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21–116 2016

TAX REFORM HEARING ON THE 

BENEFITS OF PERMANENT TAX POLICY 

FOR AMERICA’S JOB CREATORS 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 8, 2014 

Serial No. 113–FC18 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 


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C O N T E N T S 

Page 

Advisory of April 8, 2014 announcing the hearing ............................................... 2 

WITNESSES 

Mr. Thomas Hungerford, Senior Economist and Director of Tax and Budget 

Policy, Economic Policy Institute ........................................................................ 44 

Mr. Joshua Odintz, Partner, Baker & McKenzie LLP ......................................... 37 

Mr. James Redpath, Managing and Tax Partner, HLB Tautges Redpath, 

Ltd ......................................................................................................................... 30

Mr. Bob Stallman, President, American Farm Bureau Federation ..................... 23 

Ms. Judith Zelisko, Vice President of Tax, Brunswick Corporation .................... 7 

PUBLIC SUBMISSIONS FOR THE RECORD 

American Association of Fundraising Professionals ............................................. 81 

Beau Pollock ............................................................................................................. 85 

Brunswick Corporation ........................................................................................... 87 

Building Owners and Managers Association International ................................. 101 

Cambridge Engineering, Incorporated ................................................................... 103 

Concord Engineering ............................................................................................... 107 

Dickman Industrial & Electrical Supplies ............................................................. 109 

Edgewood Green Technologies ................................................................................ 111 

Finegold Alexander and Associates Incorporated ................................................. 114 

Lane Associates ........................................................................................................ 117 

Lawrence Steiner ..................................................................................................... 120 

Matt Henry ............................................................................................................... 126 

Mechanical Service & Systems ............................................................................... 129 

National Affordable Housing Management Association ....................................... 132 

National Education Foundation ............................................................................. 135 

National Grocers Association .................................................................................. 136 

National Restaurant Association ............................................................................ 140 

Peter M. Honeyford ................................................................................................. 148 

R&D Credit Coalition .............................................................................................. 150 

Radian ....................................................................................................................... 157 

Regency Lighting ..................................................................................................... 162 

Solid State Capital Services .................................................................................... 164 

The American Institute of Architects ..................................................................... 166 

The Apple Gold Group ............................................................................................. 173 

The National Treasury Employees Union ............................................................. 176 

True Partners Consulting, LLC .............................................................................. 179 

TrueBlue, Incorporated ........................................................................................... 181 

Vikki Spruill ............................................................................................................. 185 

WageWorks ............................................................................................................... 193 

Walker Parking Consultants .................................................................................. 196 


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(1) 

TAX REFORM HEARING ON THE 

BENEFITS OF PERMANENT TAX POLICY 

FOR AMERICA’S JOB CREATORS 

TUESDAY, APRIL 8, 2014 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, DC. 

The Committee met, pursuant to notice, at 10:05 a.m. in Room 

1100, Longworth House Office Building, the Honorable Dave Camp 

[Chairman of the Committee] presiding. 

[The advisory announcing the hearing follows:] 


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Chairman CAMP. This hearing will come to order, if everyone 

will take their seats, please. 

Good morning, and welcome to the first Ways and Means Committee hearing on elements of the tax reform discussion draft I released in February. 

The draft is focused on two primary goals; making the Tax Code 

simpler and fairer for families and employers, and strengthening 

the economy so there are more jobs and bigger paychecks for American families. 

As we explore what tax reform means to the American economy 

and for American families, we must move away from short term 

tax policy and work toward greater certainty in the Tax Code. 

When I released the draft, the first item I asked for public feedback on was the extenders and our revenue baseline. 

The question is not only about the merits of the individual policy 

but how we should treat the revenue gained or lost for either making those policies permanent, reforming them, or repealing them. 

Today’s hearing will help the Committee find answers to these 

questions. One thing everyone in this room can agree on is that today’s Tax Code is too complex, and one of the best examples of the 

complexity of our current Tax Code is so-called ‘‘tax extenders’’ and 

their temporary status. 

As such, job creators are left constantly guessing if a group of 

policies are going to be around next year. Families and employers 

literally do not know what tax benefits they will be able to take 

advantage of from year to year, yet when examining some of these 

provisions, such as the research and development tax credit, we 

find out that some have been around for 30 years or more. 

This is no way to write tax policy, let alone try to run an economy. The United States is the only country in the world that allows 

such important pieces of the Tax Code to expire on a regular basis. 


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How can we expect businesses to plan on new hire’s or increased 

wages for workers when they do not know what their operating 

costs will be from year to year? 

Our draft makes permanent seven business tax provisions that 

expired at the end of 2013. These policies must still be evaluated 

in the context of pro-growth tax reform and how making those permanent will help grow the economy, simplify the Tax Code, and 

lower tax rates. 

Making some tax policies permanent now will open the door for 

the economic growth we need by giving consistency and stability to 

businesses small and large. 

Specifically today we will address the research and development 

tax credit, small business expensing, the active financing exception, 

depreciation for certain race horses, CFC look-through, and two S 

corporation provisions. 

It is important to note that most of these provisions have had bipartisan support in the past. For example, prior to heading the 

Committee, Sandy Levin and I sponsored the House bill to extend 

the research and experimentation tax credit. 

The witnesses we have before us today will help ignite an important discussion on the merits of these particular extender policies, 

specifically how to allow Americans to innovate and create jobs and 

invest. 

By supporting permanent policies, Washington can promote certainty for American businesses and generate additional economic 

growth. 

The Committee’s work will not end here. This is just the beginning of the conversation that we must have in order to overhaul 

the Tax Code so it is simpler and fairer for families. 

You have heard from me before and you will continue to hear it, 

we can no longer accept the status quo. Washington needs to wake 

up to this reality and start offering concrete solutions and debating 

real policies that strengthen the economy and help hard working 

taxpayers, and tax reform is one way we can do that. 

I look forward to hearing from our witnesses today and to working with members on both sides of the aisle on legislation we can 

move forward to address the provisions we discuss today. 

At this time I will recognize Mr. Levin for an opening statement. 

Mr. LEVIN. Thank you, Mr. Chairman. Welcome, all of you. Today’s hearing purports to discuss the benefits of permanent tax policy. I think we all agree that permanent tax policy provides certainty for all taxpayers, individuals and businesses, and is preferable to frequent short term extensions. 

What is missing from the agenda today is any discussion of how 

to pay for making tax extenders permanent. The Republican tax reform proposal that was unveiled six weeks ago set forth a business 

tax reform plan that made these and other temporary provisions 

permanent, and did not add to the deficit in the first ten years. 

In fact, that was pinpointed, even celebrated by some as a hallmark of the proposal. Yet, the concept of fiscal responsibility has 

now been left behind with today’s hearing focused on making seven 

of the roughly so-called extenders permanent as they were in the 

Republican tax reform draft, without discussing the provisions that 

would offset the costs of such action. 


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We do not agree that adding more than $125 billion to the deficit 

to make these seven expired tax provisions permanent or provide 

them with a long term extension is fiscally responsible, and should 

take priority over discussing the entire package of tax extenders. 

Fiscal responsibility cannot simply be a talking point that is set 

aside when it comes to providing tax incentives for the chosen few. 

We believe that tax policy, including the work on tax extenders, 

should be done on a bipartisan basis. If the Republicans were truly 

serious about providing certainty to taxpayers, the topic of this 

hearing would be a full discussion of the expired tax provisions, 

and not just these seven tax provisions selected by the Republicans 

to either make permanent or provide a long term extension. 

Whether or not all of the provisions should be extended deserves 

a full hearing. Instead, the Majority is moving ahead without any 

action on many important provisions. 

Among them, the new markets tax credit, that encourages investment in economically distressed areas. The work opportunity tax 

credit to support hiring certain groups of hiring. The $250 deduction for teacher classroom expenses that is vital for schools, and 

the itemized deduction for state and local general sales tax, 

claimed by millions of individual taxpayers, particularly in states 

without income taxes. 

Reforming our Tax Code so that it is fairer for working families 

encourages investment in the U.S., and raises an adequate level of 

revenue in the near and long term which is of vital importance. 

Whether the policies put forward in the discussion draft will 

meet those and other goals deserves a thorough public discussion 

far beyond what is on tap today. 

Chairman CAMP. Thank you. I would just note that in 2009 and 

2011, there were many extenders that were passed by this Congress and none of them were offset. If we are going to continue to 

do that repeatedly, I think it is worth at least having this discussion. 

Thank you, Mr. Levin. 

Now it is my pleasure to welcome our panel of experts, all of 

whom bring a wealth of experience from a variety of perspectives. 

Their experience and insights will be very helpful as our Committee considers the benefit of permanent tax policy for America’s 

job creators. 

First, I would like to welcome Judith Zelisko, Vice President of 

Tax, Brunswick Corporation, based in Lake Forest, Illinois. 

Second, we will hear from Bob Stallman, President of the American Farm Bureau Federation here in Washington, D.C. 

Third, we will hear from James Redpath, Managing and Tax 

Partner with HLB Tautges Redpath Ltd. in White Bear Lake, Minnesota. 

Fourth, we will hear from Josh Odintz, Partner at Baker & 

McKenzie LLP in Washington, D.C., and finally, we will hear from 

Thomas Hungerford, Senior Economist and Director of Tax and 

Budget Policy at the Economic Policy Institute in Washington, D.C. 

Again, thank you all for being with us here today. The Committee has received each of your written statements and they will 

be made part of the formal hearing record. 


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Each of you will be recognized for five minutes for your oral remarks, and we will begin with you, Ms. Zelisko. You are recognized 

and you have five minutes. Welcome. 

STATEMENT OF MS. JUDITH ZELISKO, VICE PRESIDENT OF 

TAX, BRUNSWICK CORPORATION 

Ms. ZELISKO. Good morning. I am Judith Zelisko, Vice President of Tax for Brunswick Corporation. I thank you for the opportunity to appear before the Committee. 

Making products in the United States since 1845, Brunswick 

Corporation is now the world’s largest maker of pleasure boats and 

recreational marine engines, as well as fitness, bowling and billiards equipment. 

Although we have been around for nearly 170 years and are one 

of the long listed stocks on the New York Stock Exchange, you may 

know us better by some of the brands we manufacture and sell, 

such as Sea Ray and Boston Whaler Boats, Mercury and 

MerCruiser marine engines. Life fitness exercise equipment, and 

Brunswick bowling and billiards equipment. 

We are headquartered in Lake Forest, Illinois with offices and 

manufacturing facilities throughout the country. Indeed, also in 

Asia, Canada, Europe, and Latin America. 

Brunswick ended the year with approximately 15,700 employees 

around the world, nearly 80 percent of which are employed in the 

U.S. 

During 2013/2014, it began or completed major expansions of 

several U.S. manufacturing and engineering facilities, including 

those in Florida, Indiana, Minnesota, and Wisconsin. 

We go toe to toe with some of the best competitors around the world, many quite larger than Brunswick. We had nearly $4 billion 

in sales in 2013, yet we compete with the likes of Japan’s Yamaha, 

Suzuki, and Honda. Sweden’s Volvo Penta, and Beneteau of 

France. 

We compete successfully by designing, developing, and introducing high quality products to the marketplace, products that feature innovative technology and styling. We compete by developing 

and maintaining low cost manufacturing processes. 

We do both effectively. We rely heavily on efficient and impactful 

research and development, the type of innovative work that is 

greatly enhanced by the R&D tax credit, which we urge you to reinstate and extend, and indeed, make permanent. 

To fail to extend the R&D tax credit would be to remove one of 

the country’s most effective tools to encourage investment by business, which counts for the lion’s share of R&D done in the country. 

The R&D tax credit spurs U.S. based innovation and R&D jobs. 

As an example, at Brunswick, we have concentrated the vast majority of our design and technological developments for our more 

than 14 boat brands sold around the world at Merritt Island, Florida. We have a staff of nearly 200 engineers there. Within the past 

five years alone, the Brunswick Boat Group has secured nearly 100 

patents for a number of new and innovative products. 

One is called Quiet Ride, and it reduces overt noise by 25 to 50 

percent. Vibration was also greatly decreased, which means a more 

enjoyable and smoother ride. 


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The R&D tax credit has been vital to our being able to maintain 

this drum beat and jobs. We find similar examples at Brunswick’s 

Mercury Marine Division, headquartered in Fond du Lac, Wisconsin, this year celebrating its 75th year in business. 

Research and development is a way of life at Mercury Marine, 

where we have approximately 400 engineers with more than 700 

patents granted since 1985. 

In 2012, Mercury Marine introduced the world’s smallest, lightest and most durable 150 horsepower four stroke marine engine. 

Its popularity along with a number of other new products spurred 

Mercury to break ground last year for two expansion projects. 

Approximately 90 percent of the project work is being performed 

by Wisconsin companies. These are American jobs for work that is 

done in America for the benefit of an American company that has 

been in business since 1845. 

A permanent R&D tax credit provides both predictable cash flow 

to a company, which is important for a company’s budgeting of its 

capital spending and research and development projects, and also 

prevents unnecessary fluctuations in the company’s effective tax 

rate. 

Let me explain this latter point in a little bit more detail. When 

the company speaks to the investment community, the company 

forecasts an annual effective tax rate, which the analysts then plug 

into their discounted cash flow and earning models. 

When the tax credit expired, as it did at the end of 2013, the 

company has to forecast its effective tax rate without the R&D 

credit, which increases the company’s overall effective tax rate. 

If the credit is reinstated in the middle of the year and made effective at the beginning of the year, the cumulative to date impact 

on the R&D credit on the company’s effective tax rate becomes a 

discrete item in the company’s financial statement, in the quarter 

the law is effective. 

Generally, analysts ignore discrete items, such items are considered unusual and non-recurring, resulting in the R&D tax credit 

benefit on the company’s annual effective tax rate being significantly reduced for mid-year and whole year. 

All this means is the permanent R&D tax credit provides certainty for the company in its annual budgeting and planning process, and results in a more constant, less fluctuating effective tax 

rate. 

Thus, Brunswick shares the position of the R&D Credit Coalition 

and NAM that the Tax Code should include both a strengthened 

and permanent R&D tax credit and a current deduction for R&D 

expenses. 

We also support simplifying and strengthening the credit while 

increasing the alternative simplified credit to 20 percent. 

Therefore, we urge the Committee and Congress to reinstate and 

extend the R&D tax credit for 2014 as early in the year as possible, 

and beyond one year, to help bridge the gap to a permanent R&D 

tax credit. 

Thank you so much. 

Chairman CAMP. Thank you very much. Ms. Zelisko. 

[The prepared statement of Ms. Zelisko follows:] 


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Chairman CAMP. Mr. Stallman, you are recognized. 

STATEMENT OF MR. BOB STALLMAN, PRESIDENT, AMERICAN 

FARM BUREAU FEDERATION 

Mr. STALLMAN. Chairman Camp, Ranking Member Levin, 

Members of the Committee, my name is Bob Stallman and I am 

a cattle and rice producer from Columbus, Texas, and serve as the 

President of the American Farm Bureau Federation, representing 

farmers and ranchers from all across America. 

Thank you for the opportunity to speak today about the importance of Section 179, Small Business Expensing, and more broadly 

about the merits of a stable Tax Code. 

I also thank you for your leadership on tax reform. Until our Tax 

Code is rewritten in a simple and transparent way, it is appropriate to provide taxpayer certainty by reinstating important provisions that expired at the end of last year. 

While my oral statement is about Section 179, Small Business 

Expensing, the Farm Bureau also supports the extension of other 

expired provisions, as outlined in my filed statement. 

Section 179, Small Business Expensing, allows a taxpayer to deduct all or part of the cost of new or used business property in the 

year purchased rather than depreciating the cost over multiple 

years. 

Qualifying property must be used in an active trader business 

and deduction and investment limits apply. 

Farming and ranching is a capital intensive business. In order to 

remain competitive and profitable, farm equipment, buildings, and 

storage facilities must be continually upgraded and replaced. This 

allows agricultural producers to reduce maintenance costs, take advantage of labor saving improvements, become more energy efficient, and adopt technology that is environmentally friendly. 

Smart business planning anticipates and budgets for such annual capital improvements. However, this proves challenging for 

farmers and ranchers because they operate on tight and unpredictable profit margins. 

The immediate expensing provided by Section 179 allows farmers 

and ranchers to cash flow purchases that otherwise might be delayed, or that would require them to take on more debt absent that 

provision. 

The pressure to buy capital goods at a predictable net cost is 

greater than ever. Newer equipment is both more energy efficient 

and often gentler on the environment. 

We all have an interest in seeing such improvements move from 

the show room to farmers’ fields. However, the volatile nature of 

farm profitability can make such investments challenging. Uncontrollable weather impacts crop yields, and unpredictable markets 

set the price of goods sold. 

These forces can create significant fluctuations in farm income 

and profitability. It is not uncommon for an agricultural producer 

to have a very profitable year followed by multiple years of negative income. 

When farmers and ranchers have good years, Section 179, Small 

Business Expensing, helps them to maximize available cash so they 

can invest more for equipment replacement. 


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This is why it is so important that the maximum deduction be maintained, a deduction of at least $500,000 with a phase out 

threshold set at $2 million. 

A $500,000 limit is more modest than many might think, just as 

the scale of modern farming is so much larger than it once was, 

so too is the machinery needed to run that farm. Farmers, for instance, can easily spend more than $200,000 for a tractor or 

$350,000 for a combine, plus another $100,000 for a header to go 

on the combine to cut the crop. 

Because of the sporadic profitability of most farms, investment is 

equally uneven. A farmer might well bunch several years of normal 

investment into one year if conditions warrant and sufficient cash 

is available. This averages out against the poor years when cash 

flow is not available to invest. 

This reality allows farmers to make their businesses more efficient and sustainable for the long term, if the necessary tax policies 

are in place. 

Farmers’ upgrades and improvements made using Section 179 

deductions help to provide some input cost certainty during periods 

of unpredictable profitability. 

In conclusion, Section 179, Small Business Expensing, provides 

many benefits to small businesses, including farming and ranching. 

Those benefits are erased when the deduction lapses even for short 

periods of time. 

Even as we meet here today, farmers and ranchers are holding 

off decisions to make capital investments given the uncertainty 

about renewing the expensing provisions of Section 179 that were 

available in 2013. There is not a lot of incentive to make these purchases if the maximum amount of $25,000 can be expensed under 

current law. 

The Farm Bureau believes that Congress should end its practice 

of extending important tax provisions for just one or two years at 

a time. Farm and ranch business planning, which is already difficult, becomes nearly impossible with an ever changing Tax Code. 

Tax uncertainty means farmers cannot truly make long term 

plans as long as the continuation of this provision and others remains in question. 

For all these reasons, the Farm Bureau supports a permanent 

Section 179 small business deduction with a maximum deduction 

of at least $500,000, reduced dollar for dollar, when investments 

exceed $2 million. 

Thank you for allowing us to present our views. I will be glad 

to take questions later from the Committee. 

Chairman CAMP. Thank you, Mr. Stallman. 

[The prepared statement of Mr. Stallman follows:] 


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Chairman CAMP. Mr. Redpath, you are recognized for five minutes. 

STATEMENT OF MR. JIM REDPATH, MANAGING AND TAX 

PARTNER, HLB TAUTGES REDPATH, LTD. 

Mr. REDPATH. Chairman Camp, Ranking Member Levin, and 

other Members of the Committee, thank you for the opportunity to 

testify today. 

My name is Jim Redpath. I am the Managing Partner and a Tax 

Partner at HLB Tautges Redpath, a 125 person accounting firm 

serving clients in the Midwest. 

I have been a tax accountant for over 30 years, working primarily with closely held businesses, many of which are S corporations. 

Let me begin by thanking the Committee and in particular the 

Chairman for his hard work to improve the Tax Code. 

In our firm, we help hundreds of closely held businesses make 

better decisions that create value and jobs. Those efforts are hindered by a Tax Code that is simply too complex. 

The rules governing S corporations are a good example. The S 

corporation promotes private business, capital investment, and increased employment. They are subject to various restrictions that 

adversely impact ownership, capital, and growth. 

The Chairman’s discussion draft helps mitigate some of these restrictions. I will start with the built in gains provision. In 1986, the 

Tax Reform Act repealed the General Utilities Doctrine and the related Section 337. These policies allowed C corporations to sell 

their assets and liquidate their business by paying a single level 

of tax. The repeal meant that for the first time there would be double tax on the sale of corporation assets followed by a liquidation. 

The Tax Reform Act was a wonderful piece of bipartisan legislation, but this repeal was not. The House version included a two 

year rule designed to prevent avoidance of this new double tax. The 

Senate version had no repeal at all. 

One would expect negotiations to result in an anti-avoidance rule 

somewhere between zero and two years. However, the final bill enacted the built in gains tax with a ten year anti-avoidance rule. 

This is referred to as the ‘‘BIG tax.’’ 

The purpose of the final rule was similar to the House provision, 

to prevent a C corporation from converting to an S corporation 

when a sale was eminent just to avoid the double tax. 

The impact went well beyond that purpose. Today if an S corporation sells certain property or collects certain types of income 

before the end of the recognition period, the combined tax can be 

as high as 60 percent. No company willingly triggers the ‘‘BIG tax.’’ 

I find BIG tax causes many S corporations to hold unproductive 

assets. For example, I work with a road contractor who is sitting 

on old equipment out in the bone-yard rusting away that could be 

sold to raise capital for expanding the business and hiring more 

people. That investment potential is being stymied by the BIG tax. 

Other clients would like to sell their businesses to up and coming 

entrepreneurs or employee groups, but cannot because of the prohibitive tax. 


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The IRS says tens of thousands of corporations convert to S corporations each year. The BIG tax effectively locks up for a decade 

some of the capital of these companies, limiting new investments 

and the creation of jobs. 

Congress recognized that a ten year recognition period is too 

long, and has voted to reduce it three separate times, but each time 

the reduction has been temporary. A temporary extension forces 

many businesses into a difficult position. Should they sell assets or 

the business prematurely to take advantage of a temporary window 

or hold off and hope Congress extends it again? 

Making the five year recognition period permanent is good tax 

policy, and it will provide S corporations stability and certainty so 

they can make business decisions that are best for the company, 

its owners, and stakeholders. 

The other S corporation extender made permanent by the Chairman’s discussion draft has to do with charitable contributions. For 

most taxpayers, gifts of appreciated property produces a deduction 

equal to the property’s fair market value. S corporations who donate appreciated property will incur a future tax liability because 

of the way the current rules work. 

This unintended result was remedied as part of the 2006 Pension 

Reform Act. This provision was temporary. While Congress has extended it numerous times, it expired again at the end of 2013. 

Making this provision permanent would help ensure that S corporations’ owners fully benefit from the value of their donations to 

charities. 

Beyond these two extenders, there exists a significant opportunity for improving the S corporation rules to ensure that S corporations can compete with other entity types. 

The provisions are part of the bipartisan S Corporation Modernization Act sponsored by Representatives Reichert and Kind. 

I am pleased that the Chairman’s tax reform discussion draft 

makes permanent several of these reforms. 

Mr. Chairman, let me close by saying making permanent the five 

year built in gains recognition period preserves the original intent 

of the 1986 Tax Reform Act, and it is critical to helping corporations deploy locked up resources. 

I appreciate the Chairman and the Committee for considering 

this provision along with all other S corporation reforms, and I look 

forward to your questions. 

Chairman CAMP. Thank you, Mr. Redpath. 

[The prepared statement of Mr. Redpath follows:] 


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Chairman CAMP. Mr. Odintz, you are recognized for five minutes. 

STATEMENT OF MR. JOSHUA ODINTZ, PARTNER, BAKER & 

MCKENZIE LLP 

Mr. ODINTZ. Thank you. Chairman Camp, Ranking Member 

Levin, and Members of the Committee, it is an honor to appear before you today to discuss the very important topic of two expired 

tax provisions, the active financing exceptions to SubPart F, and 

Section 954(c)(6) of the Internal Revenue Code, also known as 

‘‘CFC look-through.’’ 

I applaud the Committee for making significant progress on tax 

reform, and I urge the Committee to make these two provisions 

permanent as part of tax reform or outside of tax reform. 

I also appreciate that this Committee is willing to receive testimony from a former Senate Finance Committee staffer. 

I am a partner in the Washington office of Baker & McKenzie. 

However, I appear today on my own behalf, and my testimony does 

not necessarily reflect the views of my firm or our clients. 

Generally, the active income of an U.S. owned controlled foreign 

corporation or CFC, is not subject to U.S. income tax until distributed to U.S. shareholders. Under SubPart F, certain categories of 

income are treated as passive income and are subject to current 

U.S. income tax, including dividends, interest, royalties and rents. 

Income from the active conduct of a banking, financing or other 

similar business was exempted from SubPart F until 1986. These 

exceptions were restored on a temporary basis in 1997. 

The active financing exceptions to SubPart F currently exempts, 

when they come back into effect, certain income from treatment as 

passive income if the CFC satisfies an entity level test and a qualifying income test. The mechanics of these rules are addressed in 

my written testimony. 

These rules are designed to reflect sound tax policies. First, 

banks, financing, and other similar businesses earn income that 

looks like passive income but is derived from an active business. 

AFE appropriately treats such income as active income and ensures that such financial service businesses are treated the same 

as other businesses, such as manufacturers and service providers. 

The entity and income rules ensure that only banking, financing, 

insurance, or other similar businesses receive such treatment. Financial service companies compete across the globe. AFE allows 

U.S. based businesses to be treated like their foreign competitors. 

Such competition also creates U.S. headquarter jobs that support 

those foreign operations. 

Many U.S. based manufacturers establish financing subsidiaries 

that provide financing for goods sold from the United States. AFE 

allows U.S. based manufacturers to offer competitive financing on 

U.S. exports. This is a good policy. 

CFC look-through provides an exception to SubPart F as well. 

The provision generally provides that dividends, interest, rents and 

royalties received or accrued by one CFC from a related CFC are 

not treated as passive income, so long as the payments are made 

out of active foreign income. 


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The legislative history from 2006 states that Congress enacted 

this provision to remove impediments to business decision-making 

and allow U.S. based multinational corporations to deploy capital 

as and where needed without imposing U.S. tax. 

Congress recognized that businesses are truly global and will 

need to deploy active foreign income to expand foreign operations 

to compete with foreign based multinational corporations. 

These rules help U.S. businesses to fund operations in locations 

with the greatest potential for growth as opposed to resorting to 

loans from third parties. 

Permanence is fundamentally important for all Internal Revenue 

Code provisions because virtually every corporate decision is taken 

after a careful review of the after tax return on investment. If the 

after tax return on investment is uncertain, business decisions are 

either delayed or not taken. 

An Internal Revenue Code run by temporary tax provisions impedes legitimate business decisions and forces behavior that does 

not make good business sense. 

Continuing a band-aid approach to these provisions undermines 

the congressional justification for them. Permanence is essential for 

U.S. based financial service sector businesses. A permanent AFE 

would eliminate great uncertainty regarding future tax liability. It 

would also allow financial service companies to appropriately price 

their products and services in foreign markets. 

Permanence takes on added importance with respect to CFC 

look-through. Without look-through, taxpayers incur costs that do 

not advance anyone’s business or make any company more competitive in the marketplace. 

Permanence would eliminate these wasted expenses and allow 

taxpayers to effectively deploy cash where needed, recognizing that 

Subpart F’s entity by entity rules are antiquated. 

Thank you. I would be happy to answer any questions you may 

have 

Chairman CAMP. Thank you, Mr. Odintz. 

[The prepared statement of Mr. Odintz follows:] 


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Chairman CAMP. Mr. Hungerford, you are recognized for five 

minutes. 

STATEMENT OF MR. THOMAS HUNGERFORD, SENIOR ECONOMIST AND DIRECTOR OF TAX AND BUDGET POLICY, ECONOMIC POLICY INSTITUTE 

Mr. HUNGERFORD. Thank you for inviting me to share my 

views on the business tax extenders. 

Each year, dozens of temporary tax provisions expire and many 

are regularly extended for another year or two with little or no 

scrutiny. I applaud the efforts of this Committee to scrutiny the tax 

extenders. 

Let me summarize my main points. First, the tax extenders 

package is being considered in a challenging fiscal environment of 

budget deficits as far as the eye can see, in which maintaining long 

term fiscal discipline is necessary. 

Second, making some or all of the expiring tax provisions permanent without offsetting the revenue losses will permanently increase budget deficits and accelerate the accumulation of Federal 

debt. 

Third, running large annual budget deficits when the economy is 

operating at or near its potential can accelerate inflation, increase 

interest rates, reduce private sector investment, and reduce economic growth. Thus, destroying jobs. 

It is likely that any jobs created by these seven tax provisions 

would be entirely offset by jobs lost due to larger budget deficits 

over the longer time. 

In the time remaining, let me expand on these points. After 

2023, we face the unsustainable growth of Federal debt as projected under CBO’s extended baseline, a baseline that assumes 

these seven tax provisions, as well as 50 to 60 other expired provisions, are not extended. 

Between now and 2023, Federal debt rises from 72 percent of 

GDP to 78 percent. Barring tax and spending changes, Federal 

debt as a percentage of GDP is projected to grow to over 100 percent by 2038 and to an unprecedented 200 percent by 2080. 

Concern over long term fiscal challenges appears to have made 

long term fiscal discipline a priority. 

Chairman Camp recently unveiled a comprehensive tax reform 

plan that is revenue neutral over the ten year budget window. Revenue losses from tax rate reductions and making certain tax provisions permanent, including most of the provisions under discussion 

today, are offset with revenue increases from base broadening. 

The advisory for this hearing, however, notes that revenue neutrality is not consistent with recent practice by Congress in its consideration of tax extenders legislation. 

I am left to wonder if the commitment to long term fiscal discipline is being abandoned for this extenders package. 

Let me examine the budget implications of the seven provisions 

under discussion today, which account for almost half of the revenue loss of all expiring tax provisions. 

Making these seven tax provisions permanent with no offsetting 

revenue increases would add over $200 billion each year to the defVerDate Sep 11 2014 05:47 Nov 15, 2016 Jkt 021116 PO 00000 Frm 00048 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21116.XXX 21116

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icit, thus adding over $200 billion to Federal debt by the end of 

2023, almost one percentage point of GDP. 

Even a two year extension as proposed by the Senate Finance Committee, would add almost $50 billion to Federal debt by 2023, 

and modifying some of these provisions, as Chairman Camp has 

proposed, can reduce the revenue losses somewhat, but the overall 

consequences are similar, a large increase in projected Federal 

debt. 

If long term fiscal discipline is abandoned, then we face a future 

of budget deficits that are larger than expected. 

Research suggests that running large annual budget deficits in 

perpetuity can have adverse economic consequences, thus destroying jobs, and as I mentioned before, any jobs created by these provisions would likely be entirely offset by jobs lost due to larger 

budget deficits over the longer term. 

Given the long term fiscal challenge we face, I believe that whatever is decided about these provisions, the decision should not increase projected budget deficits. The tax extenders should be paid 

for by increasing tax revenues. 

Thank you. I would be happy to answer any questions you may 

have. 

[The prepared statement of Mr. Hungerford follows:] 


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Chairman CAMP. Thank you. Thank you all for being here and 

thank you for your statements. 

I have a question. Every time Congress has considered a short 

term extenders package, the Joint Committee on Taxation, which 

is our referee in these matters, estimates that the provisions will 

actually cease to exist. They look at the costs and say these provisions are not going to be continuing. 

However, with spending programs, on the appropriations side, 

those are always assumed to go on forever. Even if they expire, 

they assume they are going to go on forever. 

The Congressional Budget Office estimates that further extensions of spending have no cost, but yet with tax policy, the estimates say further extensions of current policy do have a cost. 

There is a difference of treatment in terms of tax relief and 

spending which creates a bias in my view, a bias against extending 

expiring tax programs in favor of extending expiring spending programs. 

If you look back at history, Congress virtually never pays for extenders, including those like the R&D tax credit, which supposedly 

have been temporary since 1981. 

My question is this, given the repeated extensions, is not treating 

long-standing features of the Tax Code as if they were permanent 

certainly a fundamentally more honest way, accurate way, frankly, 

and more transparent way of looking at the costs and benefits of 

these policies? 

Mr. Odintz, I just ask for your opinion on that. 

Mr. ODINTZ. Looking at it from a business perspective, businesses cannot rely on provisions when they analyze whether to 

move cash from one location to another or to engage in a transaction. 

They can only rely on current law and cannot rely on law that 

may or may not be extended, as you noted, the R&D credit has 

been extended since 1981, there is an exception there where it expired, so taxpayers could not enjoy the credits during that period 

of expiration. 

I look at these issues from a business perspective and it is difficult for businesses to make decisions without permanence or at 

least to understand how long these provisions will be in effect. 

Chairman CAMP. Mr. Redpath. 

Mr. REDPATH. I started my career in 1981, and have dealt with 

these extender provisions for years. It makes businesses do things 

they would not otherwise do. 

We have a temporary window of opportunity and it makes us 

make tax motivated decisions versus business decisions that may 

not have been made had we not had to deal with the expiration of 

the tax provisions. 

Chairman CAMP. Again, Mr. Stallman. 

Mr. STALLMAN. Farmers and ranchers deal with extensive uncertainty. It would be preferable to have more certainty with respect to the Tax Code as has been referenced by my colleagues. 

Farmers are making these decisions based on what they know, 

and right now, without clear certainty about what the future is of 

some of the extender provisions, particularly the Section 179 expensing provision, that is hindering or at least slowing down their 


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decisions to make these expenditures and investment, which are 

important for maintaining an agricultural productive base, and 

frankly important for manufacturers and all the jobs created by 

those who create this equipment. 

Chairman CAMP. Thank you. Ms. Zelisko. 

Ms. ZELISKO. Having a permanent R&D tax credit, which I was 

focused on this morning, really helps business to be able to predict 

its cash flow. 

In the planning process, when you are looking at R&D projects, 

they can span four to five years, having that certainty is critical 

in determining whether that cash flow is there or not. 

Relying on a credit that basically has an extension of one or two 

years and might not even be there obviously is not part of that 

process. It cannot be, you need to have predictability, you need to 

have certainty. 

With regard to cash flow, which is important in determining the 

amount of funds you are going to be able to set aside for those research projects, it is important to be able to know that the R&D 

credit would be around for business. 

In addition, there is also financial implications I mentioned in 

my written statement and in my oral testimony, with regard to 

how the investment community looks at a publicly traded company. 

When you are looking at whether or not an R&D credit is available, that impacts your effective tax rate. Why is that important? 

Analysts take that effective tax rate and factor it into their financial models. 

Why is that important? It is the analysts that determine what 

they are looking to forecast your earnings per share. Your earnings 

per share are on an after tax basis. They take that earnings per 

share and then use a multiplier which they attribute to your particular company, depending upon the industry and what its history 

of earnings have been, and then they come up with basically a 

share price and a range, which then they use for their buy side and 

sell side analysts with regard to your stock price. 

Again, predictability is so critical in this area and permanent tax 

policy would enable that to occur. 

Chairman CAMP. We have had dozens of hearings over the last 

four years in this Committee where we have heard from many witnesses who said investing in their businesses and effectively planning for the future requires certainty. I heard all of you mention 

that as well, and especially when it comes to tax policy. 

Each of you mentioned how some of these temporary tax provisions affect your companies and clients and some of your members. 

What is your sense in terms of the economic benefit if businesses 

could generally rely on tax rules which would or would not be permanent going forward? What do you think sort of the overall economic impact might be if you can? 

Ms. Zelisko, I will start with you and go the other way. 

Ms. ZELISKO. Thank you. Certainly, having certainty with regard to the R&D credit, I think, has a tremendous multiplier effect 

from an economic standpoint. 

When you are basically able to invest and create new products, 

which again accepted in the marketplace, you are providing not 


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only jobs and developing those products, you are providing sales 

revenue. 

Therefore, you are able to further invest in your company, and 

that means jobs. Jobs mean housing. Housing means there are 

businesses in a particular community that are going to thrive. 

Therefore, I think definitely the multiplier effect is often missed 

when you are looking at permanent tax policy and the certainty it 

provides. 

Chairman CAMP. All right. Mr. Stallman. 

Mr. STALLMAN. Agriculture is very similar. You have to maintain your productive base. You have to make capital investments 

to do that. Having certainty about tax policy allows that planning 

to occur. Without that, you are sort of delayed and behind the 

curve, if you will, from deciding how and when to make these investments that erodes your productive base. 

Our agricultural export surpluses are certainly contributing to 

our balance of payments. The jobs that are created through that activity as well as the internal production and the amount of products and inputs that we purchase from suppliers, all of that creates 

great economic activity. 

With tax certainty, you have more of that. With tax uncertainty, 

you have less of that. 

Chairman CAMP. All right. Mr. Redpath. 

Mr. REDPATH. Let me answer that with an example. I was 

working with a client last year, and in 2012, their five year S corp 

built in gains recognition period expired. They had an opportunity 

in 2013 to take advantage of the temporary rule of five years. 

They owned millions of dollars of pipe in Western Minnesota that 

was subject to the built in gains tax, that they would need to sell 

in 2013 in order to benefit with regard to the current temporary 

five year rule. 

This is the kind of pipe that you cannot sell in a year. It really 

impacted their decision. What do they do with this pipe? Do they 

sell it for less than they should sell it for? Can they make a business decision? Can they hope you extend it to 2014 and beyond? 

What they ultimately had to do was sell some of this pipe for less 

than the real value of the pipe in order to move it to take advantage of the temporary window with regards to the five year recognition period on built in gains. 

Chairman CAMP. Thank you. Mr. Odintz. 

Mr. ODINTZ. Sure. I would like to also provide an example. U.S. 

manufacturers frequently establish a foreign subsidiary for financing their products, and as you may know, in banking or a similar 

business, the margins can be pretty low, interest rates on loans 

take into account after tax returns on that product. 

For an U.S. manufacturer, it is important to have an interest 

rate that is competitive in the marketplace. If the U.S. manufacturer cannot rely on pricing of that interest rate as being competitive, then they may not get the financing for their widget and may 

lose on a sale of their widget and a foreign manufacturer may get 

the transaction. 

I cannot tell you the macro effects, but on a business by business 

effect, these rules have significant impact. 

Chairman CAMP. All right. Thank you. Mr. Levin. 


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Mr. LEVIN. Thank you very much. Welcome again. 

Let me just kind of go down the line, if I might, and start with 

you, Ms. Zelisko. As Chairman Camp mentioned, I very much favor 

the extension of the R&D tax credit. We have been working on this. 

I would like to ask you, do you know what the Joint Tax cost 

would be of permanent extension? 

Ms. ZELISKO. I do not have that number currently available. I 

know it is significant. Again, I think from a tax policy standpoint, 

it is important. 

The country back in 1981 when it put this credit in place really 

led the world as far as being ahead of the curve and realizing the 

importance of providing incentives for businesses to invest in research and development. 

Mr. LEVIN. I agree. I have been one of the most active proponents. I just wanted to ask you about the cost. 

Mr. Stallman, on the small business expensing, do you know 

what the Joint Tax ten year estimate is for making it permanent? 

Mr. STALLMAN. I will have to concur with my colleague, I do 

not know that specific number. Once again, in terms of tax and economic policy, the provision itself is very important, I believe, in 

generating additional economic activity and thus, generating extra 

revenue in terms of tax revenues. 

Mr. LEVIN. For R&D, their estimate is $76 billion. For expens- ing, it is $69 billion. 

Mr. Redpath, you come off more easily. Do you know what the 

estimate is for your provision? 

Mr. REDPATH. No, I do not, but I work closely with many S corporations that have potential built in gains tax exposure. As I said 

in my oral testimony, no one willingly pays the BIG tax. They 

structure transactions, they structure operations in any way they 

can to avoid it, which ultimately ends up tying up assets for ten 

years or more. 

Mr. LEVIN. You stated the merits. I think there is much to be 

said for each of your testimonies. I just wondered about the cost. 

Mr. Odintz, I am going to ask you, you mentioned two of them, 

the CFC and also active financing. We have been working on these 

two issues forever. 

Do you know what Joint Tax projects as the cost, ten year cost, 

of making this permanent? 

Mr. ODINTZ. Sure. I believe for CFC look-through, the cost is 

around $10 billion over the ten year window, and then for AFE, I 

believe the cost is in excess of $50 billion over the ten year window, 

but under $100 billion. 

Mr. LEVIN. According to Joint Tax, their estimate for ten years 

for the CFC provision is $20 billion plus, and for active financing, 

it is $70 billion. You are pretty close, but 10 to $20 billion is a lot 

of money. 

I just want to mention that because as I said in my opening 

statement, I think we need to look at these issues in a holistic way, 

and not only these specific ones, but others that are not being 

looked at, and I think the issue of cost, no matter how you try to 

shape it, is indeed relevant. 

I yield back. 

Chairman CAMP. Mr. Johnson. 


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Mr. JOHNSON. Thank you, Mr. Chairman. I did not get a 

chance to tell you but I want to take this moment to thank you for 

your service and in particular your tireless effort in advancing the 

cause of tax reform. 

Chairman CAMP. Thank you. 

Mr. JOHNSON. Ms. Zelisko, I have a number of questions I 

would like to ask you about the R&D tax credit. First, to begin 

with, we have heard that the potential for long drawn out fights 

with the IRS over the R&D tax credit can discourage companies 

from even claiming the credit. 

Has Brunswick faced similar fights with the IRS? 

Ms. ZELISKO. We have had some disagreements with regard to 

the R&D tax credit with the IRS. Basically, one of the challenges 

that we face is that often times the IRS wants to basically think 

that you should keep your books and records such that they are on 

a project by project basis with regard to these R&D projects, as opposed to we keep our books and records on a cost center basis. 

The IRS wants to directly be able to point to the different costs 

involved in the R&D effort to a particular project as opposed to taking a more reasonable approach in an allocation that would be supportable but would make more sense. 

Often times, that is where we have faced our challenges. 

Mr. JOHNSON. You are saying the IRS is not reasonable. I have 

to agree with you. 

Do you have any more thoughts on how to make the credit more 

taxpayer friendly? 

Ms. ZELISKO. I think basically looking at the alternative simplified credit, where you basically would eliminate some of the controversy that taxpayers have been challenged with with regard to 

the base period, a receipts calculation, you are talking about a base 

period that goes back to 1984 to 1988, where you are looking at 

data that is 25 to 30 years old. 

If you are in a company that has bought businesses and sold 

businesses where you have had that research and development in 

those years, you have to adjust for that. 

Needless to say, that probably makes it at best problematic in 

trying to track that. 

I think when you are going to an alternative simplified credit, 

you are looking at data that is two to four years old, a lot more 

manageable than 30 years old. 

Mr. JOHNSON. As you may know, in Chairman Camp’s tax reform discussion draft, the R&D credit is modified so it is based on 

the alternative simplified credit, ASC, rather than the traditional 

credit. 

Do you have any thoughts on how shifting to the ASC would improve the R&D credit? 

Ms. ZELISKO. As I said, I think basically it would eliminate the 

controversy around the base period by going to an alternative simplified credit. 

I would urge the Committee and Congress to not eliminate supplies, the deduction for supplies and software, because for our company, supplies can be anywhere from 20 to 25 percent of our total 

qualified research expenditures. 


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57 

When we are making a new engine, you basically destroy a lot 

of prototypes in that process when you are getting it right. 

I would urge the Chairman and Committee to rethink the supply 

issue with regard to deductibility. 

Mr. JOHNSON. Do you think changes like that would make it 

easier for companies to claim the credit generally? 

Ms. ZELISKO. We have found when the IRS actually goes out 

and visits your facility and they talk to the engineers that are basically involved in the process, they truly realize what R&D is all 

about, as opposed to sitting back in a field office in a vacuum. 

Mr. JOHNSON. You think some of them do that? Thank you so 

much. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. Mr. Doggett. 

Mr. DOGGETT. Thank you very much, Mr. Chairman. Despite 

all the talk about tax reform that will be more simple and equitable and tax reform that will not dig us deeper into debt, Republicans have chosen to first not introduce that legislation. 

They have had reserved since January of last year, H.R. 1, for 

comprehensive tax reform, and as of today, it still shows H.R. 1 is 

reserved for the Speaker. 

Instead, today’s hearing is about borrowing more money from the 

Chinese to maintain some very complex corporate Tax Code provisions that depend upon their very complexity to work. 

The controlled foreign corporation provision and the active financing provision are all about this Congress picking winners and 

losers rather than leaving the marketplace to decide. 

They lower the effective corporate tax rate for some businesses 

and say to some businesses they do not have to pay as much for 

the cost of our national security and other vital services as their 

neighboring corporation that is competing and paying a higher effective tax rate. 

Mr. Hungerford, I want to ask first about the active financing provision. We understand that would take borrowing about $70 billion of additional debt over the next ten years to maintain. 

Under existing law, if a financial institution makes a loan to a 

domestic corporation, to one of Mr. Stallman’s farmers, to a company that is making it in America, manufacturing here, as I understand it, it reflects in its corporate tax return the interest that it 

earns from extending the loan and it deducts whatever the cost of 

extending that credit might be, and it pays taxes on the difference. 

Is that right? 

Mr. HUNGERFORD. That is correct, and thank you for asking 

the question. 

Mr. DOGGETT. If it is a loan or some other form of credit to a 

company that is not making it in America, that is a foreign operation, then it can take its expenses now for extending the credit 

and take its profit on its earnings whenever it feels like it. 

Is that not essentially what the active financing provision allows? 

Mr. HUNGERFORD. The active financing exception is an exemption to SubPart F. If this income was all considered SubPart F, it 

would be taxed immediately. 

Mr. DOGGETT. Yes. The very fact that we are talking about 

SubPart F and the exception to SubPart F and active financing and 

whether it is active or passive is the kind of thing that does add 


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complexity and causes the eyes of most people to glaze over rather 

than to look at the effect of what the provision is, which is to provide, is it not, Mr. Hungerford, a substantial subsidy to encourage 

the export of American capital and American jobs rather than to 

invest in making it in America? 

Mr. HUNGERFORD. Yes, that is correct. 

Mr. DOGGETT. As far as the controlled foreign corporation provision, and the CFC look-through exception is concerned, another 

$10 billion that we would borrow from the Chinese, if you have two 

companies right next door to each other and one of them can afford 

a bunch of fancy accountants and consultants and high priced lawyers to rig up some corporate fiction that they have a subsidy in 

the Bahamas or Bermuda, they can license their patents, their 

copyrights, perhaps their trademark name, to a tax haven company, and strip off earnings that they have had right here in America, that their smaller neighbor does not do. 

The effect of that is to lower their profits by increasing their 

costs in some tax haven. Is that not the way it works? 

Mr. HUNGERFORD. Yes. 

Mr. DOGGETT. In fact, using both of these devices and many 

other complex provisions, over the last decade I believe GE has not 

only lived better electrically but they have managed to pay an effective corporate tax rate of less than two percent, two cents on the 

dollar, which is a deal that any hard working American or business 

would love to have. 

Mr. HUNGERFORD. That is correct. 

Mr. DOGGETT. Essentially, repealed their taxes except at a certain minimum level. 

Under these controlled foreign corporations, you actually end up 

with what many people have called ‘‘stateless income.’’ How does 

that work? 

How does some income just never get taxed by any entity either 

here in America that contributes to the cost of our national defense 

or by anyone else? 

Mr. HUNGERFORD. Part of it is through the CFC look-through 

rule that income can be shifted, that is from a high tax country, 

high tax foreign country, to a low tax foreign country, in such a 

way that it is not taxed in that high tax foreign country, and the 

transaction is not taxed by the United States. 

Chairman CAMP. All right. Time has expired. Thank you. Mr. 

Brady is recognized. 

Mr. BRADY. Chairman Camp, thanks for your leadership, tireless leadership, to fix this broken Tax Code and reign in the IRS, 

get this economy going. 

This hearing is about jobs and we need them so badly. This is 

the worst economic recovery in 50 years. Millions of people have 

given up looking for work. Millions of work cannot find it. It has 

taken six years just to break even on the number of jobs along 

main street. 

Today, proportionately, fewer Americans are working than when 

this recession ended. We are actually going backwards. 

Those who are being hurt most are women and young people and 

those just graduating from college. We ought to be focusing on jobs. 


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What I hear from our witnesses today is that these tax provisions are critical to creating jobs, and they are less pro-growth if 

they are temporary, and far more pro-growth if they are permanent, and businesses of all sizes can count on them, from innovative businesses doing research and development to investing in 

America with those jobs, or small businesses and family farms and 

ranchers creating jobs here in America. 

About the CFC look-through that allows American companies to 

be competitive against China and Europe and Latin America, so we 

can create jobs here in America. 

This is what this hearing is all about. While I appreciate the concern about fiscal responsibility, what Chairman Camp has shown 

in his discussion draft is you can lower rates, you can make this 

Tax Code more pro-growth without adding a dime to the deficit. 

This really is about removing an asterisk around these temporary provisions in the Code so we can grow the economy more. 

Chairman Johnson has asked about the research and development area, which I have an interest in, as all members do. I want 

to talk about small business expensing. 

Right now, one of the missing ingredients in this recovery, one 

of the reasons it is so weak, is that businesses are not able and do 

not feel comfortable to reinvest back in new equipment, software, 

and technology. 

I want to ask first Mr. Stallman and then Mr. Redpath, how important it is—we need big businesses to invest and we need small 

businesses to invest. 

I want to ask both of you gentlemen how important is it that our businesses be able to expense, you know, that $500,000 figure, and 

how important is it that it is made permanent so they have that 

certainty? How important to the economy is it? 

Mr. Stallman. 

Mr. STALLMAN. From a farming and ranching standpoint, we 

believe it to be very important. I referenced the high cost of equipment that exists. I did not mention the cotton pickers that are 

$600,000 to $750,000 at a pop now. 

The point is we need the $500,000 expensing. This is not about 

tax avoidance. This is just changing when you pay the tax because 

you are just accelerating the expense for that year. It helps provide 

additional cash flow. It helps you make that decision, and having 

certainty about that is what allows you to move forward. 

Just a personal example, I am right now thinking about having 

to replace a tractor on my farm. I am going to wait and see what 

happens with these tax extenders and what happens to the provision for Section 179 expensing before I make that decision. 

Mr. BRADY. When you buy that tractor or cotton picker, it certainly reverberates through the economy, does it not? 

Mr. STALLMAN. Absolutely, all the way from the raw materials 

suppliers to the manufacturers to the dealers selling it to the people that service it, just all the way down the line. 

Mr. BRADY. Thank you. Mr. Redpath. 

Mr. REDPATH. Thank you. Two things. One is to answer your 

question also answers the question why we should extend the built 

in gains tax period. That will free up the capital necessary to make 

those expensing acquisitions. 


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I look at the expensing provision as a provision that absolutely 

works, and the reason it works is everyone that qualifies for it uses 

it. It is one of these provisions that is in the Code, and if they qualify, they use it, so it must work. 

For my clients, spending those investments is how their companies grow. When companies grow, they create more jobs. 

Mr. BRADY. Mr. Chairman, thank you for hosting this hearing. 

I know we have members wanting to inquire about a number of the 

other provisions. Thank you for holding it. 

Chairman CAMP. Thank you. Mr. Lewis. 

Mr. LEWIS. Thank you very much, Mr. Chairman, and thank 

you, Mr. Chairman, for holding this hearing. 

Mr. Hungerford, in your testimony you raised the importance of 

long term fiscal discipline. You also highlight the question or objective of a tax break. 

When considering tax extender and tax reform, what action by 

this Committee would cause the least economic disruption? 

Mr. HUNGERFORD. I think two things the Committee could be 

doing. One is determining which provisions belong in the Tax Code 

and which do not. I think there is a lot to be said from both a business standpoint and a budgeting standpoint to make them permanent. 

Mr. LEWIS. In your work, do you believe that a broad or a narrow lens should be applied when considering tax policy and why? 

Mr. HUNGERFORD. I think as broad a lens as possible. You 

need to take into account other things in the Tax Code. Also, you 

need to take into account the whole budget situation, basically 

spending and the revenue side. 

I am concerned over the long term about deficits and 

unsustainable accumulation of debt. 

Mr. LEWIS. Thank you very much. I thank the other members 

of the panel for being here. I yield back, Mr. Chairman. 

Chairman CAMP. Thank you. Mr. Tiberi. 

Mr. TIBERI. Thank you, Mr. Chairman. Mr. Stallman, welcome. 

I understand you hail from Columbus, Texas. I hail from Columbus, Ohio. Good to have two Columbus guys in the room. 

Mr. Brady posed a question regarding Section 179, and you gave 

your tractor example. If you could just go a little bit further on 

what ranchers and farmers have done in reaction to what was the 

law at the $500,000 expensing level. We know what they have not 

done because of the new amount of $25,000. What do you believe 

would happen if we extended permanent law to the old limit of 

$500,000 in Section 179? 

Mr. STALLMAN. I will tell you this anecdotally based on my 

conversations with farmers. There were a number of them that accelerated their purchase decisions prior to December 31 because 

they had certainty up to that point. They were uncertain about 

what was going to happen after that. 

Right now, I would suggest there are a number of them that are 

in a holding pattern waiting to see what happens before they commit the funds to purchase equipment in excess of what the $25,000 

deduction would allow. 

If it were made permanent, that would create the certainty, I believe, for farmers and ranchers to do that very necessary planning 


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for their capital structures or capital improvements that they need 

to maintain a productive farm and ranch. 

I think it would unleash dollars that frankly have been held 

given the fact that we have had a good agricultural economy, and 

that is subject to change obviously, but we have had a good economy where farmers and ranchers have had some profits and some 

cash. 

They are waiting to see what they are going to do with that. 

Mr. TIBERI. I have heard the same thing anecdotally from small 

business owners in my District of Central Ohio, and plan on introducing a bill that would extend this permanently, a bipartisan bill, 

later this week. 

I know your organization is supportive of that, as are many other 

small businesses. Thank you for being up here today from Columbus, Texas. 

Mr. Odintz, on another matter that Mr. Doggett brought up, 

reading your testimony, I think you have a different view on the 

active financing exception. 

Can you talk about the process that you and your clients go 

through because of the temporary nature of this provision in the 

past, and how this is much like 179, a provision that actually helps 

American competitiveness, a little bit different than what we heard 

a little bit ago? 

Mr. ODINTZ. Sure. I think it is important to note that AFE does 

not export jobs. What it does allow is for a bank or similar business 

to establish a branch or to establish operations in a location. 

If you think about it, when people go to a bank, they like to walk 

into a physical bank. It is important that the U.S. headquartered 

banks can establish a local operation that facilitates the relationship with clients. 

If the rules do not exist, then it is difficult for clients to price out 

loans, certificates of deposits, and other like instruments at a competitive rate with foreign based multinational’s that have operations, real physical operations, in the same jurisdiction. 

As far as jobs, a lot of companies, U.S. based multinational’s, 

manage their foreign currency risk and other international risks in 

their headquartered location, so that happens in the United States, 

so there is a knock on effect of jobs when an U.S. based bank opens 

operations abroad and is unable to manage its risk domestically. 

Mr. TIBERI. Correct me if I am wrong, this allows U.S. financial 

services companies that do business all over the world to be competitive with their foreign competitors and treats them exactly like 

non-financial services companies are already being treated under 

the law. 

Mr. ODINTZ. That is correct. AFE merely treats a bank or other 

financial service provider like a manufacturer. It does not provide 

a better position vis-a-vis SubPart F. It just treats them equally 

like non-financial service providers. 

Mr. TIBERI. It does not allow for any deferral of profits in the 

U.S.? 

Mr. ODINTZ. That is correct. 

Mr. TIBERI. Why do you think it gets attacked? 

Mr. ODINTZ. I think the discussion sounds like a greater discussion on whether we should have deferral, which is a different disVerDate Sep 11 2014 05:47 Nov 15, 2016 Jkt 021116 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21116.XXX 21116

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cussion, but to the extent we are going to retain a system that has 

deferral, I do not see a reason to distinguish between banks that 

engage in active business versus a manufacturer that makes widgets. 

Mr. TIBERI. My time has expired. Thank you so much. 

Chairman CAMP. Thank you. Mr. Kind. 

Mr. KIND. Thank you, Mr. Chairman. Thank you for holding 

this hearing, and we appreciate the witnesses’ testimony here 

today. 

Let me just start with a general question for the panel. Other 

than Mr. Hungerford, who testified pretty clearly that he thought 

that extension of these expired provisions without paying for them 

may be detrimental to economic growth in the future, does anyone 

else on the panel have any concerns about the potential lack of offsets to pay for these expired provisions as we move forward? 

[No response.] 

Mr. KIND. Not really? One of the hardest things we have to do 

around here, whether it is new program spending or whatever, is 

finding offsets in order to pay for things so that we are not adding 

to the deficit, especially in future years, the ‘‘out years’’ as they 

say. 

I think that is going to be an issue that we are going to have 

to have an ongoing conversation about with the extension. 

Mr. Stallman, appreciate your testimony on the importance of 

179 expensing. Obviously, I come from a large agricultural area in 

the State of Wisconsin. I have been working with Mr. Tiberi in introducing some legislation along those lines, a permanent extension 

of 179, indexing it for inflation. What we are thinking about doing though is taking the $500,000 and lowering it to $250,000 for real property, but still indexing it. 

Would you have any concerns with that, as it would affect real 

property? 

Mr. STALLMAN. Are you talking about the single purpose buildings? 

Mr. KIND. Yes. 

Mr. STALLMAN. $500,000 would be better, obviously, because 

these buildings, particularly with the technology and the systems 

that are put in place now are getting more expensive, not less expensive. I think that is the issue there in terms of the growth and 

cost of these kind of single purpose buildings. 

Mr. KIND. I do not know if you have or someone at Farm Bureau has had a chance to really go through the Chairman’s discussion draft that was introduced a couple of weeks ago, but in it, they 

are calling for the elimination of Section 1031, the like-kind exchanges. 

Have you had a chance to look at that and what the impact 

might be in the agricultural section if we eliminated like-kind exchanges? 

Mr. STALLMAN. We are reviewing the whole proposal now and 

trying to get sort of the big picture of what it means for agriculture 

and all the tradeoff’s that are there. 

I will tell you that our policy supports maintaining the 1031 exchanges. Those have been very useful for farmers and ranchers as 

they have gone about planning for the future, as they have gone 


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about trying to expand their operations, plus important for those 

who may want to move on and do something else but want to try 

to manage the tax consequences of selling their land. 

Mr. KIND. I would like to stay in touch with you and get some 

more feedback on what the impact might be, especially in the agricultural field. 

Mr. Redpath, appreciate your testimony, too, as far as the impact 

on S corporations and the five year BIG holding period, something 

that Mr. Reichert and I have been working on with our S corp modernization bill. 

You also indicate in your testimony that you think we need to 

expand the qualifying beneficiaries to include non-resident alien individuals as well. Could you explain why you think that is necessary? 

Mr. REDPATH. Yes, thank you. The provision relating to the 

non-resident alien individuals deals with who can be permissible 

beneficiaries of electing small business trusts, which are eligible S 

corporation shareholders. 

It does two things. One, it puts S corporations at par or closer 

to par with LLCs, their competing flow through model, where LLCs 

are not restricted to the types and numbers of owners and the 

types of ownership. 

This would allow S corporations to attract non-resident alien foreign owners through trust only. 

In that provision, the trust actually pays the tax, and it pays the 

tax at the highest individual rate. Some of the positions are who 

cares who the beneficiaries are, the trust is actually the taxpayer. 

The second and more important provision that I run into with regard to this provision is family business. More and more of our 

family businesses are resulting with non-resident alien family 

members, who without this provision cannot enjoy the benefits of 

family ownership of the family S corporation. 

Mr. KIND. One other thing, Mr. Redpath. The five year BIG 

holding period and the impact on the charitable deduction provisions, can you explain in a little bit more detail what impact that 

has? 

Mr. REDPATH. Yes. I will just give you an example. Let’s assume an S corporation has appreciated property that it wants to 

donate to a charity, whether it is appreciated securities or land or 

a building, and they want to donate it to a charity. 

When they donate to that charity, they get a deduction for the 

fair market value of the property, just like anyone else, like an 

LLC or C corporation or individual, but they are required to reduce 

the basis in the stock they own by that full fair market value. 

All other taxpayers get to reduce by the basis of the property, 

which is substantially less than that. It results ultimately in not 

being able to deduct the full fair market value of the property. 

Chairman CAMP. All right. Thank you. Time has expired. 

Mr. KIND. Thank you. 

Chairman CAMP. I am going to go two to one now, Mr. Reichert. 

Mr. REICHERT. Thank you, Mr. Chairman. I want to add my 

thanks to you, too, for pushing forward with tax reform over these 

last three plus years, and in fact, thanks to the entire Committee 


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because this has been a bipartisan effort, over 40 hearings and 

meetings after meetings after meetings after meetings. 

[Laughter.] 

Mr. REICHERT. On tax reform. It has been a little bit in contrast to some of the other major bills that were passed in previous 

years, but this is an effort to reform the Tax Code, and the people 

on this Committee know how hard that is. You certainly know how 

hard that is, since 1986, we have been hoping for this. People in 

this audience know and I think people around the United States 

understand how critical this is and how difficult this is. 

The whole goal here is to create a tax reform bill that energizes 

business, and as Mr. Brady says, creates jobs. We do not work for 

the IRS any longer, but the Tax Code works for us, right? That is 

the goal. 

There are a couple of things I want to touch on, Ms. Zelisko, both 

in your oral and written testimony. First, the need for the permanence in the R&D credit for the U.S. to be competitive on the international level. 

Second, your concerns that eliminating supplies and computer 

software from the credit might have unintended consequences. 

On your first point, in Washington State, we do not have to look 

too far to see what other countries are doing to attract R&D. You 

may already know this. In Canada, not only have they reduced 

their Federal corporate income tax rate to 15 percent, they have 

now a permanent 15 percent credit on research and development 

activities that applies to all expenditures and special accelerated 

depreciation rules that apply to so-called ‘‘research assets.’’ 

On top of this, the various provinces and territories have added 

their own research tax incentives. For example, in British Columbia, right above the State of Washington, there is now a ten percent credit for all companies, on top of the Federal incentive. 

On your second point, the unintended consequences of removing 

software and supplies from the credit, we have heard a couple of 

things, that no other country in the world specifically denies R&D 

credit eligibility for all software costs and secondly, for manufacturer supplies, such as test models, can be an integral part of conducting scientific research. 

Could you please comment on both the importance of the permanence in the R&D credit to stay competitive on an international 

level, and the potential unintended consequences for removing expenditures on software and supplies for the tax credit? 

Ms. ZELISKO. Yes. The United States has the opportunity to 

lead once again in this area. We did in 1981, but that recent OECD 

study ranks us now 22nd as far as the incentivization the R&D 

credit provides here in the U.S., when it is in play. 

I think therefore making it permanent is going to really accelerate and innovate and provide the incentive for businesses to plan, 

to be able to decide that we are going to be able to do that extra 

project as a result because we know that the cash flow is going to 

be there, and it is not going to be on again, off again. 

I think with regard to that, ranking number one in 1981 and 

now 22nd, obviously that says something, that we need to basically 

take notice and lead as opposed to trying to catch up. 


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In that regard, with regard to the amount of items that should 

be allowed as far as qualified research expenditures, having supplies and software being part of the equation which it was until the 

proposal here we have before us, I think that is important. 

Supplies are critical as far as when you are doing research and 

development. Obviously, wages are the majority, as evidenced by 

the research and development credit; 70 percent of all expenditures 

relate to wages. That means 30 percent relates to supplies, not an 

insignificant amount. 

I think if we want to be competitive as opposed to regressing and 

taking a step back, retaining supplies as a deductible, as a qualified research expense for the R&D credit, is so important, along 

with software. 

Software is critical. Look at the developments of the companies 

we have had here in the United States where software development—we lead in that forefront, and I think we want to retain 

that. 

Mr. REICHERT. Thank you. I yield back. 

Mr. YOUNG [presiding]. The gentleman’s time has expired. Mr. 

Boustany is recognized for five minutes. 

Mr. BOUSTANY. Thank you, Mr. Chairman. I am very pleased 

we are having this hearing today and happy that we are focusing 

on a bipartisan tax provision that I have long championed, and 

that is making the CFC look-through permanent. 

You can argue that a lot has changed since 1962 when a lot of 

these international provisions were written. 

Mr. Odintz, I think you pointed out that SubPart F is antiquated 

because it sort of assumes that business is done country by country, on a country by country basis, and does not take into account 

the global nature of business today, the type of environment that 

U.S. owned businesses are trying to compete in. 

These are companies going up against—these are American companies that create value, they create American jobs, and they are 

going up against foreign competitors. 

You pointed out in your testimony a couple of things. One, the 

concept of making this permanent so there is certainty for these 

companies, our U.S. companies, to plan and make sound business 

decisions, and you also talked a lot about the competitiveness of 

American companies vis-a-vis our foreign competitors. 

This provision is not well understood. I think we heard from the 

other side just a little while ago some relative misunderstanding 

about how this works in this 21st Century economy, and why it is 

necessary for U.S. companies. 

The CFC look-through allows payments of dividends, interest, 

rents or royalties in the normal course of active business operations 

between U.S. owned foreign subsidiaries, so they can deploy capital 

without an immediate tax burden in their normal business operations, and it does not apply to passive highly mobile income. That 

is an important distinction. 

I want to give you an opportunity to expound further on this. 

Some have voiced concerns that the CFC look-through rule allows 

U.S. companies to avoid taxes on their foreign income. 

If the rule only applies to active foreign income that otherwise 

is not subject to current U.S. income tax, is this not really just 


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about foreign taxes and not U.S. taxes? Is it really at the end of 

the day Congress’ responsibility to force American companies to 

pay higher taxes to other countries? 

Mr. ODINTZ. Congressman, I think you have correctly pointed 

out that in order to use the provision, it requires the payments out 

of active income. The issue really is whether the U.S. should have 

a current inclusion of that income or the taxpayer should get a deferral for redeployment of capital to another location outside the 

United States. 

That is the issue. I look at it not as a provision designed to enable stripping from one country to another but rather for flexible 

utility of cash. 

If you look at U.S. multinationals, they are limited in how they 

can conduct operations. Without CFC look-through, they have to 

separate jurisdiction by jurisdiction or country by country, and 

when you look at the EU, for example, the European Union is one 

zone, but yet U.S. rules require U.S. corporations to treat each 

country separately and distinct, which is certainly not how European competitors or other competitors look at the EU. 

Mr. BOUSTANY. Thank you. I know when Congress enacted the 

provision in 2006 it wisely recognized that it would really create a 

level playing field for U.S. companies, but talk a little bit more 

about the competitiveness, in the time I have remaining. 

U.S. companies trying to operate in a 21st Century global economy, a very competitive global economy, give us more background 

from that perspective. 

Mr. ODINTZ. Sure. On the competitiveness piece, cost of capital 

can be expensive and obviously if a company can move funds from 

one jurisdiction to another by a dividend as opposed to having to 

borrow from a third party, the cost of capital is lower, and it can 

be more efficiently deployed to a market where there might be a 

new opportunity. 

For example, in an effort to expand in one country in the European Union that was untapped, it allows the U.S. company to deploy that capital in that place and open a new facility or sell into 

that marketplace and compete with the same cost of capital as a 

foreign competitor. 

Mr. BOUSTANY. This supports American jobs; right? 

Mr. ODINTZ. Yes, it does. 

Mr. BOUSTANY. Thank you. That is all I have. 

Chairman CAMP [presiding]. Thank you. Mr. Pascrell. 

Mr. PASCRELL. Mr. Chairman, thanks for bringing us together. 

I think this is a very important hearing. As we have heard today, 

companies want certainty. Individuals rely on you and rely on that 

certainty. 

There are many extenders not on the agenda, about 50 of them. 

I hope they will get a fair hearing as you are getting a fair hearing 

today. 

We can address the new markets tax credit, the mass transit tax 

benefit, the work opportunity tax credit, which has bipartisan support, and various other provisions. 

I support the goal of coming up with a permanent solution to the 

tax extenders. Like many other things here in Congress, this issue 


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comes up every year or two, and instead of finding a way to solve 

it once and for all, we kick it down the street. 

The sustainable growth rate is a perfect example, SGR. We debated it last week and passed it. We had the momentum. We had 

the lowest score to repeal the formula in years, but we did not have 

an agreement on how to pay for it, but we are trying. 

That is the crux of the issue with extenders. We need permanence in our Tax Code, but we cannot sacrifice the progress we 

have made bringing down our deficits, which have come down at 

the fastest rate since World War II. That is either true or false, 

what I just said. 

It is simply not fair to put these provisions which disproportionately benefit business on a credit card. To do so would be incredibly 

hypocritical, especially since our Speaker has ruled out a vote on 

the fully paid for extension of the unemployment insurance. 

Tax cuts do not pay for themselves. We learned our lesson, I 

think, in 2001 and in 2003, when the Clinton surplus evaporated 

and paved the way for structural deficits we continue to see. 

We are pleased when the draft of the Chairman’s tax reform legislation used the current law baseline. That meant a big deal. 

Mr. Hungerford, it is good to see you again. You spent a long 

time with the Congressional Research Service, and your astute 

analysis informed many debates in this Committee and throughout 

Congress. 

One report of yours that I almost carry with me all the time, that 

sticks in my mind, ‘‘Taxes and the Economy, an Economic Analysis 

of the Top Tax Rates Since 1945.’’ I thought it was on target. I 

have referred to this before in discussing tax issues. 

My friends on the other side of the aisle often claim that tax cuts 

at the top are the key to unleashing economic growth in this country. 

Could you please summarize what the research you conducted for 

the paper I just cited found regarding the correlation between the 

top marginal and capital tax rates and economic growth and income distribution? 

Mr. HUNGERFORD. To briefly summarize, I found no correlation between changes in the top tax rates for capital gains and for 

ordinary income and for various measures of economic growth per 

capita, GDP growth, productivity growth, changes in savings and 

investment. 

I think if there were something there, I would have found a correlation. I think it is very telling that I did not find a correlation. 

You just do not see any movement, these variables moving together 

in the data. 

I did, however, find as the top tax rates for ordinary income and 

capital gains have come down, income inequality has been going 

up, as measured by the share of total income going to the top one 

percent in the income distribution. 

Mr. PASCRELL. We have to get beyond the first flush that 

would indicate that the more investment that comes from the top 

necessarily and the more tax breaks the top five percent receive, 

it is going to automatically transfer into economic growth and jobs 

in the economy. 


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You made that study from 1945 on. Why are we still relying on 

that myth that if we take care of the top, and I am exaggerating, 

let me use hyperbole, I have that option right now, if we continue 

to do things for the top, everybody else is going to be wonderful. 

Why are we still using that myth? 

Mr. HUNGERFORD. I wish I knew. 

Chairman CAMP. Time has expired. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. We will go to Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman, and thank you to our 

panelists here today for sharing your insight and expertise. 

I think you have all touched on the fact that a permanent Tax 

Code is a somewhat simpler Tax Code. Certainly, it eliminates one 

of those unpredictable provisions of the Tax Code. 

We know that the marketplace is volatile, it impacts the economy 

in various ways, and Mr. Stallman, I know agriculture certainly 

sees the volatility in the marketplace and tries to manage that. We 

hope we do not have volatile tax policy as well. 

Especially in light of the fact that I think agriculture has done 

very well with producing more and using less water, less resources, 

less land. I think there is a great story to tell there. 

Can you perhaps illustrate kind of the added risk to agriculture 

given uncertain tax policy? 

Mr. STALLMAN. It impedes the progress of the industry with 

uncertain tax policy. The risk is without knowing what the tax policy is, without being able to make business decisions, where we 

have some certainty for the future, then that inhibits us from creating a productive and efficient platform as the industry needs for 

the future. 

You mentioned some of the progress we have made. We have 

made tremendous progress on so many fronts on productivity but 

also in use of resources, but a great deal of that has to do with acquiring the technology, the equipment, the tools, to be able to do 

that. Those are getting more expensive by the year. 

Particularly in things like our expensing policy with Section 179, 

that directly relates to our ability to make those decisions, to maintain an ever improving production platform for U.S. agriculture. 

Without that, we do not have that certainty and will be inhibited 

in making those decisions. 

Mr. SMITH. More specifically perhaps, could you elaborate in 

terms of Schedule F filing, what that means to your members and 

especially how that would relate to permanent tax policy? 

Mr. STALLMAN. As farmers and ranchers, we do file on a separate schedule, Schedule F, as you referenced. The big issue there 

for us is cash accounting versus accrual accounting, I think, in 

terms of being able to file on a Schedule F and being able to frankly manage our finances, our incomes, and our tax expenditures to 

a certain extent using cash accounting as opposed to accrual accounting. 

In the long run, all it does is allow us to sort of remove the up’s 

and down’s that are inherent in the volatility that we experience, 

both in terms of the marketplace and in terms of the weather. 

For some years, we will have a very large income. For other 

years, we will have much less. Without some ability to sort of manVerDate Sep 11 2014 05:47 Nov 15, 2016 Jkt 021116 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21116.XXX 21116

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age those swings from a tax and economic standpoint, once again, 

it makes it more difficult for us to do our business as farmers and 

ranchers. 

Mr. SMITH. Thank you again to our panelists, and thank you, 

Mr. Chairman. I yield back. 

Chairman CAMP. Thank you. Mr. Paulsen. 

Mr. PAULSEN. Thank you, Mr. Chairman. Mr. Chairman, before 

I begin my questions, I just want to take a moment to thank you 

and your attention on this issue for permanency in the Tax Code, 

but also for the attention you have given in your tax draft to the 

medical device tax repeal. There are not many such as yourself 

that paid such close attention to a very unjustifiable tax that is 

killing good domestic jobs and manufacturing jobs and cutting research and development and denying patients access to those innovative therapies that I think are so critical to our country. 

Chairman CAMP. Thank you. 

Mr. PAULSEN. Let me ask you this, this is a very helpful exercise. I appreciate your being here today. 

As we focus on a pro-growth Tax Code, I think this has been one 

of the biggest criticisms of Congress, and you really laid out individually on various different aspects of the Code short term fixes 

versus long term thinking, right? 

What should be the direction to go? You can apply that to transportation, health care, and certainly the tax policies as we try to 

get the economy going. 

I hear constantly from companies in particular that say look, if 

you have a retroactive tax provision, if you extend something for 

six months, if you extend it for a year, you are not going to have 

any confidence, certainty or predictability of how we are going to 

invest capital in our economy. That is why this is a very helpful 

exercise. 

Mr. Redpath, I want to ask you a question. You testified earlier, 

particularly your comments supporting the extension of this five 

year built in gains holding period. I am pleased that the Chairman 

also recognized this is a very important provision and it is included 

in the tax reform discussion draft. 

This might seem like a subject that is very trivial, and accountants such as yourself are aware of it, it might not have an actual 

impact on our economy on a grand scale, but IRS statistics do suggest that thousands of U.S. businesses, thousands of U.S. businesses are actually sitting on top of appreciative assets that could 

be put to better use. 

You gave a couple of examples of that. In an economy that is 

short of capital now, it just seems to make sense to me that we 

allow businesses increased access to their own capital, their own 

assets. 

You mentioned in your testimony the lock up or lock down of 

that capital that the built in gains taxes result in. How difficult 

has that issue been for S corporation clients that you work with? 

Mr. REDPATH. It has been difficult. Let me talk about that. I 

am a tax accountant. I thought it would be my responsibility to remind all of you that your returns or extensions are due next Tuesday. 

[Laughter.] 


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Mr. REDPATH. We have clients that look at how they can raise 

capital. When their capital is locked up as a result of this provision, what can they do. One thing you have to remember is S corporations cannot get money from the public markets. Public companies cannot be S corporations. 

What are their alternatives? One is they can go borrow money. 

Most small businesses are not interested in borrowing large chunks 

of money to raise capital. They can consider selling part of their 

shares to venture capitalists or private equity firms who have probably competing interests and conflicting interests with regard to 

ownership. Generally, they are looking at flipping a company. 

Most of these companies I am talking about are closely held family businesses. You know how they generate capital? The old fashioned way, they earn it. They make money. They pay their tax. 

They retain it. 

What causes them to slow that down are a few things. Tax rates. 

Tax rates matter to flow through entities. In Minnesota right now, 

many flow through entities are paying in excess of 52 percent combined Federal and state taxes. That is after paying sales tax, property tax, excise tax, payroll taxes, and the built in gains tax. 

They are sitting on capital like we talked about, that they cannot 

generate the old fashioned way by earning it and converting it to 

the appropriate assets to increase earnings. Truly, the small businesses I work with, that is their primary way of generating capital, 

through earnings. 

Mr. PAULSEN. Actually, a little esoteric provision of the Tax 

Code that is dealt with from a permanency perspective can actually 

drive a lot of economic growth, can be a pro-growth initiative, you 

are saying, and there are other avenues that some of these S corporations or closely held family businesses might have to access 

capital, but they are not easy to access. 

Mr. REDPATH. They are not easy to access and they do not 

serve the purpose of the entity, the business, and the stakeholders 

of the business; no. 

Mr. PAULSEN. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. Mr. Davis. 

Mr. DAVIS. Thank you very much, Mr. Chairman. I want to 

thank you for the hearing, and I want to thank all of our witnesses 

for coming, especially I want to welcome Ms. Zelisko from Lake 

Forest, Illinois, just a few miles from my District and from Chicago. 

Mr. Chairman, while I am pleased we are considering these 

seven areas, I would look forward also to looking at transit parking 

and things like low income tax credits, new markets tax initiatives, 

work opportunity tax, tuition credits. 

I have two documents I would like to submit for the record from 

the Regional Transit Authority and from the National Growers Association. I ask unanimous consent. 

Chairman CAMP. Without objection. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

Ms. Zelisko, let me ask you, the research tax credit has been 

vital to ensuring that the U.S. is in the best place in the world for 

companies to conduct research and business. 


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I know you work for one of these companies and work with companies. Could you tell us how your company has made use of this 

area? 

Ms. ZELISKO. The research and development credit? 

Mr. DAVIS. Yes. 

Ms. ZELISKO. Yes, it is very important to the company. It is an 

important element of determining what projects we are going to be 

looking at because it determines our cash flow. 

We obviously generate cash flow from our earnings in the company, but that cash flow is increased by the research and development credit because it does reduce our tax liability, and that money 

is then redeployed into investing in new products for the consumer, 

meeting environmental requirements about emissions. 

These are all important items that therefore generate jobs, and 

with the successful product that I mentioned, about a 150 horsepower four stroke marine engine, so successful we had to expand 

our plant, therefore, that means brick and mortar that were added, 

and created jobs in the construction business, and also created additional jobs for engineers that we have in Fond du Lac, Wisconsin. 

This plus in our marine business with regard to the different 

items that I listed in my written testimony, all the different products and innovations we have made, given the competitive nature 

of the business in which we do business. 

Mr. DAVIS. Thank you very much. Mr. Hungerford, you discuss 

in your testimony the reasons why it is important to be fiscally responsible when addressing tax extenders. 

What would be the likely effect on the GDP and economic growth 

if the seven provisions discussed today are made permanent without paying for them? 

Mr. HUNGERFORD. Just comparing to the baseline, I would expect that GDP growth going out would be smaller or would be 

lower. If interest rates do go up, we will end up seeing less investment, which will have an impact on GDP growth, on jobs, and employment possibilities. 

Mr. DAVIS. Thank you. Mr. Stallman, would you briefly tell us 

how Section 179 expensing rules are used in the farming industry? 

Mr. STALLMAN. Let me just illustrate that with an example. 

For instance, if I need to go out and buy the tractor I referenced, 

let’s just say it costs $200,000. Without Section 179 expensing, I 

would be limited to taking the deduction, and let’s assume it is 

used and not new, I would be limited to taking a deduction of 

$25,000 and then depreciating that over multiple years. 

That affects my cash flow. Therefore, I would have to not have 

the benefit of postponing some tax payments, if you will, by accelerating the depreciation, and then having to take those expenses 

in future years, so the net effect roughly would be the same over 

time, but the point is that extra cash flow that would be allowed 

by being able to accelerate the deduction used in Section 179 expensing would allow me to more easily make the investment. 

Mr. DAVIS. It becomes very helpful in making sure that you 

would be able to acquire and make use of that John Deere? 

Mr. STALLMAN. Absolutely, except mine is Case IH, Congressman. 

Chairman CAMP. All right. Thank you. Mr. Reed. 


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Mr. REED. Thank you, Mr. Chairman. I just wanted to explore, 

Mr. Odintz, if I could, as I co-chair the U.S. Manufacturing Caucus 

also down here in Washington, D.C., and focusing on AFE, the active financing exception, can you give a little detail, more analysis, 

as to how U.S. manufacturers can become more competitive by the 

AFE exception and how that impacts U.S. manufacturers’ ability on 

a competitive basis internationally? 

Mr. ODINTZ. Sure. An U.S. manufacturer when it decides to export goods manufactured in the United States abroad can establish 

under AFE a financing or leasing subsidiary in a foreign country. 

That leasing subsidiary or financing subsidiary can offer financing 

on expensive widgets, like earth moving equipment or very expensive other equipment, airplanes, et cetera. 

What it allows that company to do is to compete on a financing 

perspective, provide similar terms as foreign competitors. 

Let’s say a widget maker based in the United States sells its 

product in the European Union. A similar company making a similar widget based abroad is going to offer financing terms that are 

reflected in that market, and what the AFE does is it allows the 

U.S. manufacturer to provide the financing terms that are equivalent, that can be provided by other foreign financial institutions. 

Mr. REED. Do you have any analysis or any data that you could 

support that if AFE was not extended on a permanent basis, it 

would put U.S. manufacturers at a competitive disadvantage? 

Mr. ODINTZ. I do not have macro data. I can see from clients 

that their terms of leasing or loans may be higher than competitors, which puts U.S. manufactured goods at a competitive disadvantage. 

Mr. REED. Does anyone else on the panel have any data or impacts from any of their clients or anything? 

[No response.] 

Mr. REED. I also wanted to explore a little bit the look-through 

issue. The temporary nature of the rule—obviously, being a country 

lawyer from Western New York, small business owner, one of the 

biggest things, and we have already heard it numerous times here 

today, is the lack of certainty really impacts the ability to plan. 

I always had a business plan. I had a five year plan, ten year 

plan, and I did that with 30 employees that worked in our businesses that we created. 

If you do not have that certainty, tell me from the look-through 

perspective, what kind of decisions—nuts and bolts—what kind of 

decisions are put off, which ones are prevented or which ones are 

not taken as a result of having that lack of certainty? 

Mr. ODINTZ. Sure. For example, clients that do not have lookthrough have to price in the cost of capital and whether and where 

to expand foreign operations. 

Obviously, if the company has to take loans from banks, that cost 

of capital is more expensive rather than deploying its own internal 

capital from one jurisdiction to another. 

When a company determines whether and where to expand its 

operations, it takes into account the after tax profit, and then it is 

interested in making an after tax profit. Not having CFC lookthrough adds to that cost of capital and makes it more challenging 

to expand foreign operations. 


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Mr. REED. Does anybody have any anecdotal kind of cases you 

could share with the Committee as to actual jobs and expansion 

here on American soil that was caused because of this lack of certainty? 

Mr. ODINTZ. Obviously, it is also important to have permanence 

or at least more than an one year extension because business decisions are not made on an one year basis. They are long term. Businesses want to derive profits over the long term and make permanent decisions. A temporary provision makes it difficult to plan for 

the long term. 

Mr. REED. That is a great point. We are talking about large capital investments here. What would be the size of the typical investment we are talking about? 

Mr. ODINTZ. For example, building a plant is a rather expensive 

endeavor. It requires also hiring a labor force to build that plant. 

You are looking at multiple billion dollar investments in many instances. 

Mr. REED. If you do not have that certainty to make that decision on that multimillion dollar decision, that is what you are referring to, that is where the rubber meets the road, so to speak. 

Mr. ODINTZ. Exactly. 

Mr. REED. With that, Mr. Chairman, I yield back. 

Chairman CAMP. Thank you. Mr. Young. 

Mr. YOUNG. Thank you, Mr. Chairman. Thank you to all of our 

panelists for testifying here today, really appreciate all we have 

learned. 

I want to thank the Chairman in particular for making permanent the CFC look-through provision in the draft and holding a 

hearing so we might discuss that provision in particular a bit further. 

I have concerns about our intellectual property intensive related 

firms and also our continued investment in R&D, which as we all 

know is essential in this modern economy we live in. 

I look forward to working not only with all the members of the 

Ways and Means Committee on that but other stakeholders as we 

try to improve the international sections of the draft. 

As sort of a lead in to R&D, Ms. Zelisko, you indicated something 

that many of us have read and I think many of my constituents 

intuitively understand, which is the U.S. does not have a monopoly 

any more on global R&D. In fact, you cite a figure, since 2001, the 

share of the world’s R&D performed in the U.S. has decreased from 

37 to 30 percent, and to the extent we could arrest that trend line, 

that would be a good thing, I think we would all agree. 

Can you talk about what role tax policy plays with respect to 

that dynamic? 

Ms. ZELISKO. Companies look at the world on a global basis. 

We are no longer international. We are global businesses. Therefore, looking to where you are going to deploy your R&D is important, and therefore, the impact of tax policy plays a part and is a 

factor. 

This is an opportunity for the U.S. to lead as far as where do we 

want the technology. Do we want it here, do we want it outside the 

United States. I think we want it here. It provides jobs. It provides 


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innovation, technology, and from that technology, spurs other technologies. 

I think good tax policy is going to look at broad based simplified, 

something that is administrable. I think the alternative simplified 

credit provides that. 

I would encourage that it be increased to 20 percent, as far as 

being truly an incentive, and also broad based on the qualified research expenditures that would qualify for the record, I think is 

important. 

When you look around the world, they are not reducing the expenditures. They are increasing them or they are increasing the 

amount of the credit or the multiplicand on the deductibility of the 

particular expenditure. 

I think good policy would be broad based with regard to what 

would qualify for qualified research expenditures and the actual 

amount of the incentive. 

Mr. YOUNG. It needs to be in short made more inclusive, more 

generous, from your vantage point, but you certainly support the 

permanency of the provision? 

Ms. ZELISKO. Absolutely. That is critical. I think that is sort of 

like a baseline, you need to have permanency. When we are making business decisions, especially in the R&D area, you are looking 

out, like I mentioned, four to five years, so you need certainty with 

regard to it is going to be there during the entire process. 

Mr. YOUNG. Thank you. I represent a District in South Central 

Indiana, Southern Indiana, and it is very diverse economically. We 

have a fair amount of small and medium sized manufacturing, certainly IP rich firms, both in the District and around the District, 

and also agriculture plays a significant part in our economy. 

Mr. Stallman, pivoting to the ag sector, you described the Farm Bureau’s perspective related to the impact of the $250,000 Section 

179 threshold versus a $500,000 threshold. 

Why is the higher level so important to your members? It pertains to just the ability to buy more farm equipment, you need a 

more generous level to incentivize them to do so? 

Mr. STALLMAN. Yes, the difference, and I tried to convey that 

in my oral statement, the difference between the $500,000 and the 

$250,000. It is primarily related to what we are seeing in the cost 

of the equipment and capital expenditures we have to make in agriculture. It is continuing to increase very rapidly. 

Frankly, while $250,000, ten years ago, you could buy you a lot 

of equipment. Not so much any more. That is why the $500,000 is 

very important. 

Mr. YOUNG. The inflation of those costs is certainly something 

we need to take into account, balance that against the lower 25 

percent rate, and I guess every individual farm is going to have to 

come up, individual operation, with the sort of net impact. 

Does the Farm Bureau have a policy articulated with respect to 

that tradeoff? 

Mr. STALLMAN. No, we do not. We are looking at the whole 

draft proposal to see where those tradeoff’s are. It would vary tremendously across individual operations. 

As a general rule, that expensing provision, I think, would probably have more positive impact on farms and ranches in the way 


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they make their decisions, even though it is not tax avoidance because you are just postponing paying the taxes, than perhaps lower 

rates. Once again, it would depend on the rates. 

Mr. YOUNG. Thank you. 

Chairman CAMP. Thank you. Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

Ms. Zelisko, Mr. Young and Mr. Reed have sort of laid out sort 

of what I was thinking about, which is I was a Ways and Means 

Chairman a long time ago in a state legislature where a businessman told me I do not care what rate you charge me, just tell me 

what it is, how long it is going to last, so I can figure out how to 

amortize it. That is really what you are saying about the planning. 

The Chairman has one other power, and that is to set the agenda. Today, we are discussing seven tax provisions. There are a 

whole lot of them that have not been discussed. I think some of the 

ones that are up here are sound. 

I think the research and development tax credit is good policy. 

Even if the draft probably needs a little revision, specifically in the 

area of software—I think Mr. Young already mentioned that some 

of us who come from areas like I do where research is a big issue 

and software, we would like a little tweak or two on that whole 

provision. 

The real question is about the ones that are not going on, and 

why are we not debating them. Residents in states with an income 

tax can deduct their income taxes. Residents in states that have a 

sales tax in lieu of an income tax cannot deduct their sales taxes 

if we do not pass the extender in this bill. 

You have to ask yourself what the impact of that is going to be. 

I would suggest in Washington State, Florida, South Dakota, Wyoming, Alaska, Texas, the Republicans are raising taxes on consumers, those of us who are claimants on a sales tax in the State 

of Washington will pay $2,000 more in taxes next year if we do not 

have that extender. 

I have to ask myself what kind of impact that would have, and 

I think Mr. Hungerford, maybe you have an idea, if we raise taxes 

on people at the consumer level but not extending the sales tax exemption, what is the impact of that? 

Mr. HUNGERFORD. In the short run, it does take money out of 

people’s pockets that they would ordinarily spend. I guess the question is who actually takes the deduction for state and local sales 

taxes, how much you save and how much you spend of your income 

depends on where you are in the income distribution. 

Without actually looking at the data, it would be hard to say 

what would be the actual economic impact but to the extent the 

money that ends up going to the Government, if it had been spent, 

it would have at least provided some short term stimulus to the 

economy. 

Mr. MCDERMOTT. This is free money we are talking about here 

today. We do not have to pay for this. Would it be better to give 

money to the consumers to spend in the economy than to give 

money to companies to do research? How do you make that decision? 

Mr. HUNGERFORD. It is a tough decision to make. 


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Mr. MCDERMOTT. We are not having a discussion about the 

whole broad range of extenders. We only have these seven over 

here, so they were selected by somebody to be exactly what we 

ought to be doing. 

I also have one I have some question about, what the point of 

it is. Why under the Chairman’s plan—what makes sense to make 

charitable deductions only if the contribution exceeds two percent 

of the individual’s adjusted gross income. 

It sounds like we are putting a floor in there, and the CBO said 

imposing a floor would lower contributions. Why do we want to 

lower contributions by putting a floor in? 

What would be the advantage to society at a time when we are 

looking for people to give money to whatever? How is that better 

for society? 

Mr. HUNGERFORD. Actually, I have not looked at CBO’s study 

on how much it would lower contributions. On the margin, it would 

not have any effect, just because the people who are on the margin 

would be above, well above that two percent of the AGI threshold. 

Of course, it would not affect people who do not itemize, many 

people make charitable contributions and are not allowed to take 

a deduction because they do not itemize. Then there is this group 

in there, I do not know to what extent they would be affected. I 

would expect there would be some effect. I am just not sure how 

large it would be. 

Chairman CAMP. All right. Thank you. I would just say this is 

a first in a series of hearings. These items were chosen because 

they are in the discussion draft. We wanted to start with these. 

As you know, the President’s budget has proposed a ceiling on 

charitable contributions, which in our hearings, the charitable community has very much opposed. 

Obviously, in order to lower rates as we do in the draft, there are 

tradeoff’s. The analysis is that charitable contributions will actually increase by $2 billion a year because of a lot of the moving 

pieces in the draft, not just this provision looked at in isolation. 

Mr. MCDERMOTT. Would it be your intention that when we 

have a mark-up, we would have the ability to offer other amendments than the seven that are in your bill? 

Chairman CAMP. Yes. We are going to have hearings on a series—I am not exactly sure of the procedure we are going to take 

in terms of a mark-up yet—there will be probably more than one 

mark-up going forward. 

Mr. MCDERMOTT. More than one mark-up. 

Chairman CAMP. Probably more than one mark-up going forward. I have not fully decided that yet. 

Mr. MCDERMOTT. I just want to reserve the right to offer an 

amendment at some point on the sales tax in Washington State, in 

Texas and in Florida. 

Chairman CAMP. I understand your interest there. 

We are now at Mr. Kelly. 

Mr. KELLY. Thank you, Mr. Chairman. Thank you for having 

this hearing. Thank you all for being here. 

I come from the private sector. When we talk about taxes and 

what we are trying to do, pro-growth tax reform could probably not 


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be more important than anything else we do in this country other 

than also regulation reform. 

I am more interested in people that come from the private sector 

because they are the ones that provide all the revenue that is needed to run all these wonderful, wonderful programs we have. 

Mr. Stallman, you are in agriculture. You made a statement, the 

ability to have some type of predictability or certainty is absolutely 

critical to any of us in the private sector. There is an old saying 

out there, if you do not know where you are going, any road will 

get you there. 

At this point right now, what the Chairman has offered is a road, 

a path to prosperity, part of it being this tax reform. I think sometimes people get mixed up. I hear all these different talks about 

this section, that section, every little section. People will sit down 

and debate that for hours. 

At the end of the day, the question becomes are we helping to 

grow this economy or are we making it tougher for people who actually supply the revenue to get there. We are making it so hard 

on the private sector to get there, and then holding them accountable for not supplying enough revenue. 

The last time I looked, the only people paying taxes are working 

folks and companies that are profitable. This tax reform is absolutely critical right now. 

Mr. Stallman, you started to talk about making capital investments. There is no way in the private sector if you do not know 

the certainty of where this Tax Code is going to be that you can 

make a long range commitment to do something. You just cannot 

do it. 

Each of you, I would like you to just weigh in a little bit, because 

it is really important, not so much for us here in Congress, but for 

people back home to understand what it is like. 

They have got up every morning and swung their feet over the 

side of the bed and went to perform some type of an activity that 

will support their families, support their communities, support 

their region and their country. 

This thing has gotten so far out of control. You all know this. The 

cost of tax preparation, not the tax bill, preparation, $168 billion, 

in about seven billion hours. My goodness. Could that time have 

been spent a little better and could that money have been reinvested? 

I am looking at capital investments. You have to have some reason to do that. We are truly engaged right now in a global economy; right? We just do not compete—Illinois does not just compete 

with Ohio. Pennsylvania does not compete with New York. We 

compete with everybody in the world. 

The last time I looked, we had the highest taxes in the world. 

Is that right? Any of you in the private sector, please tell me, part 

of your economic model is total cost of everything you do, which includes tax obligations, is there anything about what we are trying 

to get to that does not make sense? 

The Chairman just said today we are only talking about some of 

the extenders. What can we do? What can we do to give all of you 

in the private sector a little look in to the future, you know what, 


ralbany on LAP520R082 with HEARINGS
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they know where they are going and they are going to make it easier for us to get there? 

I hate like heck the fact that we seem to be adversaries of yours 

and not advocates, and then we turn around and hold you responsible for not supplying the revenue that we think is necessary for 

all these wonderful programs. 

Any of you that want to weigh in on that, America needs to hear 

that we get it, we understand their plight. This is to any of you. 

Ms. ZELISKO. I would like to offer that I do not want the U.S. 

to be 22nd in the world as far as research and development incentives. I want us to be number one. 

A way to get there is obviously making the credit permanent, 

broadening what is included in those qualified research expenditures, including what we currently have of supplies and software 

expenditures, along with the wages from the engineers and scientific individuals that we employ to provide that improved technology. 

When you are an innovator, lots of things sprawl from that. I 

think if the policy is set, that we have the certainty, companies will 

become once again a source of tremendous innovation here in this 

country. 

Mr. STALLMAN. U.S. agriculture is the number one exporter in 

the world. We have built a very strong, productive, efficient, competitive industry in this country, and we want to keep it. I think 

that is the crux of the issue. 

What do we need to keep it. We need some certainty around tax 

policy. There is a sense, I believe, in the countryside, that farmers 

wake up one day in the Spring and say, oh, golly gee, I have to 

go out and plant something. The reality is they are making plans 

three, five, and ten years in advance in terms of their capital expenditures, how they manage the infrastructure of their farm and 

ranch, and how they are going to be even more productive in the 

future. 

Having uncertain tax policy laid over that, it makes that task 

very difficult, to plan for the future and continue to be competitive 

and efficient 

Chairman CAMP. All right. Thank you. Mr. Marchant. 

Mr. MARCHANT. Thank you, Mr. Chairman. Thanks for bringing forth what are the most important extenders as far as my District is concerned. The modified research credit made permanent 

would have a very significant impact in my District. 

I have a District that has the headquarters of Exxon, Fluor, Kimberly-Clark, AT&T, and Verizon. All of those companies rely very 

heavily on the research and development, but really the impact of 

these extenders that we are talking about today and their correlation to the long term tax reform really hits home in those thousands of businesses that surround these big companies. 

My District surrounds the DFW Airport. I literally have thousands of businesses that rely very heavily on Code Section 179. 

As we speak, there are people sitting in their offices with their 

accountants, because this is the week they are talking to them, and 

they are talking to them about should I buy and can I buy a new 

truck, should I buy a new machine, how about a new forklift, how 

is that going to affect me. 


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They are talking at this moment about well, we do not know 

whether Section 179 of the Code is going to be extended. If you buy 

the truck or you buy the forklift or you expand your business at 

this point and they do not extend it, here is going to be the tax 

treatment, here is the implication it is going to have on your business, but if they do, this is what is going to happen. 

Mr. Hungerford, what kind of impact would that have not on future economies but just the recovery that we are experiencing now, 

the slowness of our recovery? What kind of impact will that begin 

to have in the coming months on businesses, their expansion, the 

auto industry, the tractor industry, et cetera? 

Mr. HUNGERFORD. My guess is not a great deal, I have always 

found that temporary tax provisions that are designed to stimulate 

the economy rarely stimulate the economy. 

Mr. MARCHANT. You would consider this just to be a temporary 

tax stimulation and should not be included as part of this—— 

Mr. HUNGERFORD. Section 179 expensing? 

Mr. MARCHANT. Yes. 

Mr. HUNGERFORD. The thing is if you let it expire now, or actually it is already expired, and fail to extend it, I do not think it 

will have a large impact on the economy. 

Mr. MARCHANT. Is there any disagreement among the panelists on that? 

Mr. STALLMAN. I do not have a study to back it up. All I know 

is the behavior of farmers and ranchers. I will tell you that with 

the certainty, with Section 179, they will be more inclined to accelerate their capital acquisitions than what they would otherwise, 

and be more capable of doing it because of cash flow benefits that 

occur up front. 

Long term, once again, they are going to be having less expense 

in the future to deduct, but that behavior will create more economic activity. I do not know about what the impact would be. 

Mr. MARCHANT. Mr. Redpath. 

Mr. REDPATH. My clients are interested in planning. If the law 

is permanent, it is much easier to plan. Lots of my clients are now 

holding off on making acquisitions because they do not know what 

the rules are. I believe that is going to have a snowball effect on 

investment and on the other larger companies around that are impacted by these small companies working with them. 

Mr. MARCHANT. Thank you, Mr. Chairman. I yield back. 

Chairman CAMP. Thank you. Mr. Griffin. Last but not least. 

Mr. Griffin. Thank you, Mr. Chairman. I know a lot of the questions I might have wanted to ask have been covered, so I just want 

to make a few comments. 

I have heard the uncertainty argument ever since I first ran for 

Congress and totally agree with it. I hear it regarding the Tax 

Code. I will be real honest with you, from a lot of people I hear 

it regarding this Administration, they are waiting until this Administration is gone before they invest because they believe it is an 

anti-business, anti-growth Administration. 

Let me say this. I want to applaud the Chairman for tackling tax 

reform. I know not everybody likes 100 percent of it. You are never 

going to find that in Congress. I think it is a historic moment to 

start that conversation. 


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We do need to get away for the sake of certainty from a lot of 

the patches, whether it be in SGR, Medicare, or on our Tax Code, 

or whatever else. We need that certainty that you are talking 

about. I believe our growth is tied to fixing the Tax Code in large 

part. 

I did my own taxes this past weekend, finished them. They are 

relatively simple in terms of complexity, but it was ridiculous how 

much time it took me. 

I am embarrassed for the country, to be frank, at the complicated 

nature of our Tax Code. I can see with me, an individual, how complicated it is, and it pains me to think of what you guys have to 

go through. I appreciate your being here. 

Until we do get it fixed, I also applaud the Chairman for taking 

the steps necessary to address these issues. I am a firm believer 

in R&D. I will tell you I do not want to just beat other countries, 

I want to beat them so badly that companies around the world say 

there is only one place in the world to do business, and that is the 

United States, and there are no other options. 

I can tell you that is not the state of affairs right now. I think 

the Tax Code is part of it. Certainly, we need to encourage R&D. 

I would just point out that I have a lot of agriculture not only 

in my District but throughout Arkansas, and the small business expensing is critically important to them and many others. 

Such is the burden of being last in line, all the good questions 

are gone. I want to just thank you for being here and thank you 

for what you do, and I just want to say thank you to the Chairman 

for putting these issues on the table and for starting the discussion 

about what we can do. 

The one thing we can agree on is the status quo is unacceptable, 

and we can do much, much better than we are doing. 

Thank you all for being here. 

Chairman CAMP. All right. Thank you. Thank you all very 

much, very much appreciate your testimony this morning, and with 

that, this hearing is adjourned. 

[Whereupon, at 12:17 p.m., the Committee was adjourned.] 

[Public Submissions for the Record follows:] 


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