the committee will come to order we need today in our first during a one hundred twelfth congress to begin what i expect will be a long discussion and one that i hope will be bipartisan on the need to reform our federal income tax system is i did on tuesday i want to extend my appreciation to ranking member eleven for agreeing to allow this hearing to move forward today even though the committee did not officially organize until two days ago twenty five years ago a democrat house and a republican senate sent to the white house and the president signed a landmark legislation known today as the one nine hundred eighty six act this is where we started nine hundred thirteen this is the entire tax code of the united states of america and all the regulations this pamphlet this is where we are today this is the tax code and all the regulations that americans have to deal with today  the law in eighty six which marked the successful culmination of years of work to broaden the tax base and lowered tax race rates and it remains the the basis of our system of taxation but in some sense it's a shell of its  former self in the intervening years members of congress from both sides of the aisle have loaded the tax code with a dizzying array of credits deductions exclusions and exemptions the latest condiments david bradford once provided a tongue in cheek example to illustrate the concept of tax expenditures and little more than disguise spending bradford proposed to cut the defense budget for weapons zero while creating a new weapons supply tax credit that could be claimed by defense contractors for appropriate weapons donated to the pentagon and under this regime it would appear to the untrained eye that both spending and taxes would be reduced thus allowing elected officials to claim the government was smaller but in reality nothing would have changed the spending program would still exist just because really disguised as a tax credit bradford's cautionary tale seems all too real to those who pass the tax code and it's serious tax expenditures for congressional blessed industries and activities both big and small and regardless of the merits of individual tax expenditure the broader picture is not a pretty one the president deficit commission which i served on along with the gentleman from wisconsin mr ryan and the gentleman from california mr basara measure the impact of these expenditures in terms of higher tax rates the boll simpson report makes clear that taxpayers foot the bill for the those expenditures in the form of higher tax rates the bowl simpson report calling for called for a lemonade in all tax expenditures and would would have moved individual rights to eight fourteen and twenty three percent and drop the corporate rate to twenty six percent and if their plan used all of the higher revenue from eliminating tax expenditures to push down rates those numbers would have been even lower and as we'll hear from nina olson the taxpayer advocate the impact of the changes to the tax code to create expand and extend these expenditures can be measured by the tens of thousands of additional pages added to the code by the thousands of changes enacted in the last decade alone clearly the tax code is too complex too costly takes too much time to comply with and all of this adds more burdens on our families on employers making it more difficult to create jobs in this country and i'm under no illusion that the task before us will be easy to really reform the tax code in a way that lowers the tax rate broadens the base and promotes the competitiveness of american employers we will need to make some tough choices and i don't think this can be or should be a partisan exercise and it can't just happen because one chamber passes a bill that will require the active participation of all members of this committee and it will require us to work with the administration yes we'll even have to talk to the senate now and again but more importantly we will talk to the american people individuals families employers large and small who are actually impacted by the laws we passed here in washington so this is just the first hearing of many i've asked our witnesses to confine their remarks at this first hearing to defining the problems of the current tax system i look forward to hearing from many other witnesses and working with all of you as we undertake this enormous challenge as we do so we'll have many further opportunities to consider various solutions but today our focus should be on making sure we begin to understand the scope of the challenge and from the executive which i am sure will be forthcoming in a way this hearing of an effort some years ago next to me to wrangle was chairing the committee introduced legislation to try to move ahead this issue of tax reform i'm not going to be here d let's not expect any touchdowns it's a long from the goal line i do think we need to keep in mind some basic principles including the need for our tax system to help create jobs to help promote economic growth i also think in this maybe somewhat controversial and difficult that also we need to make sure that reform is responsible another principle that we need to keep in mind that any reform has to benefit the working families of america also let's keep in mind that code is complex answering it through expenditures under the caption on page nine the dirty little secret tax breaks generally benefit the masses that and i just urge that everybody and we welcome you back to the committee after her we will hear from bob mcdonald mr mcdonald executive officer of procter and gamble and is testifying today in his capacity as chairman of the business roundtable fiscal policy initiative i should know that mr mcdonald will need to leave promptly at eleven a m but i think given the schedule of votes that we're going to have today i don't think that will be an issue our third witness will be warren who dacke who is the president of who back in company a small business that provides tax services to other small businesses and fourth we'll hear from dr kevin hassett a senior fellow and director of economic policy studies at the american enterprise institute and the last we will hear from dr martin sullivan a contributing editor for tax analysis analysts welcome all of you and we look forward to hearing your testimony before recognizing our first witness let me just note that our time this morning is limited so i will not be asking questions today and with the currents of the ranking member questions by members will be limited to three minutes and giving more members the opportunity to be recognized but each of the witnesses will have five minutes ms olson your written statement like those of all the witnesses will be made part of the record and you are recognized for five minutes welcome and good morning thank you chairman camp ranking member levin and distinguished members of the committee thank you for inviting me to testify today about the subject of tack let me begin by saying bluntly that in my view the tax code today is a mess since the last major reform twenty five years ago the code has become an ever expanding patchwork of provisions with little logical connection and it has become unreasonably difficult for taxpayers to understand and comply with in my two thousand and ten annual report to congress identified the complexity of the tax code and the confusion and distrust it in genders as the number one most serious problem facing taxpayers and  i titled that section the time for tax reform is now because while there has been a lot of talk of tax reform in recent years experience has shown that it will require a sustained bipartisan effort with the support of an engaged public to make tax reform a reality start by noting that the tax code as it stands today imposes excessive compliance burdens on individual taxpayers and businesses it is right with complexity  special tax breaks helping taxpayers who can afford expensive tax advice and discriminating against those who cannot the complexity obscures understanding and creates a sense of distance between taxpayers and the government undermining taxpayer morale and leading to lower levels of voluntary compliance the complexity of the tax code is also burdensome for the making it more difficult for the agency to meet taxpayer needs and probably resulting in more audit and enforcement actions than a simpler code would require now despite the existence of many narrow special interest tax breaks it is important to recognize that the overwhelming majority of tax breaks by dollar value large segments of the taxpaying public insured we are the special interest tax rates are to be lowered substantially and overall tax on average are to remain unchanged virtually every taxpayer will have to give up cherished tax breaks there is simply no free lunch yet i am convinced that what i call the busy majority of tax payers wants fundamental  simplification and will support it lower tax rates will offset the loss of tax breaks and at the same time taxpayers will understand how their taxes are computed and will save time and money on return preparation to assist congress in deciding which tax breaks and iris administered social programs to retain and which to eliminate zero based budgeting approach under that methodology the starting point for discussion would be a tax code without exclusions or reductions in income or tax a tax break or iris administered social program would be added you decide on balance that the public chance to succeed if it proceeds on a revenue neutral basis although there is widespread recognition that we ultimately must take steps to reduce our current deficit levels i am concerned that if we attempt to solve those issues through tax reform we may never achieve structural tax reform rather we are likely to get stuck in partisan debates precisely when we need a civil analysis of the structure of the tax code for all these reasons i believe that fundamental reform must be made a priority a simpler more transparent tax code will substantially reduce the estimated six point one billion hours and one hundred sixty three billion dollars that taxpayer  return preparation it will increase the likelihood that tax payers will claim all benefits to which they are entitled it will reduce the likelihood that sophisticated tax payers can exploit our provision to avoid paying their fair share of tax it will enable taxpayers to understand how their tax liabilities are computed and prepare their own tax return improve taxpayer morale and tax compliance and perhaps even the level of that taxpayer feel with the government it will enable the i r s to administer the tax system more effectively and better tax payer i am confident that in the public support for a simpler code will be strong  thank you thank you very much mr mcdonald your written statement is also part of the record and you have five minutes thank you very  today in my capacity as chairman of the business roundtable fiscal policy initiative i appreciate the opportunity to discuss the importance of corporate tax reform to competitiveness u s investment and u s job growth the world has changed dramatically since the basic operating rules of our international tax system were adopted the spread of free markets around the world has opened up new opportunities for america's businesses and workers to sell their products to the ninety the time in which multinational corps ration was synonymous with american corporation has long passed as just one example in one thousand nine hundred sixty the largest worldwide companies were nearly all american companies u s headquartered companies comprise seventeen of the world's largest twenty companies by nine hundred eighty five there were only thirteen and by two thousand and ten just six u s headquartered companies ranked among the top twenty in this hyper competitive environment many factors can disadvantage american companies and cause them to lose out in this competition to the detriment of the u s economy and american workers taxes are a very important factor american companies seeking to expand in markets at home and abroad are working with one of the least competitive tax systems in the world let me explain why this slide shows the united states has a second highest corporate tax rate among advanced economies after japan adopts its proposed five percentage point corporate rate reduction in the spring the u s will have the highest corporate tax rate in the o e c d fourteen percentage points above the average this next slide shows it was was not always the case that the u s tax system was so long competitive in one thousand nine hundred eighty six when the last major tax reform was undertaken the us want from among the highest corporate tax rates to among the lowest but since that time the tax systems of the rest of the world have caught up and surpassed us as this next slide shows the united states is also one of the few remaining advanced economies the taxes companies on foreign earnings from active business operations when remitted home most other o e c d countries  adopted territorial tax systems that largely exempt these active earnings from home country taxation recently both japan and the united kingdom have switched to territorial tax systems they've chosen these territorial systems to improve the competitiveness of their businesses and their economies this tilted playing field created by the us tax system hurts the competitiveness of american companies and american workers first diminish sales around the world directly reduce u s exports of goods and services along with investments in jobs in the united states second high taxes imposed on american companies that bring foreign earnings back to the united states discourage use of these funds to expand u s operations third the high us corporate tax rate on domestic profits discourages investment here in america by both u based and foreign based companies and fourth the highest price paid is paid by the american worker in the form of lower wages and a more slowly growing economy on behalf of the business roundtable i look forward to working closely with this committee the congress and the administration on this incredibly important issue thank you chairman camp thank you very much mr mcdonald mr hu that you also have five minutes and your written statement will be part of the record  good morning chairing ranking member levin and members of the committee i'm pleased to be here as a small business owner and as a tax professional assisting small businesses my business who's acting company provides a full range of tax services for small businesses so i know firsthand the challenges my clients and our company face in complying with the tax code that the complexity of the tax code or especially our us small businesses they  hundred billion dollars in costs in complying with the tax code is a staggering amount of money also a member of an f i b that has three hundred fifty thousand members and we recently surveyed our members and two of the top top priorities for small businesses is the federal tax code and its complexity one thing to be very sure of that from a small business perspective the business can't be separated from the owner most small businesses are structured as many of the earnings are taxed at the individual company rate they select for simplification it's a simplified way of being able to understand their taxes the best example i can give it in understanding a small business is t examples from this year we had two companies are getting getting ready to retire they want to use data you can get on their business to be their retirement plan they were regular corporations weren't lost fifty percent of all of their warnings that they worked their whole life for eighteen hours a day some of these business second generations and losing that kind of money was staggering preventing them from investing in other businesses starting a new venture pursuing a new idea it meant that he had to continue working into retirement so we all struggle with the tax code no longer accept paper vouchers and their parents what are we doing wrong what's going on they didn't understand the very fact that we were already doing it electronically and that is a very simple example of a misunderstanding about what's actually going ranking the highest ranking but thank you so much for having me here it's a real pleasure an honor to be here in this and to talk to you about this important topic the first part of my testimony discusses recent research by carmen and vincent reinhart that looks at the long run economic impact of financial crises they find that one can expect to have slower growth for a good long period after a financial crisis perhaps as long as a decade and if we have the typical experience of an economy after a severe financial crisis then we'll grow about a percent a year slower over the next eight years and the unemployment rate eight years from now will be about eight percent this is an unacceptable outcome to everyone but i note at the outset of my testimony that this is a medium term problem and a short term stimulus is of little use more fundamental changes must be considered which is why i celebrate this hearing the first part of my testimony talks about the complexity of the tax code and provides a chart of the marginal tax rates under the current system that account for all of the phase out for all of the different targeted tax policies that we have and shows that marginal tax rate as we go up with income goes up and down sort of like a city skyline now progressive generally favor tax rates that increase with incomes and others favor rates that are flat across incomes and i don't think anybody thinks that the marginal tax rate schedule should look like a city skyline but that's what we have this is really logically indefensible and a reason why fundamental tax reform could have a very large impact now is sound reform should not only fix the rates but also should reform the definition of the tax base as well and if we do reform produced about one percentage point higher growth over a long period my review of the literature without our back suggested that this is consensus a consensus that's a fair reading of the broader tax reform literature now there are many possible reforms that would broaden or modify the base but the key point is that they can conceivably have effects that are just about big enough to offset the growth shortfall that we've inherited because of the financial crisis in the first part of my in my testimony i make these points but then i move on to look specifically at the case of the corporate tax w there's a broad consensus that the high statutory corporate tax in the u s makes investments in the u s uncompetitive relative to other o e c d economies some question extent to which effective taxes paid by corporations are equally high as will be much discussion of these factors in coming months  the remainder of my testimony look specifically at the question of effective rates i begin with the statutory rate analysis that's very similar to what you've just seen the statutory rate though is in effect in perfect measure of tax competitiveness because it does not take into account t breath of the tax base this causes countries with high rates on a narrow base such as the united states perhaps to appear more uncompetitive than they really are effective tax rates resolve this issue by taking into account offsets the present value depreciations and other deductions that narrow the base are two measures of effective rate that are really the industry standard the effective average tax rate which you could think of as being the rate that effects something like a plant location decision and the effect of marginal rate which affects decisions like should i buy a new machine for the plant that's already there now  top statutory rates in two thousand and ten for example the us effective average rate which is again the rate that the margin marginal when you're trying to locate a plant somewhere was twenty nine percent while the average for all o e c d economies was twenty point five percent this is the second highest effective average rate in the o e c d united states compare slightly more favorably to other o e c d countries when we look at the effective marginal rate which is the rate that influences the decision to buy a machine even with the effective marginal rate however we're not doing so well in two thousand and ten the us effect of marginal tax rate was twenty three point six percent relative to the non us o e c d average is seventeen point two percent this is the fifth highest in the o e c d any discussion of tax rates is incomplete without analysis of trends and corporate tax revenues with one of the highest corporate tax rates in the world one might expect the share of revenues from corporate capital to be higher in the u s than other always economies but this is not the case in fact in the us our revenue is lower than the  average this pattern is consistent with a literature that explores the responses of tax revenue to changes in the corporate rate and i found significant evidence that a reduction of the corporate tax rate in the us would increase corporate tax revenue by looking at the changes in revenue in response to other nations and reductions in corporate rates there's a large literature that generally finds a laffer curve in the corporate tax base given a significant headwinds of the economy faces indefensible state of the current code and a horrifyingly high us corporate tax rate i'm glad we're considering the form of this moment thank you very much thank you dr has said dr sullivan you also have five minutes in your testimony will also be part of the record written testimony thank you welcome mr chairman members of the committee thank you for this opportunity to testify a quarter century ago president reagan defied all the skeptics and provided the leadership for a bipartisan overhaul of the tax system the lower the tax rate cut the tax breaks it was a victory for the public over the special interests twenty five years later the need for tax reform is greater than ever tax complexity cost businesses billions families endure endless hours of anxiety and paperwork and the perception of unfairness whether it's due to outright cheating by investors hiding  and or to special interest to lobby their way to lower taxes is an insult to americans paying their fair share on top of all this our tax code is dead weight on the shoulders of the american economy the tax code long list of subsidies defies any notion of a free market my focus today will be on the corporation tax which is in particular as we just heard japan has announced its intention to cut its corporate rate by five percentage points this leaves the united states with the dubious distinction of having the highest corporate tax rate in the world cutting the corporate tax rate is no longer just a good idea it's an absolute necessity at the same time we must recognize our dire budget problem we are on the far far away from balancing the budget that will require annual deficit reduction of five hundred billion dollars a year in this environment with these unprecedented budget budget pressures it seems reasonable to assume necessary corporate tax cuts must be accompanied by corporate fraud mr chairman a fundamental feature of u s international tax law is that it favors foreign job creation over domestic if an american corporation opens a factory in  indiana it pays a thirty five percent tax if the same corporation opens a factory in ireland twelve point five percent let's say the factory generates one hundred dollars a profit the profit the choice is between after tax profit of sixty five dollars or eighty seven fifty in ireland obviously the us tax law provides a strong incentive for building factories in low tax countries now it is essential at this point to discuss transfer pricing it should be front and center of any discussion of corporate tax reform transfer pricing is not a detail data for a variety of sources indicate inappropriate inappropriate profit shifting occurring on a large scale what i particularly like to bring to the committee's attention is that over the last decade the transfer pricing problem has gone from bad to  worse when you work out the math what you discover is that transfer pricing is not just a revenue problem which could be thirty forty fifty billion dollars a year it's also a job creation problem the effective tax rate for a typical investment in ireland is not just twelve point five percent is actually negative this means that the u s treasury department is subsidizing investment is no different than say the commerce department directly sending checks to companies this is corporate welfare available only to businesses investing abroad so irrespective of one's views about whether the united states should move to a territorial system we should all be able to agree that the inefficiency of subsidies provided through aggressive transfer pricing is a drag on economic growth and job creation and that any tax reform should include strong measures appropriate profit shifting multinationals in conclusion let me just say this the essence of the fish in a competitive tax system is a level playing field government should not attempt to outguess the market and losers as you can see from this slide our corporate of course multinational corporations are important to the u s economy their research intensive their export intensity and america wants strong multinationals but multinationals competitiveness and overall competitiveness are not the same thing yes u will do are not doing do not have opportunity frankly they don't have a lot of tax breaks available to them and so the companies that do not have those tax breaks are going to be much more in favor of lowering the rates across the board further on how the uncertainty of temporary tax provisions of fact some of the businesses to which you provide services absolutely the tax code causes business to  complexities in the section one seventy nine deduction the a m t fix that we wait until the very last moment the end of the year is might be the difference between a five or ten thousand dollar tax bill going into the next year and that can mean a difference between a new truck maybe an online marketing initiative or maybe even a new employee it has a direct impact the  temporary provisions and the last minute uncertainty that we've been seeing increasingly over the last decade it's very important that businesses think tactically are think strategically and not tactically i had a situation where for instance we had a complicated provision that allowed people who bought a certain kind of truck a certain size truck was able to get  a deduction she went out and talked to our accountant and what a truck it was a long truck was a massive truck he was hoping to grow into it he delivered he was in a paper products company and that truck became his warehouse he used to pick up his his paper products put it in the truck and why bother unloading it he just drove around with his warehouse in his back so he was thinking tactically in my strategically and the t to have your comments you know i think we've got i r s people and every corporation now and you know what they do is sit there and keep you out of trouble theoretically and then turn around and then come back at you when you make a mistake which they're there to prevent theoretically i think that's a waste of effort frankly i think you probably know that need to do some to fix it but basically i want to thank you for being here and ask you to what extent has our corporate tax system adversely affected investment in job creation in america well congressman johnson the issues we've talked with the corporate tax rate of the united states both the rate itself being soon to be the highest in the world as well as the world wide system disadvantages american corporations in the case of the procter and gamble company the company i'm the c e o of most of our competition is international competition and on average we pay about two percentage points higher corporate tax than those international competitors plus we face a higher tax rate if we repatriate money that we are in overseas  that is a disincentive for any company to invest in the united states now in our case because weare a global company and because we can't export our products we can't make a disposable diaper in pennsylvania and ship it to china and make any money on it we do have an organization around the world and we do have one hundred fifty plants around the world so for us there's never really a decision as a company that we invest flourish here the way they have for years thank you thank you thank you very much mr stark is recognized been to that gillette plant mr mcdonald in boston it's a remarkable story about domestic manufacturing and perhaps you can let us in on how many lage are going to be added during the super bowl so that that razor you know that's great question we believe it's best to take a look at getting a competitive system first many of our c f o those had meetings with secretary geithner last week and revenue neutrality we asked to t ake that off the table for now and let's just agree that what we want to do is a fix is to do something that's fiscally responsible the way the chairman i think the ranking member talked about it and i think if we work together we can develop a competitive tax system for this country and do it in a fiscally responsible way and that's what we're setting out to do when mr rangle kicked out his proposal if you recall the critics jumped on it it was a starting point in the conversation that's all it was it was an opportunity to shed some light on the needless complexity of the current code let me use an example of how i think we got burned here a few years back a former chairman of the committee argued for repatriation and right now american companies are estimated to be sitting on more than a million three hundred billion dollars worth of revenue offshore but recall that that money was at five and a quarter percent and there were no jobs created in fact in one instance one company laid off i believe six thousand people in the next few weeks after the money  so i share the argument that getting that money back for job creation is a good idea but what assurance with that is the money was returned that in fact domestic job creation would occur i think if we start with the premise that we have one competitive system we set up that competitive system that will lead to economic growth that will lead to business growth and that will lead to job creation so as a business roundtable we've encouraged our members to not look for a one time repatriation but rather to work on with us the getting a competitive rate going to a territorial system so that we can grow the economy and create jobs in this country obviously if we're in the territorial system the repatriation takes care of itself and we create jobs here how many people wake up every morning and use a gillette razor not enough with that answer the gentleman's time has expired mr camp yes i believe mr starkey over the time to me would you would you allow me to pursue the next three minutes that i have along the same line well it's now time to go to the other side of the diocese and we'll come back to you  so mr nunez is recognized thank you mr chairman i'll be very brief i want to thank the panelists for coming but i want to just take this time mr chairman to encourage you to move forward with fundamental tax reform i think that last year president obama's commission really undermined the debt commission that you served on and some of the members the committee served on but really it undermines the power of this committee and  undermines our constitutional duties that we have in this committee so i hope that you will work with chairman levin and in a bipartisan manner and that we can move real tax reform legislation through this house this year i think it would be about i'm from columbus ohio and during the last campaign season and in columbus and i'm sure in cincinnati what we saw a lot of ads regarding trade in regarding taxes and regarding and sound of send it back to the governor's race which was all about jobs we saw the current governor attacked for their vote in congress that he voted for tax breaks to send jobs american jobs overseas and most of that was targeted for american worldwide companies who were expanding into different markets obviously part procter and gamble has a huge presence overseas can you tell me what those tax breaks are that send jobs overseas and your mind  as i said we we invest everywhere we don't our investment decisions or not we invest here or there and in fact our international business is about sixty percent of our total sales our u business is about forty percent of our total sales yet we pay sixty percent of our taxes in the united states where one of the largest tax payers here in the united states what's important is as we grow overseas that creates jobs in united states twenty percent of our jobs in the united states depend upon our international business forty percent of our jobs in ohio depend upon our international business so even though we may be the largest consumer goods company in china with seven thousand chinese employees we've got a lot of people in columbus ohio and cincinnati ohio who depend upon the strength of the business for their jobs and we take that very very seriously as if they're to say then and others have said this to those and tax accounts that is if we are proactive here in the united states with respect to tax policy and competitiveness even though procter and gamble for instance has been in ohio for over one hundred years you don't have to be headquartered in ohio or the united states and other countries would love to have you is that statement i think the chart i showed earlier that showed how statutory tax rates have gone down over time is suggestive of the fact that countries around the world are competing for investment and they're competing for companies like ours to move outside of their home country  tax rates increase tax tax revenues sounds a lot to me like tax cuts pay for themselves i think tax reform is a worthy pursuit and very sensitive to the international arguments that are being made here today but in some measure did america get into trouble based upon that notion that tax cuts pay for  curve and there are some dynamic aspects to the revenue estimates but to think that tax cuts pay for themselves except in very extraordinary circumstances is mostly wishful thinking if you look back at the one nine hundred eighty six tax reform act we lowered the rates and broaden the base and immediately after the eighty six act there was a whole set of hearings in the senate finance about where did the revenue there was actually less part of the problem in some measure is the fact that we're fighting two wars and we've cut taxes by two point three trillion dollars and that's been a drain on the federal treasury in the course of this conversation  second airborne division taking a walk through the desert one night under the moonlight wrapper blew up to my feet in it was an arabic labeled package package i began to understand the reach of of our economy  in our region in kentucky but those are real numbers those are real jobs that impact a lot of lives on a much broader supply chain or multiplied in the community at a time when the economy is struggling to regain its footing we look to job creators small businesses but also very much so large businesses like p and g is a means to put americans back to work companies want to manufacture in the united states currently faced with a tax and regulatory structure that encourages them to do otherwise and you try to grow and g and invest in kentucky ohio indiana versus foreign markets do you factor tax liability into your decisions and if you do how do you look more do you look more at the corporate marginal tax rate your overall effective tax rate and why we certainly do look at tax rate congressman davis whenever we cite an operation anywhere in the world we look at tax rate because i said earlier because  do sell to four billion people a day around the world we really have to invest everywhere and normally what happens is when we invest in the united states it becomes a decision of where to put the operation in the united states right now we're building a factory in utah in box elder utah it's a three hundred million dollar investment that will employ about three hundred people and we did that because it's a paper factory and we need to get our paper products more efficiently on the west coast one of the things that you see today going on which is very different than it was in the one nine hundred eighty s in the one nine hundred eighty s when i joined procter and gamble the manufacturing expense of product was more important than the logistics cost but because of the cost of fuel today and for other reasons the logistics costs are much higher than the manufacturing expense so it becomes much more difficult to to produce a product in the united states for example particularly something as low value low cost as a diaper and ship it somewhere overseas but what we have in cincinnati what we have in kentucky are our high pain technical jobs our research and development operations are there our corporate headquarters is there and those really have a lot of very highly skilled people who are running our businesses around the world you have a sense just in closing when you create a or open a new market expanded overseas markets what's the multiplier effect back home on jobs generally it can generally be anywhere from six to ten depending upon the supply chain we work very hard to develop suppliers who can be global suppliers for us in fact today we're recognized as one of the top companies and united states for developing minority owned suppliers will take a minority owned supplier and we will work to develop them into a global supplier and today we do about two billion dollars a year of business with minority owned suppliers and states many of them located in kentucky or in ohio thank you very much mr record is  recognized thank you mr chairman but i want to thank mr camp for holding this hearing and i think all of us in this room all have recognized for many years the tax code is complicated an understatement but i think that the testimony in the questions that we've heard today the testimony from missiles and saying it's a patchwork it's it's as no logical connections it's confusion and it mistrust  it's onerous i mean these are words that all of you on the panel of have used over and over again so i hope that we can come together in a bipartisan way to begin to address some of these issues and yesterday we had the opportunity to to meet some of us did with mr bomber from microsoft and mr mcdonnell saying some of the same things that you were saying about corporate structure but i think that one of the things that really struck me as he spoke to yesterday was he urged us to think not just about a corporate tax rate but a competitive tax system as the point that all of you have been making today and of course one of our big concerns is at least one of mine is small businesses and so my question is for mr hu to act as well in what challenges does the amount of business income taxed at the individual  level present for reforming the tax code in a way that helps american businesses grow and create jobs and  is due as wages for his work is really taxing capital formation it's really hitting on his ability to invest create jobs certainly everybody should be subject to the full force of a point in taxes for the value of their work but beyond that because of the corporate structure of the small business when you use tax beyond  reduce corporate tax revenues to pay for our national security that our committee leadership black our president is meeting with the chinese because the first question that needs to be answered in this debate is how much more america will borrow from the chinese so that some corporations can pay less as the representative the business roundtable has done here that revenue neutrality should be off the table  maybe consistent with the misguided holiday that added another trillion dollars almost to the national debt but it is just another way of saying go borrow from the chinese of course there may well be about promoting a level playing field so that our smaller american corporations that are the real engine for economic growth who don't have subsidiaries whose lobbyist haven't come up here to this committee to add hundreds if not thousands of pages to the tax code and regulations that chairman camp showed at the beginning of this and to make it so complex so that they have a level playing field and aren't at a disadvantage against our larger multinational competitors thank you mr dog the most important thing that we can do to improve the competitiveness of our tax system is to make the tax system neutral across all types of companies we need to look for pockets of of over subsidization and that's what we find in certain areas of the international tax law so we want a level playing field so that job creation can be uniform across the economy particularly when our deficit problem is at incredible levels thank you the gentleman's time is expired mr roskam is recognized thank chairman mr mcdonald an observation and a question the observation i'm from suburban chicago and i'm sometimes kind of amazed at conversations i'll have with folks in the chicago land area who are working for worldwide american companies who have not had a sense of clarity about the fact that they're very employment is dependent upon the success of that company overseas market and so my  statement is to you is the leadership of the busy roundtable i think that there's a lot of advocacy that is left on the table because businesses are somehow reluctant to engage in substantive philosophical conversations because they feel like they're going to be perceived as donkeys and elephants and get into partisan issues when you're really talking about a world view that says capital markets are good competition is good and i'm telling you i am amazed at the level of conversation so that's my observation i agree with you glad to hear all of our members would agree we have to do a better job terrific to amplify mr t barry's point there has been you  know the slogan shipping jobs overseas is a bright and shiny bumper sticker which is very very catchy and it seems like a more subtle but more robust argument is a five paragraph economics essay which makes lots of sense but you've got to get through all five paragraphs and if you do get through all five paragraphs you make sense i get it but but who and many on both sides of the aisle we've done a very bad job of communicating overseas markets their relationship to american prosperity and i was this encourage you we got very short time this morning but just encourage you and want to be part of this conversation with you about how to communicate that more effectively to american citizens that understand and that need to understand prosperity overseas for u s companies means prosperity at home absolutely congressman in fact i wanted to clear up potentially misrepresentation of a territorial tax system a territorial tax  i discussed earlier says that we pay the same tax as a u s company in a foreign market that our competitors pay that are foreign based competitors it's not a tax break we're not talking about a tax break what we're talking about is paying the same as our foreign based competition our foreign based company doesn't have to pay tax incremental tax on every trip a tradition of funds to their home market that's the difference it's very simple is recognized following up on that point mr macdonald and also what mr neil raised a few moments ago from your perspective given your domestic  business activities as well as your foreign business activities from the perspective of what it would take from a tax code change to have you consider investing more in domestic job creation rather than foreign job creation would that then be just a general reduction in the corporate rate itself tax rate or should there be more specific targeted language for the repatriated dollars that we want to have you bring back to the united states and hopefully invest not bring back as you write mr neal brought back but not have any jobs created from your perspective is a general tax reduction we're parable to you in the job creation here domestically or language that would say if you brought those dollars back late you would get a lower rate if you specifically invest that normandy activities or manufacturing activity something very specific and targeted that you would get that tax benefit by doing that what in your mind would be the better way  would suggest is let's benchmark the other countries that we're competing with because we're also not just talking about american companies investing here we're talking about chinese companies i've met with chinese c e o s who say help me figure out how to invest in the united states and they're struggling with our tax code as well and that's part of president's who's visit and the reason i wanted to leave is because we're trying to get chinese companies do invest here and if we can get if we can get to a family farms and hopefully will be able to create a situation where if you inherit the family farm you keep farming it you'll be able to get a postponement in any state tax so i hope we would expand it to that  i don't think the idea of a tax policy that encourages jobs in this country overseas is a bumper sticker we were passed out that shows the number of foreign jobs that were created between ninety nine and two thousand and eight versus domestic jobs that were lost i think we need to have a tax code that in fact does encourage job growth here in the united states of america and i understand that businesses consider all of their investments foreign and domestic and when they figure out their bottom line but we have to pay particular attention to creating jobs here and then lastly kind of a statement but it's also a question there's been a lot of talk about deficit neutrality when we work on reform and the tax code i just don't think you can  that off the table or take care of it later on i think this is a real real important issue not only because of the growing debt but the impact it's going to have one companies like procter and gamble there was   and us corporate profits if that were to happen so i don't think this is something that we can ignore and i'd like to hear from both dr sullivan and mr mcdonald on that specific thing how would that hurt us companies  here and abroad if our credit rating was lowered because we don't pay attention to the deficit of our tax reform we need short answers well i think congressman thompson we've already seen somewhat the impact of that if we look at what's going on in europe right now in places like greece in places like spain places like ireland so we know what will happen be a higher interest rate will be harder to get capital the chart that you referenced while a good chart we have to get into the detail of that because the business businesses and the economies are growing much faster in places like asia and africa than they are in places like europe and the united states so of course and any time you have a global business you're going to be hiring more people in those geographies so i just think we need to get into the details and understand why those jobs were created abroad the gentleman's time is expired but dr sullivan if you just answer briefly thank you we have fourteen point four percent unemployment in nevada and i have to believe that our current tax structure has something to do with that and i'm pleased to hear about the administration talking about eagerness to look at some tax reform there these small businesses and manufacturers that are talking about the need for fundamental change in our tax code so that they can be competitive not only here in this country but abroad and we're hearing stories after stories and i don't know if this was brought up  about having to borrow in this country because they cannot bring money back from overseas billions of dollars overseas they can't bring it back to america to create jobs their only choice is to borrow because that's what's best for their internal revenue first policy that we want second is a policy that we should run to the internal revenue code policy you want then when you ask that second answer that second question you have to think what's the burden that you're putting on individual taxpayers to have to document this thing to tie their businesses up into knots in order to meet the requirements for it and then what do you make how are they going to treat tax payers whether they're businesses or individuals right now  about the the any decrease in corporate taxes not increasing revenue necessarily to the federal government what if you would comment about about what what many of us believe a decrease in corporate tax rates actually increases revenue of the federal if you're a high tax place it's relatively easy for companies to move their profits to a low tax place that's why you saw the lower average rates mr sullivan's testimony for some companies is that they've been very adept at locating activity in lower tax places if we reduce the tax here in the u s then they have less of an incentive to locate their profits and their activity abroad and then it's just an empirical question is that is the change incentive enough so that you can actually reduce the rate and get more revenue it's almost never the case with taxes at least in the near term that when you reduce the rate you get more revenue but in the corporate tax space there are actually academic papers to find that result i would say a rough reading the literature is that the revenue maximizing because they don't have any proof that there are jobs created that the converse of that is that if you just leave the money over there that actually is better for the united states isn't it better for for american workers and the american economy to in some way allow for that repatriation of resources workers that's pretty amazing statistic i'd like to expand upon that noting that it seems to me that our current tax system is broken it was weighted in the last century already a decade into this century and we still haven't made much gains in terms of string it out second question to any of the panelists with regard to transactions noted on sixty minutes more than sixty trillion dollars  transactions over the counter that are on regulated and in terms of looking at revenue that is takes place in the spirit done algorithmically or whatever the case may be it just seems to me like this is an opera that is taxes as well as individual but i urge the committee to not forget the individual tax payers the hundred thirty two million individual taxpayers who are your constituents who are suffering under the current burden of this code and as we talk about businesses making decisions about where to place their profits or their activities that very ability to make those decisions leads to a great distrust of your constituents of the internal revenue code and of government and it leads to the sense that they are being discriminated against by the code and by their government because they cannot afford or do not have those kinds of breaks so that was some of the things that we were trying to get across in our testimony deductibility of debt however a transactions tax has been tried in many countries around the world and it's very hard to administer so i think it's initial appeal the more you look at it revenue unless we went to a multilateral were all countries agreed to do this trading activity because it's so mobile with shift to other countries sweden tried this several years ago and other countries have tried it and they had to repeal it because it just they just couldn't administer it thank you the gentleman's time is expired mr buchanan is recognized thank you mr chairman so i mentioned earlier  business the fact the matter that we're competing around the world one of our biggest competitors today by far the eight hundred pound gorilla in my mind is china i've done business overseas as well so when i think about this and the fact that we haven't touched the tax code material way since eighty six i think it's appropriate we have these discussions today because i always personally believe what makes america special and great is free enterprise so let me jump over to you mr mcdonnell quickly to you when you talk of in terms of business roundtable the fact of the matter is and i was a c corp move to an ass and now i've got my family runs but the bottom line is half the tax revenue i understand is through pass through entities so when you look at lowering the tax rate or the discussion of tax rate for corporations what are you going to do about all those employers have five hundred one hundred employees fifty employees there are al c's i hope that's got to be taken into consideration you can't do one without the other because otherwise you end up with a competitive advantage over someone else they have to be a large family run business could you comment on that quickly i agree with you congressman in your right it's everything else well as i suggested earlier when and one of my comments were about creating a competitive code for everyone not just our members which tend to be the larger corporations but we realize that matter seventy percent of the jobs in america are small medium sized businesses in the state of florida tallahassee ninety nine percent of all companies registered in tallahassee whether they're elsie's or partnerships are small medium sized businesses what's the biggest one or two things primarily work with small businesses we can do or should consider to help small businesses in terms of cost and complexity what do you think are the two biggest things we can do in terms of having an impact simplification on all levels of the periscope for instance proprietor just to take the home office deduction it's a one page form that refers to instructions thirteen times something you shouldn't do is like the ten number we have chosen as a group to prioritize the whole discussion of getting into a competitive system and a system which is territorial revenue worldwide which would allow for the repatriation but we can get you that  and since that's your focus what is the rate that you've decided would be necessary here in the united states that would not incentivize the source scene of a not multinational  from a foreign source we haven't chosen a single race again i think the exercise we all need to do together to be fiscally responsible is to look at those countries that we're competing  with and see what effective rate we would need in order to compete effectively with them but we haven't chosen a number yet we look forward to working with you to do that i think this is a very important  action that we can take sooner rather than later and doesn't have to be a part of the larger discussion of tax code simplification i find it hard to believe some of my colleagues that think that if we repatriate this money no jobs will be created we met with o of a large publicly traded company yesterday who estimated thirty to forty billion just in that company alone that would be repatriated i would have to think it would be in the trillions of dollars with all the companies and that no jobs would be created year that money came to our economy seems a bit crazy dr sullivan in your estimation your opinion which seems to vary a little bit from from our the rest of our panel do you have a number in mind in terms of what you think the corporate rate in america needs to be to dissent devise foreign sources when the customers have equal distance thank you for the question obviously want the rate is low as possible let's look at we realistically can happen if we just do revenue neutral court based on treasury estimates if we just do revenue neutral corporate tax reform and get rid of most of the major incentives we're talking about research credit production credit salary depreciation we go full throttle investment would remain static regardless of what the rate would be no no no i think investment would increase as a result of the lower rates and you stated earlier that obviously there is some risk reward based on that so do you have a number in mind a number for what the rate should be as low as possible zero percent well thank you the gentleman's time has expired mr bloom hours recognized thank you mr chairman and let me begin by expressing as a number of our colleagues have appreciate for your starting our deliberations dealing with the tax code i think you've taken the right direction and i will say the right i have appreciated that and look forward to working with you on it because this is clearly a unique opportunity part of the opportunity is just simply the value that is wasted that you  documented ms olson part of our difficulty in having a productive conversation about the tax code is that it hopelessly complex that everybody's right every generalization every complaint right left center their right they can find an example i am a tax junkie a revenue committee chairman a state legislator or i went to law school and took classes because i wanted to learn more about the job i could not do my taxes today under torture with and i'm not warren buffett it is a scandal and it's approaching a crisis point the cost of compliance the disconnection from tax provisions with what they were kind to do the alternative minimum tax the tax on millionaires who abated tax has morphed into a tax on the near rich who pay their taxes and no billionaire hedge fund is ever touched by it i hope mr chairman will be able to move  in that connection i guess i just have one question that i would offer to mr mcdonald can we do this successfully if we disconnect the individual tax provisions from businesses or do they need to be done concurrently well i think that although the business and the individual issues they present different issues and different question but i do not think you can do them separately in part because so many businesses are passing through entities and you still have to deal with the individual side district  continue everyone's opportunities mr rangle and i have had a discussion and we're now going to move to two minutes per member so with that mr lee's recognize well thank you mr chairman and shortness of time i will just make a brief statement but really what i heard here today and as a former businessman the what we here with regard to the tax code does not bring a lot of confidence for businesses to want to invest in this country with all things being equal with regards to labor the cost of building a facility when you have this differential in tax code it is mind boggling and and ms olson talked about six point one billion hours with regards to compliance costs the only area of this economy where i know we spend more time is debating health care so they it is a upright number because that is a cost that is an impediment on job growth in this country some of the recent statistics wall street journal just a few weeks ago literally two trillion dollars in liquid assets are sitting on the sidelines primarily because of the fall that we do not have enough certainty our tax code and over the last decade literally ten years ago very few pieces of tax legislation that would be considered temporary less than twelve to eighteen months today that number has grown exponentially thereby again making decisions on long term investment capital we want to attract the other multinationals to the united states as we said the fortune five hundred we look now in the position of u s corporations or many other countries around the world we want those jobs here unless we do something about our tax code to make it a priority we won't hearing i think i joined my colleagues having a passion for this particular topic in particular i have a keen interest in my real lives many years practicing public accounting and t job security and so every time congress begins a discussion about job security i think every in the tax department holds a party and so with that in mind i know we don't have enough time i could spend get into a competitive tax system because as you saw competitive with our foreign competition today we have in this session and one recommendation is chairman is perhaps getting the co chairs of the fiscal cliff commission on which you and others serve to testify with some of the recommendations affecting the tax code and deficit reduction but it's also let me first start with you and thank you for the work the national taxpayer advocate group does and your recommendations that you submit to us from from time to time and i hope all of us do heed your admonition that we don't lose sight of the individual tax implications because i think you're right i think there's a sense of fundamental unfairness for average working families individual small business owners who feel that unless they've got their team of accountants team of tax lawyers that they're not able to take advantage of the great complexity in the loopholes that do exist and i think this does affect the compliance issue of tax filing and the under reporting and the cheating and the tax gap that has grown just given the complexity of this code so as we move forward i hope that we can marry the issues of corporate reduction along with the individual rate which i think is going to be imperative my guess is that most of the folks in the audience today are more focused on the corporate rate and what's going to happen there not the individual rate back to what mr hewitt raised with us today in your testimony your written testimony most of the businesses in this company are passed two entities they're not their sole proprietors the partnerships and that's why getting to the individual rate is going to be so important for most of the job growth that does occur in all of our individual districts which are small business oriented rather than the larger multinational businesses in the implication but i also agree with the rest of your testimony that as we get into the corporate tax rate that should be done through the prism of international competitiveness issues in light of the changes that have happened with the tax code in other countries that make us human as competitive as we need to be was one of the reasons back to you mr hudak was had legislation the escort modernization bill the try to simplify and make it easier compliance and also get the building teams issues that we have to work on still working with you and others hopefully will have a chance to get into that thank you again with thank you mr paulson is recognized well thank you mr chairman and a lot of the conversation i know whenever a tax reform is brought up around simplicity fairness the complex arguments we heard about today but i'm pleased that a lot of the conversation today obviously is about economic growth and competitive this without a doubt and i'm wondering maybe mr mcdonnell first if you can just expand a little bit and talk a little bit about debt versus equity and the concept of how we encourage businesses and individuals to borrow and finance their operations through debt rather than through asset creation or capital formation and why that is important why we should be focused on that you stand that steve balmer was here yesterday talking about the amount of money that microsoft has has overseas and obviously with that money overseas and the inability to repatriate it without paying more tax  again i want to again underscore the fact that we all pay tax and overseas markets the difference with the united states in a very few companies countries that i showed on the chart was you have to pay an additional tax when you repatriate the money to your home country there are very few countries in the world to do that the united states is one causes him to have to borrow money here at the procter and gamble company we pay almost half of our profits in dividends and most of our shareholders our employees  retirees our people in this room they're not institutions less than half of our shareholders institutions we have to have that cash in order to pay those dividends and it becomes a burden to create that cash when you have to pay a higher think of a better topic i am just tickled pink hearing all of the people that are presented and you know an issue like this is just so critical i'm a small businessman and it's good to hear that my colleagues both republicans and democrats have the same frustration with their taxes as i do and so again i just don't want taking more time here but just thank you for being here and thank the chairman thank you mr pascal's recognize putting us together on this critical issue miss also it's always an honor and a pleasure to listen to you because you make sense you are a true advocate and i'm glad you brought up the subject of the average taxpayer because frequently as has happened frequently that person's forgotten so while we may be trying to prioritize the cutting of corporate taxes which i think is important we need to address and it will be just and i want to know if you disagree with me you can address for instance that issue in talking about educating the public about businesses that we need to educate the public about what they get as the benefits to the code and what will happen if we get rid of some of the benefits but lower rates and educating the public is critical absent ourselves  important and looking at this thing in context absolutely do we know what we're talking about on this side of the aisle to look at iraq where about taxes do you know what yeah the gentleman's time has expired black is recognized thank you mr chairman and likewise as has already been said this is certainly a very important topic i know in consideration of the time it may be that we won't be able to answer these two questions that i haven't perhaps more in writing and i'm not sure that you will have an immediate answer to them but missiles in for you looking at individuals i'm curious as if we were to simplify the system because you testified that people trust has there been any study done to show that if there were more simplified system that we were perhaps collect more revenue because of so much evasion and that would be one question that i would have i think it depends on how you structure the system we know when people have withholding and the income is reported to the iris but not ninety nine percent of the taxes their income is reported and so the taxes are paid on that income when you don't have that kind of reporting and you have lots of opportunity to take deductions and claim special benefits then that increases the operative to nitty to you know avoid an under report and so if you structure the system right you can minimize non compliance the more complexity you have in the system the more opportunity you have to have noncompliance thank you mr chairman i'm understanding is that we are able to submit questions that can be answered separately wonderful hearing and i'm glad it's just the beginning of a process i'd like to submit for the record my opening statement which i wasn't able to make i'm very glad i'm the cells in that you talked about we absolutely need to do the individual three forms with the corporate reforms in my family when i was growing up my father was a waiter in one of the las vegas hotels the way we did our taxes as we waited for my uncle nady to come from new york once a year to do the taxes for us and i don't think that's a good process for any american family and i'm sure least of all my own we just passed a massive tax package last month and in it it had all the tax extend every one of them i supported and i found that i had friends in their race car track world and the taxi companies that use propane gas kind of camped out in my office and explain how important all of these tax credits and tax breaks were to their business and how much they created jobs now let me ask you something if we actually lower the tax rate for corporation and companies throughout do you do i understand correctly what that rule means if if i understand what it means is that tax cuts do not have to be paid for which i think is good in this fiscal environment is absolutely outrageous and it's dangerous to the long term health of this economy so it's saying we're really going to make these tax cuts and the only place we'll get the money is by borrowing it to continue the level of services that we have in this country otherwise we're going to reduce the level of services obviously the choice between whether it should be tax cuts tax increases or spending cuts is a political decision but i think the rules should be neutral and these rules are not neutral don't need to but forward to having your change with mr webster the this this hearing was really about the burdens of the federal tax system the compliance administrative problems the difficulties for families small businesses  the problems of creating economic growth under the current system as well as the high corporate tax rate the international tax system being increasingly out of step with the rest of the world but i want to thank our witnesses for their testimony the schedule has really been a difficult one this morning for us thank you for bearing with us through that i just again members can submit questions to you and and and i hope you will respond and obviously you've made it very clear that our code is a complex mess it's frustrating to families businesses big  small it encourages inefficient behavior these points are actually made in an opinion piece published today by the minority whip study hoyer and while i don't necessarily subscribe to everything in that article he his comments about the need to act on a bipartisan basis to reform the tax code were right on point and i look forward to continuing this dialogue you're hearing from but for now the committee is adjourn