. so you know that if we don't do something, this is what is likely to be occupying the field. that's helpful for analyzing whether or not you want to go ahead. and in terms of the authority, the appropriate authority for executive action, secretary boehner -- secretary boehner,

excuse me, speaker boehner has authorized a lawsuit against the president for using undue executive action. now, that's in the field of health care. but you could substitution immigration reform or you could substitute climate change. looking larger at the administrative stake, there's any number of areas where congress not acting has led to the executive branch acting and in its actions i don't think the marginal further antagonism of congress is something that would be remarkable. finally, you spoke about the damage to the institutional integrity of the tax policy. i care fervently about that even though i'm not a tax lawyer. i believe -- no, i believe that government employees try to do the right thing. i believe they are committed public servants and tax policy

does have a reputation, even to non-tax people, as a home for such high integrity. but your assumption is that they're not calling it as they see it. >> no, no, excuse me. i never said that. i said they're being urged. >> they may be -- >> they haven't done anything yet. >> they are facing very different circumstances. secretary lew, i've got the right secretary this time, secretary lew provided a lot of data showing a remarkable increase in inversions in recent times and potentially the consequences to the tax base. under those circumstances careful, thoughtful, rational examination of the data could lead one independent of being told to do so to the decision that this is the right thing to do. and so i wouldn't sell out --

and you weren't selling out but i'm using a little hyperbole here, the integrity of the tax policy people. >> i want to get the audience in, so steve, share if you will. >> i just want to say, first question you had is will it work? and i also agree with john. if you adopt regulations in the two areas that i've discussed, some deals will still go forward. and that is fine in my judgment to the extent that those are good business deals and are not being driven by tax savings. so, that part of the careful, thoughtful analysis a treasury has to reach. the second is will it hurt tax reform. in my judgment, it hurts tax reform for some companies to be able to put themselves in a different position as foreign parent companies from other companies. those are where some of the dividing lines are that create differences in approach within

the business community. and so i don't think it helps tax reform to allow this to happen. you create more differences in winners and losers. so i think that acting regular laly now. that brings me to the last comment. i don't know if there's going to be tax reform. i'm a huge skeptic because i don't see the political dynamics to bring about tax reform. i don't see the consensus. look, if you take regulatory action and tax reform happens in the next two years, you can correct any errors that are made. and if it doesn't happen for four or five years, then you have stopped the bleeding. to me, it is a no brainer. if you think you can come up with a rule that is responsible, that effects good tax policy, and you have authority, which in my view you have all three, i don't -- the argument of waiting for tax reform carries no weight with me at all. >> so steve, let me ask everyone and then i'm going to turn to

the audience, let's assume for the moment that john is right, the two years is too long to waste. the secretary told himself that he himself had changed his thinking about this issue because the piece at which inversions had been accelerating. is two years -- what kind of -- give the public who is not following this as closely some sense of scale in orderer of magnitude here. at the rate of acceleration of pace of change of these transactions, are we going to see our tax corporate tax base in two years disappear? where is the sense of urgency from? let me ask steve to answer and then i'll come back to you, john and then we'll turn to the audience. steve, where is -- it's in the headlines a lot, it's embarrassing if we talk about the burger king going overseas. but is this a very significant shift in the location of the u.s. tax base? >> well, it can be.

let's keep all this in perspective. the corporate tax base is only 10% in a good year of our total federal revenues. some of this isn't just about the corporate tax base. it's about americans seeing taxpayers be able to do things they cannot do. it's about protecting the integrity of the tax system as a whole. but just to be more specific, i think what attracted secretary lew's attention, almost certainly was first the pfizer deal which did not go forward, #j?:4ñwas not quite $100 billioj uz announced deals are each over $50 billion. all those occurred in the last several months. there are deals waiting in the wings of sides we don't know. when i looked at walgreen's, which did not go forward, i pointed out in my article that if they did what the bar clays analysts suggested they should do, they were talking about $980

million a year, one company, of tax savings, not all of which would be eliminated by the proposals. they would be reduced. let's say it's a couple of hundred dollar million. we're talking real money even for the federal government. >> are we on a burning platform s our hair on fire? the joint committee has an answer to that question. and the administration has a proposal to address a legislative proposal to address inversion. if enacted, that proposal would raise $20 billion over ten years. $20 billion sound like a lot of money, is a lot of money, but it's not a lot of money in the context of the projected corporate tax receipts over the next ten years, in fact, it is less than one half of 1% of the projected tax and that's over 10 years. so congress has time to deal with this. this notion of -- or the burning

concern about interest stripping by inverted companies. there's a revenue estimate on that proposal by the joint committee that says it will raise over 10 years $4.6 billion, which is less than 1 tenth of 1% of corporate tax receip receipts. the house isn't on fire. these are not -- i'm not defending inversion. i'm not defending interest stripping. i'm just telling you there aren't a reason for us to run helter-skelter and do -- and screw up the administration of our tax system. they are symptoms of a fundamentally badly broken corporate tax system, something i think we all agree needs to and should be fixed. but this is not an emergency. now, i agree with steve it is bad for the tax system, for people in the general public to see companies leaving our country. that's a terrible thing. and we ought to address that.

but any short term ad hoc measures aren't going to stop that. and we really need to get to the same. >> steve, i'm sure you'll find a way to answer the question as part of a comment in response to the audience. so let me make sure we get them in. thank you very much. so, i would ask if anyone has a question please raise your hand. as you ask your question or if you would please identify yourself and your name and where you're from. all right. in the first row up here, please. if you could wake for the mic, please. thank you. here it comes. >> question for john and the other panelists, i guess. when i served at treasury between 2001 and 2003, we described in congressional testimony the u.s. tax system as america's berlin wall and said really the only way to stop companies from wanting to leave, if it's in the economic interest to leave, is that tear down that wall and go to a territorial system and you can still raise 10% of the u.s.