today the committee will continue its consideration of the chairman's mark for the tax cuts and jobs act. we will begin by walking through the mark with the help of the chief of staff for the joint committee on taxation, and then proceed to questions from members. following the conclusion of this process, which will likely take some time a modified mark will be provided to members later today, which provides input received from the amendments that have been filed. because of a large number of amendments that we have processed, the modified mark will be given to members later today as has been discussed with our ranking member and everyone can then have time to read over the modifications. after that process, we will resume the markup tomorrow morning, with the modified mark. but before we proceed today, i want to make a few comments.

i appreciate members' participation during yesterday's igs session. i was glad to hear every's initial thoughts. however, a number of issues were raised yesterday that in my view warrant some additional responses. first at characterization of the bill as a massive tax cut for the rich that particular claim was repeated by almost every minority member of this committee. the problem with that claim is that it's just not true. the joint committee on taxation a non-partisan congressional scorekeeper has concluded not only does the bill maintain the current level of progressivity in the tax code but the largest tax cuts in terms of percentage of income will go to middle income earners. i understand that the districtsal analysis is inconvenient for the democrats who are committed to the narrative that republicans intend to give the so-called rich a huge tax cut. but jct's analysis shouldn't be

ignored altogether. secondly, there was the repeated claim supposedly placed on jct analysis that the bill is a massive tax hike on the middle class. to reach this conclusion, members had to willfully he twist the meaning of jct data, specifically members side of the jct table concluding that someone this the middle class may see a tax increase under the bill while those same members completely ignored the fact that the very same data showed that the vast majority of middle class taxpayers, about 90%, were either going to get a tax cut or at the very least be held harmless under the bill. yesterday i mentioned a tax bill introduced by the ranking member a few years back. i noted there were a number of similarities between his previous bill and the one we are

debating today. however, there are some differences. for example, i'm not aware of any jct districtsal analysis on the widen code's tax bill but the tax policy center did look at some of the potential districtsal effects of the ranking member's bill when he introduced it with former secretary greg. -- or senator greg. excuse me. interestingly enough, tpc found that close to 25% of middle income taxpayers would have gotten tax increase under widen/coates and about 17% of the lowest income earners would have seen their taxes raised. now, i don't raise this to play tit for tat and i think there are reasons to not consider analysis by outthink tanks to be the gospel when it comes to these matters but i think it's worth noting that the ranking

member authored and championed tax reform legislation that according to the standards he and others used to criticize the current bill was more problematic and according to a think tank even cited by members on the other side would have raised taxes on far more middle and lower taxpayers than the legislation we are considering this week. next, i want to address the many complaints about process we heard during opening remarks yesterday. members lamented the lack of hearings arguing that the 7-0 plus hearings we have had since i have been the lead republican on this committee were not enough and that we needed multiple additional hearings to examine the specifics of the chairman's mark. what they didn't mention was that this demand would be a significant departure from the way this committee has traditionally operated. historically, the committee hasn't held hearings on specific

marks issued by its chairman. we certainly didn't do so when we considered the affordable care act or any other major mark in the modern history of the committee. it is therefore absurd to demand that we do now. in addition, we heard members complain about the partisan nature of this exercise yet i don't believe a single committee member of the minority even acknowledged the fact a that three months ago every single one of them signed letter indicating, among other things, that they would not engage in a bipartisan tax reform process unless republicans agreed up front to not use reconciliation. given the history of this committee, and congress's recent history with regard to tax policy, such a demand is entirely unreasonable. it is not a rarity for major tax bills to move through reconciliation. and the potential use of reconciliation in no way bars

the possibility of bipartisan compromise. knowing this, i can only conclude that the intent of my colleagues' letter was to communicate that they had no intention of engaging meani meaningfully in tax reform. but even if i'm wrong in that interpretation, over the past ten months i have made countless public statements which i called on my democratic colleagues to join in this effort to offer their views and advice without preconditions or up front demands. yet to my knowledge no one on the democratic side saying anything to suggest that my conclusion about their prerequisites was incorrect. for what it's worth i'm still hoping we can get some democratic votes in favor of this bichlt as i mentioned yesterday, the vast majority of the major proposals in our bill have enjoyed bipartisan support in the recent past, including, from democratic members of this committee. middle class tax relief is

something that members of both parties should be able to get behind. lower corporate tax rates and making america's businesses more competitive is something that both republicans and democrats have sought to do for years. updating our outdated international system has been a bipartisan endeavor for a while now. ads i noted yesterday, the senate minority leader is a co-chair of one of our working groups drafted a report calling for international tax reforms that are consistent with what we are trying to do with this bill. i intend to move forward if members want to vote on the substance of the policy and not with an eye toward next november. i think a few more will eventually find themselves supporting this approach. this is a good bill. it will give real tax relief to middle class families. it will grow our economy. increase wages.

and create jobs. i think that ultimately most members who decide to vote against it based on partisan strategy will regret taking such a course. once again, the next step in this process is to walk through the mark. we'll begin that process in a few minutes. but with we get to that, i'll turn to my friend senator widen for any comments he would like to make at this point. >> thank you very much mr. chairman. mr. chairman. you could tell that you have a lot of fans on our side of the dais yesterday when claire mccaskell said that she adored you. i was just thinking to myself, i'm not sure she would always say that about me. so you've got -- >> i was pleased she said it about me. >> i was going to say, very, very complimentary, and it reflects our affection for you. i still want to make the point, mr. chairman, that what is going on now in the finance committee is not right.

when we left last night, we were told we would get the modified chairman's mark the first thing this morning. that has not happened. so now we are on the second day, and we still don't have the full text of the bill we are actually supposed to be writing in this markup. so i gather from hearing from the staff, the idea now is that senators can ask questions about legislation that may not be relevant in five or six or maybe ten hours. this is further evidence that the finance committee isn't ready to proceed with a bill that makes trillions of dollars of changes to the tax code. this does not resemble, no matter how much my colleagues on

the other side say otherwise -- this does not resemble the regular order in the finance committee. this is colleague's reckless haste. now we've already heard about the evidence of how millions and millions of middle class families are going to pay higher taxes. this morning, the news was about how this proposal would open up a bonanza of new loopholes for multinational corporations and special interests. so i don't want to pretend that this is in the public interest. members are going to have less time to actually work on the real legislation, real legislation, that's going to affect millions of our people, will remake the american economy in fundamental ways, and will

make changes in tax law that affects trillions of dollars. this is trying to make fundamental tax reform on the fly. that is not what ronald reagan did. that's not what i did when i worked with our former respective -- our respective colleague senator greg and senator coates. st this is not in the public interest. and i will make the plea that i did yesterday, mr. chairman. we share your view that the tax code is broken mess. we share your view that we would like a bipartisan bill. but given what has happened just in the last 12 hours, we are continuing to move in the wrong direction. i hope that we'll see that change. i thank the chair. >> thank you. once again, the committee has before it a chairman's mark of an original bill entitled the

tax cuts and jobs act. ordinarily, we would incorporate the modification into the mark at this point in the markup. however, as i noted earlier, we are still working on some final details of the modification and i want to make sure members of the committee have time the look the modification over before it is incorporated into the mark. and that's something that naturally i would like to accomplish. i expect to be able to deliver the modification later today. now we should begin with our walk-through of the narc and proceed to questions from members. then tomorrow we will walk lieu and hear questions about the modification tomorrow morning. continuing our usual practice with tax legislation, the chief of staff of the joint committee on taxation, tom barthold, is joining us here today to assist us in this endeavor. mr. barthold, could you please

describe the mark? >> thank you mr. chairman, and member of the committee. you have before you three joint committee documents, jcx 51, 52, and 53, which describe the chairman's mark in detail, provide revenue -- the staff's revenue estimates of the provisions, and distributional analyst of the chairman's mark. the chairman asked me if i could take several minutes to give a fairly high level review emphasizing or highlighting for the members a number of the significant features that are changed. so i'll start with the changes in the individual income tax. individual income tax under the chairman's mark would provide for seven tax brackets with marginal tax rates of 10%, 12%,

22.5% 25%, 32.5%, 35% and a new top rate of 38.5%. which unlike present would eliminate the marriage penalty and the threshold break point. the chairman's mark would repeal the individual alternative minimum tax. the chairman's mark nearly doubles the present law standard deduction to have a value of $24,000 for married joint filers, $18,000 for head of households, $12,000 for all other filers. but at the same time, the mark would repeal several itemized deductions, including the presently law deduction force state and local income or sales taxes, personal property taxes, real property taxes, excess casualty losses and itemized deductions that are otherwise subject to the 2% floor. that means that the mark would retain the mortgage interest deduction with a modification, the deduction for charitable contributions, and medical expenses. the mark would also repeal the

present law limitation on itemized deducks known colloquially as the peas limitation. the aggregate effects of this in the estimate of my colleagues is that whereas under present law approximately 29% of taxpayers claim itemized deductions under the chairman's mark it would be approximately 5% of taxpayers would claim itemized deducks. in addition under the individual income tax the chairman's mark would repeal the personal exemptions, but it would expand the child credit, increasing the value of the child credit to $1,650 for children under age 9/1118, which is also an expansion of eligible children. $1,000 of that child credit would remain refundable and would be indexed in the future. in addition, for other non-dependentent non-children, other dependents, there would be

a $500 credit. also the phaseouts of the child credit and the non-dependent credit would be increased expanding the number of taxpayers who might be able to take advantage of the child credit. another significant feature under the individual income tax is the chairman's mark would provide a special effective reduced tax rate on income earned by owners of pass-through enterpris enterprises, such as seoul proprietiors, partners in partnerships and s corporations. this effective reduction in tax rates is effectuated by a 17.4% deduction for the amount of taxable income otherwise earned by that business entity. this deduction would generally not be available to enterprises that largely provided professional services such as accounting, consulting, law firms.

with the exception that if the professional services owners had annual taxable incomes of less than $150,000 in the case of a joint return, $75,000 for others. they would be able to avail themselves of the deduction. the deduction itself is limited to no more than 50% of the qualifying w-2 wages paid to employees of the enterprise. and the last thing of significant note in the individual -- for individual taxpayers is the mark would double the present law effective exemption amount of $5.49 million under the estate and gift tax to effectively just shy of $11 million. in terms of business income taxes, the mark would reduce the present law corporate statutory tax rate from 35% to 20% effective starting in the year

2019. the mark would repeal the corporate alternative minimum tax. the mark would expand presently law bonus depreciation which is a 50% first-year deduction, to 100% bonus or 100% write-off in the first year that provision would be effective for five years. the mark would also expand expensing the taxpayers may claim under section 179 which presently is limited to $500,000 worth of annual qualifying investment. it would expand that to $1 million worth of qualifying investment. mark would make some changes in terms of the cost recovery lives of non-residential and residential real estate and farming equipment, would modify taxpayers' timing of claiming net operating losses that they may have incurred in a prior year, net operating losses would be limited in any onier to 90%

of taxable income. but -- year to 90% of taxable income but losses would be carried forward indefinitely. it limits the deductible amount of interest expense to no more than 30% of taxable income. within that provision an exexception is provided for real property businesses that might choose to elect out and continue to fully deduct their interest expense. if they do so, in electing out they would have to use the ads class lives and cost recovery for month residential and residential property. in addition, and of note, several small business provisions of present law are expanded and given a more uniform threshold of small business. small businesses, for the purpose of expanded access to cash accounting, expanding the exceptions from inventory rules and uniform capitalization and

the percentage completion method are expanded to include any business that has annual gross receipts of $15 million or less. last major area of note involves cross border taxation of investments and enterprises. the mark would move the united states away from its current hybrid worldwide tax system to a territorial tax system by providing a 100% dividends received deduction. in part to effectuate this shift from a worldwide system to a territorial system the mark would deem a repatriation of currently untaxed earnings held abroad. it provides a bifurcated tax rate on those unrepay treeiated untaxed earnings of 10% for liquid assets, generally cash

and cash equivalents, and 5% for non-liquid assets. the mark also makes some other significant changes to protect against profit shifting, it creates a current tax on what the mark defines as global intangible low taxed income. this is a calculation of income that's above that that you might expect to be earned just on the tangible investment abroad. in a manner such as subpart f, this income would be currently taxable. the global low taxed income, and there's a slight air or, i should note in the markup document of it's not reflected in the estimates. i'll clarify that in a second. but the effect of the inclusion is that global intangible low taxed income would face a current effective marginal tax rate of 12.5%.

in parallel, the park would also create what it defines as foreign derived intangible income, this is income that's essentially equivalent to the global intangible low taxed income, but it's income that's derived from foreign sources, from foreign sources, but is paid in u.s. or earned by the u.s. taxpayer. again, in this case, the mark has an error in that it says that there is a 37.5% deduction for that. in fact, the mark intended a 50% deduction. it was a typographical error that i did not catch on proofreading our markup document. and that creates an effective marginal tax rate on foreign derived intangible income of 10%. and then perhaps lastly of note, to protect against domestic base erosion there are several provisions in the mark, perhaps

the two of note is it modifies the ability of a taxpayer to claim interest expense, stripping the u.s. base by comparing interest expense to that of the worldwide leverage ratio of the multinational -- multinational enterprise. the mark would also impose a base erosion anti-abuse tax. this is a tax that would apply only to taxpayers that have gross receipts in excess of $500 million annually. and it's a tax that in its workings it would look at cross-border related party -- related party payments. if this taxpayer or if a taxpayer has cross border related part payments that are dedugtible and exceed 40% of the taxpayer's total deductible

payments then a comparison would be made of tax liability under the regular income tax and a 10% tax on an expanded base that adds back certain related party cross-border payments. that's very brief. there's a lot of material in the mark a number of details that i did not cover. but i know the members are interested in getting to questions. so i'll conclude and happy to answer any questions that the members might have. >> thank you mr. barthold. joining tom at the table are jennifer akuna from the finance committee majority staff, and i believe miss sarah schaeffer will come later. mr. adam caruso. mr. ryan abraham and mr. drew crouch from the minority staff. all are present to answer questions about the mark. we are also joined by mr. tom west who serves as tax legislative council at tom landry. mr. west is here to give us the

administration's perspective on issues under discussion. i'm sure members of the committee have several questions about the mark. i will recognize members for if purpose of asking such questions in the appropriate order under the rules of the committee. so we'll just go from there. turn to you senator. >> thank you mr. chairman. and the first thing i want to say is tom barthold and his team at the joint committee on taxation, in my view, are the gold standard for professionalism in this field. they call in on the basis of the facts. they are objective. they are straight with democrats. they are straight with republicans. they are straight with everybody across the political spectrum. mr. barthold, i just want to begin by thanking you and your staff for your habitual professionalism. and i think we are probably going to make you a little tired over a very, very long day. and i want to make sure -- we've had some colleagues come in in

the last few minutes. and we are now proceeding on something that is even bizarre by washington, d.c. standards. we are now asking questions on a bill that is not the bill. in other words we were told that we would get the modified chairman's mark the first thing this morning so that we could actually ask questions about a bill that is the bill when we're looking at the prospect of almost $10 trillion worth of changes in tax policy. so we do have a lot of questions, and i'm going to begin with two from this morning's headlines that have me deeply troubled. from the "new york times," haste on tax bill may leave a trail of

loopholes. and from bloomberg, senate's offshore tax ideas could be a gold mine for some companies. both of these stories talk about how some of the complex, new provisions in the bill, which haven't received a lot of scrutiny and certainly have gotten zero bipartisan review, would up end decades of u.s. tax law and send even more taxable income overseas. colleagues, these headlines from this morning ought to serve as alarm bells signaling the dangers and consequences of rewriting america's entire economy in a matter of days. the "new york times" story quotes experts like former assistant treasury secretary steve schea who testified before our committee a few weeks ago. it focuses on the new rules for pass-through entities and multinational corporations. and on the one-year delay in the reduction of the corporate tax. these are complicated issues, with complicated implications

for businesses across the country. not exactly dinner table conversation or stuff people are going to talk about today in the lunch room. but real important. so first on pass-throughs, the bill sets up complex new rules for pass-throughs with different rules depending on the type of work that the entity does and how much income it make. the article says that under the bill, a firm could, quote, skirt the limitations in the bill by creating multiple partnerships with different functions with one providing services and the other handling, say, licensing or leasing. so i'd like to get the staff reaction to this. first ms. schaeffer, then mr. barthold. what is your reaction? is it true?

>> based on my understanding of the mark, yes, that would be accurate. others know there is no exception that would sit that would disallow a taxpayer from setting up a separate pass-through entity to distinguish other income from their service income. >> barthold? >> i guess, senator, i'm not quite clear about what you have the taxpayer setting up. >> well, what the article says is that under the bill, a firm could skirt the limitations by creating multiple partnerships with different functions with one providing services and the other handling, say, licensing or leasing. true? >> this is a service partnership? >> yeah. >> if it is a service partnership and we look to the

mark anticipates looking at common control, related parties, and treating them as one. but if it's a service partnership, there is no deduction except in the case of the service partner having an income of less than $150,000 in taxable income. the taxable income would be computed across all sources. so if the service income that this owner was trying to attribute to themselves was $75,000 worth of service income, whereas all other income was $200,000 -- and i'm abstracting from taxable income or adjusted gross income, saying it's taxable income. that individual would not qualify for the exemption provided in the chairman's mark. >> so i think you agree with

that, miss schaeffer? >> i guess what is unclear to me is if a partner for instance in a service partnership has a different partnership interest and that partnership holds a trader business would they be able to avail themselves of a deduction that way? >> well, again, you are looking at the partner level when we are measuring -- when we are measuring income, and the source of their -- the source of their income. so just as if the individual owned three different retail establishments, forget the service income aspieth. for the purpose of the -- for the purpose of the calculation we would add up the income from the three different sources. if we then created a fourth business for this individual as a consultant in establishing retail enterprises, consulting services are generally excluded

except for the income limitation that i noted. so if the individual were successful in earning income in his or her actual three retail enterprises such that they had an income from those enterprises, a taxable income in excess of $150,000, it would not matter if they set up a fourth enterprise that was to provide consulting services, that income would not qualify. >> i'll let you finish ms. schaeffer. sure looks like a lot of gaming with me. >> yeah, i think what the article is getting at is the at of taxpayers to bifurcate what we consider services from true trade or business. >> let's go on to the next sort of end run on tax law. isn't it correct that if a pass-through owner has multiple pass-throughs for different qualified businesses -- for example, a venture capitalist, a wealthy investor could combine the business income of a profitable business with few employees with that of a

business with very low income and lots of employees to avail themselves of the maximum deduction every year? i think for you mr. barthold. and i think any of the other panel members. >> just a moment, senator wide. our understanding of the chairman's mark is that the wage income limit that i noted and perhaps i should just reemphasize is that the income they can benefit from the 17.4% deduction is limited by 50% of

the wage income of the enterprise paid to non-owners. but that that test would apply on an entity by entity basis. so in the example you just laid out where there was one enterprise that perhaps had ten employees and whatever their wage income was and other enterprise that had only two employees. the owners income qualifying for the benefit with respect to the second enterprise would be limited by 50% of the wages paid to the two. >> ms. schaeffer do you want to take that? >> sure. based on our discussions with majority staff last week, while it is unclear in the mark, our understanding is that these rules are to operate like current law, section 199. in section 199 it provides that a taxpayer maying a grated all w-2 wages and all qualified production activities income in

pass-through opportunities. that's how these rules would operate, would allow on owner of multipell pass-throughs. >> anything to add to that mr. barthold? >> that's not our understanding of the mark. perhaps as the members deliberate that's a point we should clarify. >> that's what i believe you were told by the majority staff; is that correct ms. schaeffer? >> that's correct. >> okay. let's get into the multinational area. this bill cuts those taxes dramatically for multinationals. in fact it actually says it's more attractive to do business overseas than it is in the united states. now, according to the article, we could wind up encouraging companies to shift even more profits offshore. it also contains some limits, including one that limits the new benefits to companies with

annual revenue of more than $100 million. the article says that companies could set up complicated structures with various subsidiaries and tax haven affiliates to avoid the rules. mr. abraham, is that right? >> based on my understanding of the chairman's mark, there seems to be some dock plexity regarding how the guilty and the beat the foreign inbown and the outbound provisions might interact. we were looking -- your staff has been looking at a proposal regarding controlled foreign corporations where in the controlled foreign corporation is operating abroad, they could potentially receive a 10% u.s.

tax rate. and then they could sell their product associated with the i.p. back into the u.s. and because the inbound proposal does not affect cost of goods sold, there is actually incentive to achieve a 10% tax rate versus a 12.5% tax rate in the u.s., which would encourage, as you were saying, potentially shifting your i.p. to a important jurisdiction. >> mr. barthold, is mr. abraham correct in his analysis? >> well, he was maybe a little bit too fast for me there. so i'll just step back and say relative to present law, i think the point that mr. abraham made was that the incentives might be substantially different from what they are today. as i noted, the mark would create essentially an effective

rate on intellectual property that's held in the united states and exploited to earn income abroad of having an effective marginal tax rate of 12.5%, which is substantially a better outcome for the investor than is achievable under present law. that's without shifting abroad. if it were shifted abroad, the global intangible low tax income, as i noted, would have current taxation at an effective rate of also at 12.5%, which would seem to equalize the outcome. compared to present law also, there is no current taxation of any income earned abroad. so relative to present law, the chairman's mark would seem to -- is trying to lessen the

incentives to shift profit, particularly profit from intangible property abroad. >> just seems to me that companies still, under this, are going to be able to use these byzantine unbelievably complicated structures of various subsidiaries, tax haven affiliates, to avoid the rules. and i'm just going to continue to kind of see if we can drill in to all the ways that this bill allows those big companies to gain the system. under the foreign based erosion rule, a controlled foreign corporation of united states -- of a u.s. company pays 10% to the u.s. on income from their foreign audio i.p. they can then sell the product, a phone or something similar into the u.s. with no further tax because the inbound base erosion rule doesn't apply to the cost of goods sold. that's what the article refers

to. now the chairman's mark includes a provision to lower the tax to 12.5% if companies develop or move their i.p. to the u.s. the problem is, the companies only get that if they export their i.p., which could be a trade violation, and it doesn't allow u.s. companies to get the lower tax rate when it sells to the largest market in the world, the u.s. i think we would like abraham and barthold to get into that. >> yeah, the -- you are picking up on the comments that i made a few moments ago. you know, your comment regarding the exporting of i.p. and the ability to claim the lower 37.5% deduction which effectively gets you the 12.5% rate in the u.s. as compared otd otherwise 20% u.s. corporate rate is only available for foreign derived

intangible income. essentially exporting did -- exporting the good associated with the i.p. there have been some concerns raised dating back to when former chairman camp raised a proposal like this that our staff has heard about that that could present some issues with our trading partners. the -- you know, overall, you know, the article is pointing out the shift to the territorial system which i know the ranking member has been concerned with wherefore ultimately taxing the united states activities at one rate, and then taxing foreign activities at a lower rate and that's -- that policy filters through the entire bill, as you have seen. in the global low income tax rule which ultimately results in a u.s. company being able to achieve a final tax rate of 12.5% max or potentially lower to the extent it's just earning

normal returns on its foreign investment. >> okay. unless you want to add anything mr. barthold i'm going to wrap up with something i think is pretty easy. do you want the add anything on that? >> well yeah, i think that my friend ryan didn't exactly answer the example that you gave. you had posited let's say a company with a financy electronic device with lots of technology built into it that's manufactured abroad using technology that maybe is being held abroad. and you had commented that it seemed that this, because cost of goods sold is exempted from the base erosion anti-abuse tax posit in the chairman's mark, that this would seem infective and it would make sense to continue to maintain that structure. i think that misses part of the chairman's mark, which is if you have high returns from

intangible income abroad, that's what the global -- the global intangible low taxed income tax regime is about. it would say that the income earned in the cf -- in the u.s.-controlled cfc abroad would be currently taxable to the extent that it exceeds the threshold amount that mr. abraham mentioned. >> so we are going to have lots more questions. it's going to be a long day. i thought it was important to start with the headlines about how what i think is reckless haste is going to leave an enormous array of tax loopholes, a loophole bonanza out there for people who want to gain the system. i think the offshore ideas are going to be a gold mine for some companies. and let's just wrap this round up with something simple. by cutting the corporate rate,

but by delaying it for one year, there's an incentive for companies to accelerate their deductions and delay their income. that way, they get their deductions against a 35% rate, and their income is taxed at only 20%, creating another huge incentive to game the tax code in america. barthold, abraham, back and forth here, and then we'll wrap up the first round of many. >> no back and forth is needed senator widen. it is the case when there are changes in tax rates around a calendar date that to the extent that an individual or a business can have costs in the high tax rate year and income in the low tax year, they will try and, you know, alter their affairs so

that that happens. that can actually have some good economic outcomes in some cases that congress has tried to do that at some points in the past to encourage earlier investment for example. > >> i just want to close this round because, colleagues, there is no question that digging into these kinds of issues is sort of like prolonged root canal work. it is difficult, important stuff. but this is why you need to take the time to really get tax policy right. and the last example that we walked through where there was no disagreement is really going to create a huge incentive for gaming. when you cut the corporate rate, delay it for a year, you create an incentive for companies to accelerate their deductions and delay their income. that way they get deductions against a 35% rate, their income

is taxed at only 20%. and i use this as the last example, colleagues, because this is just representative of the kind of gaming that is going to go on under this legislation, and what happens when we don't take the time to get to the kind of result that they pursued in 1986 that senators greg and coates and i pursued that said we are going to make sure that our tax code is competitive so we can have more red, white, and blue jobs. but we're not going to create a new highway for people to game a tax code that is already riddled with loopholes. >> senator cardin. >> thank you mr. chairman. i want to first raise a serious concern on asking questions when we don't have the modified mark before us. the chairman has indicated that he is going to modify the mark before we start the actual amendment process.

and one of the questions that i have is the certainty of what we are doing here. because tax certainty is one of the issues i hear over and over again from people who are looking at tax reform as giving them some certainty. we know in the house bill they have different time limits on different tax provisions. we are concerned as to whether the chairman's mark, modified mark is going to put different dates than we have now, and perhaps not the permanency. we also are concerned because we are using reconciliation as i understand the byrd rule, the permanency of certain provision is going to be very difficult toy achieve because of the byrd rule under reconciliation. mr. chairman my first concern is are we really going to give the american public a tax code that is certain. and i can't answer that because we are being asked to use a process that doesn't even give us the tax proposal that we are going to be taking up in this committee. i also, mr. barthold, want to challenge the chairman's assessment on the distributional

charge of just for one moment if i might. i know that is very difficult to do a distributional chart on business income relief and i applaud your professionalism in trying to deal with that. as i understand it you didn't even attempt to do it in regards to the estate tax relief that $94 billion are not reflected in the distributional charts. is that accurate? >> that's correct. would you like me to explain why? >> you could if you want. but i just want to make sure that we know that we are not dealing with the $94 billion of tax relief that is provided under the chairman's mark that goes to the billionaire families. i understand you may have a difficult time figuring out how errors were lined up economicwise but clearly we are dealing with a class of people that are generally conceived to be the wealthiest in marrying. >> senator cardin it's certainly correct that the joint committee staff does not include the change in lights from the estate tax in our distribution analysis, it's not because the

real conceptual issue is not one of data and matching up. in fact, i'd be happy to provide to you and all the members of the finance staff some data analysis that we have done that links decedents for a prior year. i think our analysis was 2013. against their five-year preceding death average income. that gives an idea. i will have that provided to all the members. >> that would be helpful. >> but the conceptual issue is that tax on wealth is a tax on stock. and the income taxes are on flows, and adding stock values and flow values is conceptual. >> img i mentioned it well. it is a not in here. you are dealing with the wealthiest families in america which are at a different income level than we can conceive. and that's not even included in the distributional chart. >> that's correct. and i will provide you the analysis that i described.

>> you do though provide the bottom line number despite what some of my colleagues on the other side of the aisle tried to dispute, and that is the amount that it adds to the debt over ten years. and that's billion $1.5 trillion, is it not? >> that's our estimate as reported in jcx 52. >> thauncht despite what our colleagues will say, this bill, as scored by the rules would add $175 trillion to our natural debt to over the next ten years i want to get to the state and local tax deduction if i might. because in my state close to half the taxpayers use the state and local tax deduction. am i correct in assuming that the chairman's mark allows businesses to continue to deduct the taxes they pay but not individuals? >> the chairman's mark allows businesses as under present law to recover the costs of earning business income. and so that would include costs from property taxes on business

property. sales or other use taxes that they might incur. and state and local and foreign income taxes. >> but individuals would not be allowed to deduct those taxes and in effect pay a tax on taxes that they have already paid to their state and local governments. >> that's correct. the itemized deduction would be repealed. >> have you done any analysis to what impact that could have on property valuation considering that one of the selling points for owning a home is being able to deduct your property taxes? >> we have not done any analysis on this particular point. >> and that could have an effect on property evaluation which could affect local revenues, could it not? >> property -- if property values change and the property tax is assessed on that base, local -- state and local governments would have to make decisions about whether to change their rates or just

maintain what they have. >> let me just ask one more question with the chairman's permission. this bill is called a jobs bill. to me, the most important tools we have out there in my community are the economic tools we have to generate economic activity, the historic tax credits, the new market tax credits, the low income housing tax credits. those types of issues create jobs. am i correct that the only change in those tax provisions in this trillion dollar tax bill is to take away 50% of the benefit of the historic tax credit? >> that's correct, senator cardin. >> and was there any rationale policy reason for a 50% heir cut in the historic tax credit. >> senator cardin i'm not the person to ask about the policy

choices. >> i was just -- you did talk about some of the policy choices on the international tax form doing to a territorial, going to dealing with base erosion, but you are not prepared to talk about policies on historic tax credits? >> i'm not trying to be evasive. i thought in talking about the territorial system i was talking about the economic incentives. >> was there any reason brought to your attention why we would do a 50% heir cut on the historic tax credits? >> i was not told -- i was not informed of any specific reason. >> thank you mr. chairman. >> senator bennett? >> thank you mr. chairman. mr. barthold, i understand a significant share of taxpayers receive a tax hike or a very minimal change in tax burdens of less than $100 in either direction based on your distributional analysis. could you briefly tell the panel, and help me understand more about who those taxpayers

are? >> as i -- senator bennett, as i noted in the walk-through, there is significant changes in the structure, the entire internal revenue code but in particular the individual income tax. so the moving pieces that you are looking at, aside from changes in rates and break points, are the base of what determines taxable income. so changes that can help reduce individual taxes, the increase in standard deduction removes a significant amount of -- >> that's not the question i'm asking, mr. barthold, who are the taxpayers. >> i was trying to -- >> if you could get to that because you have consumed a minute of my time. i apologize. >> i'm sorry. sorry. the loss of perjury exemptions can cause upper -- >> are the vast majority of those taxpayers not working that are seeing those tax increases?

>> i do not believe that to be the case. >> due agree, mr. barthold that the tax pay with the highest incomes do not receive a tutd on average in this plan? -- a tax cut on average in this plan? >> your question again. >> again, this is my time, not your time, mr. barthold. do you agree that the tax payers with the highest incomes do not receive a tax cut on average in this plan? >> do not receive. on average, there is a tax reduction across all income categories. yes, so the highest do receive, on average, a tax reduction. >> a tax cut? >> yes. >> do you agree, ms. akuna that the highest income taxpayers on average, no matter which threshold you choose, receive a tax cut in this plan? >> as tom mentioned a moment ago, in every one of the

cohorts, the taxpayers receive a tax reduction. >> is the answer yes? >> yes. >> thank you. as a chair of thereafter tax income, mr. barthold, do the tax payers in the richest thresholds get a larger increase than taxpayers with incomes below $100,000 on average? >> i have not calculated -- i have not made that calculation on a basis of aftertax income. our calculations presented to you in jcx 53 -- >> i would like to see it if we can get that. mr. barthold in the chairman's mark for americans filing as a married couple in washington, d.c. and making $174,000 per year, how much do they receive from the $1,650 child credit if they have two children? >> the children are under age 18? >> yes. >> and the salary is -- >> the salary is a senator's

salary of $174,000 in washington, d.c. with two children. >> they should not be phased out. so it should be two times $1,650. >> that would be $3,350. >> yes. >> mr. barthold, does a single mom working in rifle, colorado making $18,000 a year receive 3,300 in credits for her two children. how much was she making. >> $18,000, not $174,000. >> then she would receive -- she would have it would seem no tax liability accounting for the credit, and would receive all or a portion of the $1,000 refundable credit. i would have to do the calculation. >> some portion of $1,000. what if she had three or four children? >> then it would be the same portion multiplied by three or four. >> what about the person making $174,000, if they continue to have three or four or five

children? >> child credit's addive. so three or four -- >> which means they get a massive credit whereas the person who is a single mom in rifle, colorado, gets a de minimus credit? >> with three or four children, income tax liability would be driven to zero, and the amount of refundable credit would probably be -- >> it just says it all, it says it all about how this plan is stacked. we have such an opportunity if we worked in a diplomat way to actually drive incomes of middle class people up. and that's not what we are using this to do. i said enough about the process yesterday, except i will say mr. chairman, i know i will lose this argument with my colleagues here. there is not a school board in colorado, not a city council in colorado faced with a zoning issue that would get away with a process that looks like this. >> senator stappano.

>> thank you mr. chairman. to follow up with senator bennett, this morning after betting together lots of questions and wanting to delve hearing we're asking questions about the bill that's not the final bill? mr. chairman, if there's going to be a new bill coming forward tonight are we going to get to ask questions on the real bill? >> the answer is yes. >> yes. so right now we're asking questions but the real bill isn't in front of us. >> we're pretty sure what the bill is going to be? >> it's very concerning, mr. chairman. normally our committee has done great bipartisan work and it's unfortunate what's happening at the moment but let me talk about the bill in front of us, so assuming that this will be similar to the bill that we're actually going to be voting on. there are a lot of promises that have been made to the american people, to families, to workers

about what the bill will do for them. they've been promised middle class new jobs and thousands of dollars in their pocket but we know this is the same old trickle-down scheme that has not ever produced that in the past so i have some questions for mr. barthold. the administration has promised the average family will get a minimum of at least $4,000 annual raise if this legislation is enacted. is there anything in this bill that would end the corporate tax giveaways if this turns out not to be the case? >> i'll make two comments, senator stabenow. that analysis is based on a macroeconomic analysis and the joint committee staff has not undertaken a macroeconomic analysis yet. but to answer your question, there is -- under the chairman's mark the 20% corporate tax rate

is permanent. >> okay so if the promised minimum of $4,000 increase in wages doesn't happen, there's no consequences for that? >> the corporate tax rate is permanent under the mark. >> if instead a large corporation uses the windfall for stock buybacks or more dividends for shareholders instead of their jobs, is there anything in the bill that prevents them from doing that? >> the managers, the owners of the corporation are free to make whatever investment choices or distribution choices they choose. >> so in the past what we've seen is jobs haven't been created, wages haven't gone up and there's nothing in the bill that would stop that outcome from happening. nothing changes if, in fact, corporations choose to just basically reinvest in stock buybacks and so on? >> the market is not predicated

on future actions by any business entity. >> thank you. the administration has promised the economy will gain millions of additional jobs which i would love to see happen, would support anything that would really do that. they're saying if this legislation is enacted. unfortunately we've never seen that happen. we've seen the same promises over and over again and we've not seen that happen with trickle down economics. but if the economy does not gain millions of additional jobs but instead only creates huge debt, is there anything in this bill that would end the corporate tax giveaways? >> as i noted before, senator stabenow. you should the chairman's mark, the 20% corporate tax rate would be a permanent feature of law. >> so no matter what, if there's debt, no matter what happens the tax giveaway continues? what if the economy actually lost jobs compared to our current expectations as a result of the bill's passage?

does this bill include anything that would end the corporate tax giveaways if companies actually created fewer jobs? >> again, it's not -- the corporate tax rate provided in the mark is not predicated on any other economic indicators or future actions. >> no matter what. some have represented this legislation will encourage companies to bring jobs home, which i certainly am at the front of the line and pushing to have done to bring back jobs to america. does anything in this bill end the corporate tax cuts if that turns out knob to be true and instead we find that militia jobs are being sent overseas? >> again, the rate reduction would be a permanent feature of law not predicated on any subsequent economic action or economic indicators. >> is it also true that today if a company moves those jobs overseas we as taxpayers pay for

it because they can write off the cost of their move? >> senator stabenow, moving expenses whether they be a domestic relocation or an international relocation are an ordinary and necessary business expense deductible against gross income. >> the finally i would just say would one of my constituents who's transferred from an employer from a job in grand rapids, michigan, to detroit be able to deduct those moving expenses under this legislation? >> the chairman's mark would curtail the above-the-line deduction for moving expenses except in the case of the armed forces. >> so someone getting a new job in our country could not deduct moving expenses but a company who takes our jobs and ships them overseas could deduct those moving expenses and taxpayers would pay for that? >> the ones of deductible business expense and the others

would not be deductable. >> the answer is yes. thank you, mr. chairman. >> senator. mr. barthold, senator widen express concern about the corporate tax rate not going down to 20% in 2019. instead of in 2018. let me ask you this question for clarification. would it be fair to say that many plans and decisions as to making income in 2018 have already been made by corporations and that reducing corporate tax rates so abruptly might not materialize much additional economic activity in 2018? >> mr. chairman, your question goes to how possible is it for

people to move around certain expenses and it's certainly the case that many investment plans, if we're going to start building a new factory or something, those have long lead times so there are many expenses that probably could not be -- the timing of which would not be materially changed. >> mr. chairman, if i could just briefly respond. the point of the question -- and i was glad mr. barthold answered it, was to show the kind of sleight of hand that is going to allow powerful interests to get around paying taxes and this is part of a long procession that is going to allow for more gaming and certainly there are instances as you suggest, mr. chairman where there is innocent intent. what i'm concerned about is this opens up a bonanza for powerful interests to figure out how to lower their taxes and game the

system. i thank you for the chance to further amplify on a point that mr. barthold expressed i think very clearly as demonstrating the kind of sleight of hand that represents this bill. >> senator toomey? >> thank you, mr. chairman. i'd like to follow up on this very topic with mr. barthold and discuss this dynamic of the interaction between the capital expensing provision and the rate reduction. senator widen describes this as sleight of hand. under the chairman's mark, capital items are permitted to be expensed beginning in 2018, is that correct, mr. barthold? >> i think it's even with the date of introduction -- november 2? >> okay. so -- >> basically as of after this markup. >> that would include items like

tractors, vehicles, machinery? >> yes. >> computer systems. >> all tangible property. >> tangible property that businesses purchase from other businesses? that it takes jobs to build those items, right? >> that's correct, sir. >> and i think economic theory has a very, very broad consensus that when workers have more capital-intensive equipment to work with all else being equal they tend to be more productive and therefore able to earn higher wages. the dynamic that senator widen calls sleight of hand strikes me as one that all else being equal simply encourages business to purchase this kind of equipment next year. because the deduction is available at the rate of 35% and in the future deduction will come against the 20% rate so all else being equal it creates a

greater incentive to make these purchases next year. does that sound sense to believe you? >> i think economics of the accelerated depreciation proposal in the mark would be to encourage acquiring equipment sooner rather than later. >> so my point -- i know senator widen characterized this as a sleight of hand, but i think what we should be clear about, what this is is an incentive for business to make very substantial investments in growing their business, purchasing equipment from other businesses and hiring more workers to use that equipment. of course there will be the need for more workers to provide that equipment. if that's sleight of hand then i guess i'm in favor of sleight of hand. i think it's a very, very productive and pro-growth dynamic and i just wanted to make that point and, mr. chairman, i will yield the balance of my time. >> well, thank you, senator. senator enzi?

>> mr. chairman, i'll pass until the end of the round. >> all right. then senator casey, is senator casey here? >> yes, mr. chairman, thank you very much. mr. chairman, i want to start this morning on the matter that we've had a big dispute about which is the process that has been undertaken to consider this legislation. we've heard for a long time now, months and months and months on both sides, people expressing a desire to consider this legislation in a bipartisan fashion. that was the intent at the beginning or not, i just don't think it's played out that way and i think the most relevant comparison here is not some rekre recent consideration of legislation generally. i think the most relevant

comparison is what happened the last time the united states senate considered tax reform 30 years ago, not an insignificant matter in this case as i said yesterday.

is 27 hearings on that proposal. the house had a bill which had 26 days of markup and when the finance committee in the senate got the house bill, there were six hearings on that bill so when you add the two together it's 33 hearings. i'm not say we need to have 33 but certainly more than we will have undertaken by the end of this process. so let me move to one of the

major issues, and this is critical to the country but also in a very particular way critical to pennsylvania and that's the state and local tax deduction. i would assert that if we go in the direction of the senate bill on this particular issue that lots of pennsylvanians will pay higher taxes. we know that, for example, in twourlt 2014 a little more than half of pennsylvania taxpayers claiming the state and local deduction made under $100,000 in pennsylvania, almost 30% of our taxpayers itemize so it's a big number in pennsylvania. mr. barthold, i want to thank you for your work, your professionalism and that of your staff. i guess the first question i have for you is will companies be able to deduct the state and local taxes they pay as this bill is currently written?

>> senator casey, the mark makes no changes in a business enterprise's ability to deduct ordinary and necessary business expenses which include the taxes they may pay in terms of property taxes, sales taxes, use taxes and their state and local and foreign income taxes. >> and the same question with regard to the individuals, are individuals able to deduct state and local taxes? >> all the taxes that are currently deductible on schedule a would no longer be deductible. >> mr. abram, i ask you, if individuals cannot deduct their state and local taxes does that mean they'll be taxed twice on the same income? >> yeah, that's the effect of denying the deduction to the individual. >> in this provision, this deductibility provision as it relates to state and local taxes been in the code since what year? >> i believe it's been in the

code since the beginning of the united states federal tax code. >> is there anything you can tell us about the services that state and local taxes finance? >> state and local governments fund -- well, they charge their state and local income taxes or property taxes and use those for any number of things from schools and hospitals to police and firefighters, voluntary -- volunteer firefighters and other items. >> senator cornyn? >> mr. chairman, could senator casey have 30 more seconds at least to finish this round? >> mr. chairman, one? >> he's only 30 seconds over his time. >> i don't know he wanted to finish but he can have the 30 seconds. i've been doing that for every democrat here today, going over every one. >> mr. chairman, i'll be very brief and i'll come back to it later. one point i want to make was about pennsylvania.

21% of our state's budget, the expenditures in the budget, go to public education and there's a report just issued last week by the national education association that's entitled -- the summary of the report says nearly 250,000 education jobs at risk if congress eliminates state and local tax deduction. the pennsylvania number for that comes down to about 800,000 -- i'm sorry, $8.9 billion in public education revenue at risk over the next ten years. so, mr. chairman, thank you for that time, i'll come back to some other issues later. >> well, thank you. let me just ask you, mr. barthold, just for clarification, why does a. c.t. classify the salt deduct, state and local tax deduction for

individuals as a tax expenditure but does not classify the salt deduction for businesses as the production of income as a tax expenditure? >> that goes to the theory of tax expenditure analysis. it posits a normal income tax that would provide aside from rates a standard deduction and would not have exclusions or deductions for anything other than expenditures that are necessary for the production of income. so in the case of business property, business property taxes as one example, those are necessary costs for an enterprise engaged in earning income, so that's not a tax

expenditure. payment of a properties tax on owner-occupied housing is an elective consumption choice by the household so it's considered a tax expenditure. >> thank you. senator cornyn? >> thank you, mr. chairman. >> i want to ask you to repeat something i think you said earlier because i think it's pretty significant. did you say that every taxpayer in the country will see a reduction in their tax rate? >> to restate what i said previously. i said every one of the income cohorts will experience a tax reduction. >> okay. and those are people in the cohorts, right? >> yes, those are people. >> so the way i interpret what you said is that every tax payer in the country will see a reduction in their tax rate. thank you for your answer. >> mr. chairman, mr. chairman, i

want to just address this argument. >> mr. chairman, parliamentary inquiry. >> regular order. >> let the senator ask his question then we'll come -- we'll let the ranking member ask. >> we've heard from our colleagues on the other side of the aisle, i'd like to get a chance to make a few points. we've heard the argument that this is somehow a secret bill, mr. chairman, but i would point out that you as the chairman of the committee are handling this legislation like every other bill that the senate finance committee considers and every other bill that committees consider in congress. it is because our democratic colleagues refuse to participate that we find ourselves in the unusual circumstances that we're in now but the idea that there's some secret bill because there will be perhaps an amendmented mark, chairman's mark or maybe

amendments offered in the committee that are accepted is just -- defies logic and is just simply untrue. >> appreciate you making that point. >> it streaks me -- it's the old story of the child that does in their parents and asks for sympathy because they are an orphan. this is entirely of the making of our democratic colleagues and this idea that characterizing the legislation reducing the corporate tax from 35% to 20% in order to make american businesses more competitive and investment in the united states more attractive is some sort of corporate giveaway strikes me as pure demagoguery. and the idea that by eliminating the salt -- the state and local tax deduction from federal income taxes strikes me that the taxpayers that benefit from those services at the local level ought to pay for them. and it makes no sense that the federal tax payer in places like

my state should have to subsidize the state and local taxes paid by tax payers in new york or california or elsewhere. this just strikes me as a matter of simple fairness and equity. and i guess our colleagues who are complaining about reducing the corporate tax rate like the flight of american businesses overseas along with the jobs and investment that go along with it because that in essence is what they're come plaining about and we would like to reverse that. we would like to see more businesses invest in the united states, more manufacturing here in the united states stamped with "made in america" on it rather than see them flee to lower tax countries like ireland and elsewhere. so i just -- i guess all i can say mr. chairman is i'm a little disappointed in the rhetoric and the refusal of our democratic colleagues to participate in the process. my understanding is that they've got several hundred amendments

that they intend to offer. i hope they do and in that do join us in this process. i anticipate in the end that like most reconciliation bills it will be a bipartisan product but i just think our democratic colleagues protest too much. >> mr. chairman? >> yes. >> just very briefly before we leave that point. i mean, senator cornyn has been trying very hard to say that everybody is going to get a tax cut and i would like to clear up this point. everybody would get a tax rate reduction as a policy but not everybody is going to see their taxes go down. could you walk us through that? because i think people are going to leave that little exchange with the wrong impression. >> that's correct, senator, in 2019 based on jtt's distribution tables as many as 14 million

americans with incomes under $200,000 can expect to see a tax increase and another 36 million could expect to see almost no tax change so that's -- that's anywhere between less than $100 tax increase to less than $100 tax cut. >> the reason i'm bringing this up, and i'll drop it here, mr. chairman, is you hear about tax rates on income cohorts. that is not going to be much comfort to the 14 million middle-class families whose taxes go up because of this proposal and approaeciate you clearing it up. >> senator isaacson? >> on the -- i'm going to show some of my ignorance in asking these questions because i've gotten a lot of help and encouragement on what to ask so it's not necessarily original thought on my part but it's important to make sure the system is not gamed. i've heard a lot of people talk about gaming the system and a lot of them are talking about how they would do that and i

have a couple questions to clarify. mr. barthold, i want to thank you for your leadership on this and know the provisions on this attribution rule in the bill are needed to prevent people from gaming the system however i've heard some from companies in my state that provisions may be overly broad. let's say u.s. corporation "a" has a 10% stake in foreign corporation "b." the foreign corporation owns other subsidiaries around the world with no connection to the united states. mr. barthold is it accurate to say under the current law as well as the bill we are making up the u.s. corporation would not have tax liability under subpart "f" for the earn ogs the other operation? >> well, senator izakson. there would be tax liability of the controlled foreign corporation currently pay bible back to the united states.

i may not understand completely the facts that you were positing and if it would be helpful i could work with your staffer later and clarify this point in writing. >> it would be helpful if my staff had a better senator. [ laughter ] >> i don't think that's the case, sir. >> i'm showing my ignorance, believe me. let me restate that, though. the foreign corporation owns subsidiaries around the world with no connection to the united states. if a foreign -- if a corporation "a" owns an interest in corporation "b" that has interests in other subsidiaries that the principal corporation does not have that would be treated just like it has here? >> i -- that's correct. >> i think i'm right, too, but i'm obviously not certain.

as i say, senator, if you would like, my colleagues can work with your staffer and we can answer the question in writing for all the members of the committee just to make it clear, i'd be happy to do that, sir. >> i'll get with you on that but i want to ask you another one as soon as i get back to my note page. the chairman got back to me faster than i thought mr. barthold, under section four -- >> the gentleman has the time. i thought he was worried about being over. >> no, no. i'm worried about not being fast enough. the deduction for foreign dividends received by united states companies, this is a key piece of moving toward more competitive international tax system that united states companies can compete on a level playing field with nine u.s. companies that don't face the

second layer of tax when they bring their earnings back home and i'm a big supporter of the territorial tax system, what you're doing does level the playing field in terms of competition without giving an undo advantage. let's say u.s. corporation "a" owns control of foreign corporation "b" and foreign corporation "b" also holds a 10% share in foreign corporation "c." as i understand it, under the current law a dividend payed to control foreign corporation is taxed the same way as if it had been a u.s. -- been taxed at the u.s. parent company. so would it be correct to say that the dividend to company "b" received from company "c" would be eligible for territorial tax treatment under this bill? >> under the chairman's mark, that's correct, sir. >> so a dividend paid by a lower subsidiary to a controlled foreign corporation will be eligible for a territorial exclusion just like the dividend paid drektsly to a domestic shareholder? >> yes, sir.

>> i thank you. >> appreciate all your work. i yield back, mr. chairman. >> thank you, appreciate that. let me make a couple points here that i think might be clarifying points. my friends on the other side are making the claim that the modification of the chairman's mark will dramatically alter the structure of the bill under our rules the chairman has the right to modify the mark. the chairman can do that up until he or she opens the bill for amendment. now that's been the general practice of the committee and is the general practice. indeed, 20 years ago when the finance committee was marking up the taxpayer relief act of 1997, the chairman's mark was modified several times and several items including my state children's health insurance program and an increase in the tobacco tax. the aviation tax has dramatically changed. as i stated at the beginning, we need to bring the mark in compliance with the bird rule. we are working on those changes and will discuss them with you in the chairman's modification,

these changes are essential to put the bill in good form for reconciliation purposes. that modification when finished will be released. >> we will walk through the modification and this is in keeping with our process, on substance let me assure my friends here the modification will be keeping the character of the tax relief in the mark. it will be focused on middle income tax relief. i hope to do even better than we have for middle income taxpayers, it will bring the u.s. corporate rate down to 20% level -- to the 20% level, bringing the u.s. rate into line with our trading partners and will make sure that u.s. companies are competitive overseas and will reverse the bleeding of the u.s. tax base which has been going on. >> mr. chairman? >> yeah? >> if i could just respond briefly. as you know, you've heard it from colleagues, this is not a question about your integrity and your honor. what we need to know is that we

are dealing with a bill that is actually the bill. we're making changes that involve trillions and trillions of dollarsover tax policy and what we were told last night is that we would get the new modified chairman's mark first thing this morning so that we would be able to use this time, i think we would both agree because we tend to see these matters similarly so that senators on both sides could ask pertinent questions. now, you have just said that the new modified chairman's mark will be in the character of what is really on offer. while we respect you, we are still legislators who have election certificates as well and we have got to have the time to actually see this rather than

move forward with what i consider to be reckless haste on changes of an extraordinary nature. so i understand what you said and i want you to know how strongly we feel about how we're now asking about a bill that is not the bill. >> i understand. senator thune? >> thank you, mr. chairman. mr. barthold, a lot has been made about how the benefits of this tax bill distribute across different income cohorts and i'm interested in your thoughts about how the tax burden -- in other words after this is all said and done in the distribution tables in addition to determining how the benefits flow through different income categories but what the tax burden is when it's all said and done and whether or not that tax burden reflects the tax burden

that is paid today by different income categories. so could you commentgener gener about the effects of the tax reform bill distributed across different income categories the overall tax burden borne, is it similar to or relative to what we would see today in terms of what people in different income categories are paying as their share of the overall tax burden in the country? >> thank you, senator thune. i think what you're asking is actually just an explanation of how the joint committee staff presents some of its data so in jcx 53, which is our distribution analysis, if you look at page five, for example, which is last year of the budget period, 2027, we present two or three basic different ways of thinking what about the proposal in front of the committee does.

at the very far right we look at average tax rates on individuals in different income groups and as general outcome you can see that the average tax rate because it's a net -- because it's -- there's net revenue loss in the bill, average tax rate across all income groups falls. i think the question that you're looking at is more the comparison in the middle two columns of federal taxes under present law and federal taxes under the proposal. these two columns report on the aggregate amount of federal taxes paid by all the individuals in those income groups and how that compares to the total federal tax -- the total federal tax take so i believe the point that you're trying to -- that you're asking to highlight is that if you compare the percentage column of percentage of tax paid out ever to 100% total, it's roughly

comparable across all the income groups under present law and under the proposal in 2027. so for example the income group of our classifier of 20,000 to 30,000, pays seventh tenths of one percent under present law, under the proposal they'd pay 0.7 of 1%. if you look at the income group of $100,000 to $200,000, 23.9% of all taxes under present law, 29.4% under the present proposal. >> and the one million over out of cure curiosity under present law tax burden and tax burden under the proposal looks to me like it goes up. >> as we reported here, 19.1% under present law, 19.4% under the proposal, senator. >> so, in other words, millionaires would be paying at

least as much or more of the overall tax burden in america under the proposal as they are today? >> that's what this column calculates. >> okay. and with respect to the reduction in business taxes there's been a lot made about cutting the corporate rate and the rate for pass throughs by the amount that's under consideration in this proposal. and whether or not the $1.5 trillion deficit, the instruction give on the the finance committee to meet, if you back out -- i know you don't, you use current law baseline, if you use current policy baseline that would make that number about a trillion dollars, my understanding is the congressional budget office says that for each 0.1 of one percentage point increase of gdp it generates roughly $237 billion in additional revenue and if that's the case, then the

growth rate that's assumed over the course of the next decade by the cbo is at 2% or under, what would it take to cover that trillion dollar bogey in terms of additional growth in the economy over that year over year? >> well, the simple arithmetic on that would be about 0.4 but you should qualify that some because that would would be 0.4 from the beginning of the budget period. it would be an immediate jump up in 0.4 is what the cbo analysis would be which would be different than achieving a growth rate 0.4 higher somewhere out as the economy starts to grow faster. >> but the assumption would be in order to be able to achieve -- have this cover that trillion dollar number you'd

have to have about four tenths of growth in the economy relative to what's predicted today, which is a little under 2%. so we'd have to assume economic growth of somewhere in the two, three range perhaps in order to make that -- >> again, with sort of the caveat that i noted that that would be two/three starting essentially next year. >> got it, okay. mr. chairman i would simply say it seems like to me the american economy, which historically has grown since the end of world war ii at over 3%, 3.5% to achieve 2.3% growth in this great economy if unleashed with some of the policies that are presented in this proposal seems reasonable to me and i would certainly hope we ought to be able to get the american economy growing at 2.3% or more. >> thank you, senators. >> announcer: that testimony from earlier today and we are back live now on capitol hill as

the senate finance committee is returning, about to return from their lunch break to continue work reviewing the senate republicans' tax reform bill. this is the second day of deliberations over the proposal. if you missed any of our coverage of these meetings on the plan, go to our web site, cspan.org, check our congressional chronicle page and search "senate republicans tax reform bill." [ indistinct audio ] [ indistinct audio ]

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