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[Senate Hearing 114-161]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-161

                       JOBS AND A HEALTHY ECONOMY

=======================================================================

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            JANUARY 22, 2015

                               __________

       
       
       
       
       
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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     4

                               WITNESSES

Engler, Hon. John, president, Business Roundtable, Washington, DC     6
Hall, Robert E., Ph.D., senior fellow, Hoover Institution, and 
  professor of economics, Stanford University, Stanford, CA......     8
Wolfers, Justin, Ph.D., senior fellow, Peterson Institute for 
  International Economics; professor of public policy, Gerald R. 
  Ford School of Public Policy; and professor of economics, 
  College of Literature, Science, and the Arts, University of 
  Michigan, Ann Arbor, MI........................................    10

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Engler, Hon. John:
    Testimony....................................................     6
    Prepared statement with attachment...........................    43
Hall, Robert E., Ph.D.:
    Testimony....................................................     8
    Prepared statement with attachment...........................    55
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    61
Wolfers, Justin, Ph.D.:
    Testimony....................................................    10
    Prepared statement...........................................    63
Wyden, Hon. Ron:
    Opening statement............................................     4
    Prepared statement...........................................    73

                             Communications

Coalition for GSP................................................    75
Employee-owned S Corporations of America (ESCA)..................    79
Professional Beauty Association (PBA)............................    82
Reforming America's Taxes Equitably (RATE) Coalition.............    83

                                 (iii)

 
                       JOBS AND A HEALTHY ECONOMY

                              ----------                              

                       THURSDAY, JANUARY 22, 2015

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:05 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Roberts, Cornyn, Thune, 
Isakson, Coats, Heller, Scott, Wyden, Schumer, Stabenow, 
Cantwell, Nelson, Menendez, Carper, Cardin, Bennet, Casey, and 
Warner.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Everett Eissenstat, Chief International Trade 
Counsel; Rebecca Eubank, International Trade Analyst; Mark 
Prater, Deputy Staff Director and Chief Tax Counsel; Preston 
Rutledge, Tax Counsel; and Jeff Wrase, Chief Economist. 
Democratic Staff: Laura Berntsen, Senior Advisor for Health and 
Human Services; Adam Carasso, Senior Tax and Economic Advisor; 
Michael Evans, General Counsel; Tom Klouda, Senior Domestic 
Policy Advisor; Todd Metcalf, Chief Tax Counsel; Joshua 
Sheinkman, Staff Director; and Jayme White, Chief Advisor for 
International Competitiveness and Innovation.
    Senator Wyden. The Finance Committee will come to order.
    Chairman Hatch, take good care of this gavel, as I know you 
will. I want you to know how much I have enjoyed working with 
you, in your long history of bipartisanship.
    This morning, as I hand you the gavel, I want to wish you, 
Chairman Hatch, all the best. [Applause.]

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. Well, thank you very much. Thank you so much. 
That comes from a very good man who knows how to use this 
gavel. It has been so long since I have used one that I am not 
sure I know how to do it anymore.
    But we are honored to be with everybody on this committee. 
This is a terrific committee, and we are going to do some very, 
very important things, as we have in the past.
    I want to personally pay tribute to the distinguished 
Senator from Oregon for the fine way he ran this committee, and 
we will try to hopefully follow his example and run it in a way 
that is fair and reasonable for everybody.
    I am grateful to you, and it is always a pleasure to, sir, 
work with you and all of our friends on the Democrat side, and 
we have a lot of really good people on the Republican side as 
well.
    Welcome, everyone, to the first hearing of the Senate 
Finance Committee in the 114th Congress. It is appropriately 
titled ``Jobs and a Healthy Economy.'' Despite the numerous 
differences and disagreements that exist here in Washington, I 
believe that, regardless of party affiliation, we can all agree 
that job creation and a strong, vibrant economy are good 
things.
    The Senate Finance Committee has a long tradition of 
effectiveness and bipartisanship. Given the size and scope of 
our jurisdiction, that is only appropriate.
    One of my main goals, as the new chairman of this 
committee, is to continue that tradition, to allow the 
committee to function and produce results as it has so many 
times in the past. That is why we chose this topic for our 
first hearing. Today I hope we can have a discussion that will 
help us find consensus on these challenges rather than 
highlighting our differences. I will be sorely disappointed if 
it devolves into yet another back-and-forth from each side 
trying to score political points rather than seeking solutions 
to the problems ailing our economy.
    The Finance Committee is uniquely equipped to address the 
challenges related to jobs and the economy. Indeed, our 
jurisdiction places us on the front lines of the most important 
debates that we will have in this effort. For example, we have 
jurisdiction over our Nation's tax code. There is bipartisan 
agreement on the need to fix our tax system to help hardworking 
taxpayers and allow businesses to grow, compete, and create 
more jobs.
    Our current tax code creates numerous unnecessary 
roadblocks that stand between us and sustained economic 
opportunity and prosperity. For these reasons, I have made tax 
reform my highest legislative priority for this Congress, and I 
believe Senator Wyden feels pretty much the same. Over the past 
few years, I have been working to make the case for tax reform 
on the Senate floor, in public appearances, in written work, 
and in private conversations. I am going to continue to do so.
    Recently, Senator Wyden and I set forth the first steps for 
tax reform in the 114th Congress. We created five working 
groups, all assigned to study different areas of tax reform and 
come up with proposals that we will then use as we work on 
bipartisan tax reform and bipartisan tax reform legislation. We 
have a number of great Senators on the committee who are just 
as committed to tax reform as we are. I look forward to seeing 
the results of their work. We need to get this done.
    I would like to ask each of the witnesses on our panel to 
use at least some of their time during their opening statements 
to give us specific ideas on how we can improve our Nation's 
tax code.
    Another area of the committee's jurisdiction that is 
essential to job growth and a healthy economy is international 
trade. The United States has a long tradition of breaking down 
barriers and providing access for American goods and services 
in foreign markets. This has been great for our economy, and we 
must continue to do these things in the future. Ninety-five 
percent of the world's population and 80 percent of its 
purchasing power reside outside of the United States. For our 
job creators to compete on the world stage, we must ensure that 
they have greater access to this ever-growing customer base.
    Toward that end, Congress needs to renew Trade Promotion 
Authority, or TPA as we call it, in short order. This is also 
something we need to get done. I am engaged with Senator Wyden 
and others on this committee to find a path on TPA that will 
provide the best opportunities for TPA to succeed. I hope we 
will be able to complete our work soon. I met with our trade 
ambassador yesterday for a considerable amount of time on these 
particular issues.
    The Obama administration is currently engaged in some of 
the most ambitious trade negotiations in our Nation's history. 
The only way for Congress to effectively assert its role in 
these negotiations, and the only way to get trade agreements 
that reflect the highest standards, is through TPA, or Trade 
Promotion Authority.
    I would like to ask each of the witnesses on our panel 
whether they think trade is important to the expansion of 
economic opportunities and the development of a healthy 
economy, and to include their answer in their opening 
statements.
    The Finance Committee's jurisdiction expands beyond tax and 
trade into other areas that impact jobs and the economy and 
economic security of American households. We have growing 
health care costs that continue to put strains on employers and 
hardworking taxpayers, and we have a growing entitlement crisis 
that threatens to swallow up our government and take our 
economy down with it. And if we do not do something about that, 
that is exactly what is going to happen.
    All of these issues impact jobs and the economy, and all of 
them are important. I hope we can have a robust conversation 
today on what the committee and Congress can do to address 
these important issues, as well as others.
    Like I said earlier, I also hope that we can avoid having a 
partisan back-and-forth that yields no productive answers or 
discussion. Of course, that does not mean critiques of any 
policy or proposals should be considered out of bounds, nor 
does it mean that we should not have a spirited debate on the 
issues. But I do hope that whatever questions we ask or 
statements we make, we will stay focused on gaining a better 
understanding and on the goal of creating jobs and promoting a 
healthy economy for our country.
    I would like to take a moment now to recognize--we have 
some new members of the committee--Senators Heller, Coats, and 
Scott, or should I say Coats, Heller, and Scott. I want to once 
again welcome them to the Finance Committee and say that I look 
forward to their participation in this hearing and others in 
the future. I am also pleased that Senator Warner is still on 
this committee. I expect him to be a very hardworking member of 
this committee and somebody who can bring people together, and 
I am counting on that and banking on it, and I am pleased that 
he is with us. I have no doubt that each of their contributions 
will be valuable to our efforts.
    Finally, I want to note that, at any point during the 
hearing when we have a quorum present, I plan to move to 
executive session to formally organize the committee, which 
will include some routine matters such as organizing 
subcommittees and formalizing a specific change to the 
committee rules.
    With that, I will turn the time over to my counterpart, 
Senator Wyden, for his opening statement.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Chairman Hatch. And on 
behalf of this side of the dais, I too want to welcome our new 
colleagues, Senator Coats, Senator Heller, and Senator Scott. I 
have enjoyed working with each of them and will say, as Senator 
Hatch appropriately mentioned, how important it is to fix this 
broken, dysfunctional mess of a tax code.
    I have had a chance to watch Senator Coats in action, doing 
good and bipartisan work there. So I am looking forward to 
working with all three of our colleagues.
     I have just a couple of additional points to make about 
Chairman Hatch before I turn to the matter at hand. Senator 
Hatch is the second Senator from Utah to chair this committee. 
The first was Senator Reed Smoot, who chaired the committee 
from 1923 to 1933 and who is, perhaps unfairly, remembered best 
for the tariff bill that bears his name. Fortunately, Chairman 
Hatch has a very different view of economics than Senator Smoot 
did.
    I would also like to note that Senator Hatch is only the 
third Senator to serve simultaneously as President pro tem and 
chairman of this committee. He is going to be the busiest 
member of the Senate. And he is only the second Senator in the 
modern era to have been given the heavy responsibility of 
chairing three major committees. Senator Hatch previously 
chaired the Judiciary Committee and the HELP Committee, and now 
the Finance Committee. In my view, he has saved the best for 
last.
    The last point I would mention is that, if you look at 
Senator Hatch's record from a historical standpoint, he has a 
long history of recognizing that the best legislation is 
bipartisan legislation, where you do not proceed unilaterally 
but you try to find common ground. I think that is going to 
serve all of us very well. And I do look forward, as we have in 
the past, Chairman Hatch, to working closely with you.
    The Chairman. Thank you, Senator.
    Senator Wyden. If I could just turn briefly to the matter 
at hand. This is a particularly important hearing because, 7 
years after the economic collapse shook our economy to the 
core, our recovery still has a ways to go. Too many middle-
class Americans pounded by decades of flat wages are still 
struggling to make progress. And I want everybody to understand 
my bottom line for this Congress. When working families see 
bigger paychecks, America's economic recovery is going to go 
from a walk to a run.
    Over the last few weeks, I have spent a lot of time talking 
with workers and businesses in my State about the challenges 
they face 7 years after the start of the Great Recession. Just 
this weekend, I held town hall meetings in Klamath, Josephine, 
and Lincoln Counties, and it is pretty clear that there are a 
lot of Oregonians, a lot of Americans, waiting for the economic 
recovery to kick in for them.
    For Oregon's middle class, moving the recovery from a walk 
to a run pretty much comes down to what we call the five Ts: 
technology jobs, tax reform, trade done right, transportation, 
and timber. And my guess is probably every Senator on this 
committee, on both sides of the aisle, could come up with their 
own list. And there is no question in my mind that there would 
be a lot of overlap.
    Now, there are a lot of lessons to be learned from our 
history, as policymakers work to strengthen the foundations of 
the American economy. Seventy years ago, after winning World 
War II and making the long, slow climb out of the Depression, 
our country took bold new steps to build a thriving middle 
class. The Congress came together and expanded access to 
education. It connected every corner of the Nation from 
Portland, OR to Portland, ME, from Los Angeles to Miami, with 
the world's best infrastructure. Over time, it reformed the tax 
system to better fit modern economic challenges, and it found 
opportunities in markets abroad for our companies to seize. 
These policies helped power an economic boom. They grew the 
paychecks of working Americans and small businesses for 
decades. Year after year, people felt confident that their kids 
would do better than they did.
    True economic recovery, in my view, will restore that 
confidence. It will mean more jobs with a strong, clear ladder 
to the middle class, jobs in which workers can support their 
families, build their savings, and send their kids to college; 
jobs that do not leave families stretching every paycheck month 
after month.
    So in my view, there is a question for each of us to ask 
with every bill we consider and every vote we take in the 
Congress. That question is: how will this grow the American 
worker's paycheck?
    So, as we come together to tackle the overall tax code, 
which Chairman Hatch has correctly mentioned, let us ask, ``How 
is this going to grow that paycheck?'' When we take on the 
enormous job of rebuilding our infrastructure, again, the 
question is, ``How will this grow the paycheck?'' As we work to 
get more students in the door to college, once more, ``How will 
this grow the paycheck?'' And, as we try to ensure that our 
companies can be competitive in a cutthroat global economy, the 
issue is still, ``How will this grow the paycheck?''
    We can all be proud of the fact that the Finance Committee 
over the years has taken a starring role in so many of the 
important policy debates. So there are going to be many 
opportunities for us to come together on a bipartisan basis to 
ensure that more Americans share in the recovery and are 
getting bigger paychecks.
    I believe I can speak for the Democrats on the committee in 
saying that we all look forward to growing the middle class, 
lightening their economic burden, and that we believe there is 
an opportunity to pursue this in a bipartisan fashion.
    Again, Chairman Hatch, congratulations, and I look forward 
to our first hearing.
    The Chairman. Thank you, Senator Wyden. I thank my 
colleague for his kind remarks. And I look forward to working 
with everybody on this committee, and, if we are going to solve 
the economic problems of this country, this committee has to 
play a pivotal role in that.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Our first witness today is Governor John 
Engler. Since 2011, Governor Engler has served as president of 
the Business Roundtable. I will call it BRT for our purposes 
here. That is an association of CEOs of leading U.S. 
corporations that produce $7.4 trillion in annual revenues and 
employ more than 16 million people.
    Prior to his time at BRT, he served for 6 years as the 
president and CEO of the National Association of Manufacturers. 
And, of course, he was also a 3-term Governor of the State of 
Michigan.
    Governor Engler serves on the board of directors for 
Universal Forest Products, K12 Inc., and the Annie E. Casey 
Foundation, and he is a past chairman of the National 
Governors' Association.
    He graduated from Michigan State University with a 
bachelor's degree in agricultural economics and later earned a 
law degree from Thomas M. Cooley Law School in Lansing, MI.
    We welcome you, Governor Engler, to the committee. I hope 
this is just the first of many appearances before this 
committee to help us to do our work, and I want to thank you 
for being here.
    I will introduce the others as we turn to them for their 
statements. So, please, give your statement, and then I will 
introduce the other two witnesses.

           STATEMENT OF HON. JOHN ENGLER, PRESIDENT, 
              BUSINESS ROUNDTABLE, WASHINGTON, DC

    Governor Engler. Thank you very much, Mr. Chairman. 
Congratulations on your receipt of the gavel earlier.
    Ranking Member Wyden, my home State Senator Stabenow, 
Senator Warner, I am pleased to be here to testify on behalf of 
the Business Roundtable.
    In 2015, Business Roundtable would like to see a stronger 
economy, creating more jobs. The question properly before the 
committee is, ``How do we get there?''
    This week, we released ``Achieving America's Full 
Potential: More Work, Greater Investment, Unlimited 
Opportunity.'' I would ask that a copy of the Roundtable report 
be included with my testimony.
    The Chairman. Without objection, it will be included.
    [The report appears in the appendix on p. 51.]
    Governor Engler. The committee also has been provided 
copies.
    The Roundtable priorities include expanded trade, tax 
reform, fiscal stability, fixing our broken immigration system, 
infrastructure investment, and a smarter approach to 
regulation.
    Today I want to focus on two main topics: trade and tax 
reform. Business leaders believe strongly in the benefits that 
trade and high-standard trade agreements bring to the United 
States. Trade is also an opportunity for Congress and the 
administration to demonstrate bipartisan cooperation early on 
in 2015.
    Our agenda includes two recommendations relating to trade. 
First, we recommend that Congress and the administration enact 
updated Trade Promotion Authority as soon as possible. Second, 
we recommend the administration, in consultation with Congress, 
aggressively pursue and secure high-quality and fair 
agreements, particularly the Trans-Pacific Partnership, the 
Transatlantic Trade and Investment Partnership, and the Trade 
in Services Agreement.
    Trade Promotion Authority legislation is the critical tool 
for achieving high-standard trade agreements that will create 
strong, enforceable rules and will result in U.S. growth in 
jobs. A 21st-century TPA helps ensure congressional input and 
oversight of U.S. trade negotiations and ensures our 
international trading partners that Washington is committed to 
reaching and enacting strong trade agreements.
    Business support crosses all sectors of the economy. In 
2013, Business Roundtable created the Trade Benefits America 
Coalition. It is a broad-based group of more than 230 U.S. 
agriculture and business associations and companies, all 
committed to educating the public on the benefits of trade and 
strongly backing TPA. Our coalition members are eager to work 
with this committee to get TPA passed as soon as possible, and 
I offer their help today.
    On the next topic, I think everyone agrees the U.S. tax 
code is broken and desperately needs to be fixed. Mr. Chairman, 
the formation of the five working groups that you referenced 
earlier today on the U.S. tax code represents an excellent 
start to the kind of bipartisan effort that can make a modern, 
more globally competitive tax system a reality.
    Just yesterday, Secretary of Treasury Jack Lew reiterated 
the administration's desire to work on business tax reform, and 
we urge the administration and Congress to enact tax reform 
this year. Tax reform should be designed to improve the 
competitiveness of all businesses; that is, non-corporate 
entities and corporations alike.
    Business Roundtable key tax reform recommendations for 
corporations are two. First, set the corporate rate at a 
competitive 25 percent. I did bring a chart. In the written 
testimony, I use the OECD chart without amendment. But for 
purposes of the committee, I thought I would put a green line 
in asking for a 25 percent rate that would move us from the 
bottom red line, where we are today, worst in the world, not up 
to the middle, but we get a lot more competitive, and that is 
within our reach. You would love to be where Ireland is, but 
progress is important, and that is where we would be if we 
could get to a 25-percent rate. It actually shows it at 29.7 
percent, but that is with the local tax added in.
    The second recommendation, in addition to rate, is the 
adoption of a modern international tax system that ends the 
double taxation of U.S. corporations' foreign earnings, thus 
eliminating a policy that has resulted in more than $2 trillion 
in earnings trapped offshore.
    Regardless of the business structure, reform will require 
hard choices. In the case of corporations, repeal of so-called 
tax expenditures would offset the revenue loss from the 
corporate rate reduction, but the result would be a broader, 
flatter tax code.
    America's business leaders have consistently maintained 
that tax reform will boost wages, growth, and investment. In 
2014, Rice University professors analyzed then-Chairman Camp's 
tax reform proposals. Their studies showed an increase in U.S. 
annual GDP of 2.2 percent after 10 years and a boost in after-
tax wages for the American workers of 3.8 percent after 10 
years.
    We look forward to working with you to seek even stronger 
growth outcomes. This additional growth could help address our 
fiscal challenges as well, as we turn to such critical issues 
as our Nation's long-term debt and entitlement reforms.
    CBO says that each one-tenth percentage-point sustained 
increase in the growth rate of GDP--one-tenth of a percentage 
point--would reduce the deficit by $300 billion over a decade. 
A full percentage point then would reduce the budget deficit by 
about $3 trillion over a decade--a nice, nice contribution.
    Mr. Chairman, Ranking Member Wyden, members of the 
committee, thank you for the opportunity to kick off the 2015 
hearings and to address the many priorities of the Nation and 
those that would give us a healthier economy with more jobs and 
help America achieve its full potential.
    Thank you.
    The Chairman. Thank you, Governor. We appreciate it and 
appreciate your excellent statement.
    [The prepared statement of Governor Engler appears in the 
appendix.]
    The Chairman. Our next witness is Dr. Robert E. Hall. Dr. 
Hall is the Robert and Carole McNeil and joint Hoover 
Institution senior fellow and professor of economics at 
Stanford University.
    He served as president of the American Economic 
Association, or AEA, in 2010 and is a distinguished fellow of 
the AEA and a member of the National Academy of Sciences.
    Professor Hall is a fellow of the American Academy of Arts 
and Sciences, the Econometric Society, and the Society of Labor 
Economists. He serves on the National Bureau of Economic 
Research's Committee on Business Cycle Dating, which semi-
officially dates periods of recession, and has advised numerous 
government agencies on national economic policy, including the 
Treasury, Federal Reserve, and the Congressional Budget Office.
    Dr. Hall received his Ph.D. in economics from MIT and a BA 
in economics from the University of California at Berkeley.
    We want to welcome you, Dr. Hall. We are very appreciative 
of you being here. We welcome you to the Senate Finance 
Committee, and we thank you for appearing before us today. So 
please proceed with your opening statement.

   STATEMENT OF ROBERT E. HALL, Ph.D., SENIOR FELLOW, HOOVER 
 INSTITUTION, AND PROFESSOR OF ECONOMICS, STANFORD UNIVERSITY, 
                          STANFORD, CA

    Dr. Hall. Thank you, Mr. Chairman, for this opportunity to 
discuss the U.S. labor market, which is a specialty of mine. I 
will also comment, as you asked, on international trade and 
improvements in taxation, particularly the latter.
    With respect to the labor market, the labor market is now 
back to normal. It is not depressed, but it is not in a boom 
state either. It is in between. For example, the unemployment 
rate, at 5.6 percent, is just below its long-run average. The 
key point that I think most people recognize, though, is that 
employment has not grown by its normal amounts in the 
expansion. That actually is the reason that family incomes have 
not grown satisfactorily. Wages actually have grown, but the 
problem is that employment has not grown, and the combination 
of the two has left stagnation.
    Just to continue, though, on this point with respect to the 
availability of jobs, we are at normal now. For example, short-
term unemployment is at an all-time low. The time that it takes 
employers to find a new employee is at a record high, which 
means that it is hard to find workers, which means that, for 
workers, it is easier to find jobs. On the other hand, there 
are negatives in the labor market today. Long-term unemployment 
and involuntary part-time employment are above normal levels, 
but it is gratifying to see that they are declining and I think 
will approach normal fairly soon.
    But as I stress, employment growth is disappointing, and 
the reason is declining labor force participation. The fraction 
of the population, the working-age population either at work or 
looking for work, has declined remarkably. A trend that began 
in 2000 worsened after the crisis, but it has continued to 
decline despite the restoration of normal job availability.
    The decline is not the result of demographic shifts. It 
reflects long-lasting changes, in particular teenagers and 
young adults who account for all of the decline. Participation 
has remained constant at high levels for those aged 35 to 59 
and has increased from previously low levels for those 60 and 
above. The decline in participation has been larger among young 
people in households with above median income. So it is not 
restricted, as some people, I think, mistakenly believe, to 
low-income families.
    I do not see then that there is a place for a policy that 
attacks the labor market directly, and I think most people 
agree with that. Rather, we need policies with economy-wide 
favorable impacts that would bring improvements in the labor 
market along with improvements in the performance of the 
economy as a whole. These policies would improve educational 
outcomes and stimulate productivity growth. Those would result 
in higher wages across the board and close some of the gap 
between wage growth for low-wage and high-wage workers.
    Now, turning to trade policy, I think I just want to make 
one point, and that is that earnings should be measured in 
terms of purchasing power. If we allow American consumers to 
pursue bargains that are available in global markets, that 
raises real incomes. That is one of the major objectives of 
this committee and of economic reform in general. Therefore, we 
should welcome imports from countries that are providing 
products at low prices.
    Now, there is lots more to say about trade, but that is not 
my specialty. Let me turn to tax reform, which is an area that 
I have been active in. The Hall-Rabushka plan, which Alvin 
Rabushka and I put together about 30 years ago, is a simple, 
progressive personal tax and an airtight business tax which are 
completely integrated.
    Integration of the personal tax and the business tax should 
be the top priority of tax reform. There is too much double 
taxation of income. For example, we have a corporate income tax 
and the personal income tax when individuals receive dividends 
and capital gains. That is a mistake. We need to integrate the 
two.
    Hall-Rabushka is a very consistent approach to that, and I 
recommend it to everybody. It has the right incentives for 
saving and investment. It can be tailored to modern standards 
of progressivity. It does not have to be a flat tax, even 
though some people call it a flat tax. It is the right way to 
go. It would provide the kind of stimulus that we are all 
looking for.
    So thank you, Mr. Chairman, again for this opportunity to 
testify.
    The Chairman. Thank you very much.
    [The prepared statement of Dr. Hall appears in the 
appendix.]
    The Chairman. Last, but certainly not least, is Dr. Justin 
Wolfers. Dr. Wolfers is a professor of public policy at the 
Gerald R. Ford School of Public Policy at the University of 
Michigan and a professor of economics. Dr. Wolfers's research 
interests include labor economics, macroeconomics, political 
economy, economics of the family, social policy, law and 
economics, and behavioral economics.
    He is a research associate with the National Bureau for 
Economic Research, a research affiliate with the Center for 
Economic Policy Research in London, and an international 
research fellow at the Kiel Institute for the World Economy in 
Germany.
    Dr. Wolfers earned his Ph.D. in economics from Harvard 
University and a bachelor's degree in economics from the 
University of Sydney.
    We welcome you, Dr. Wolfers, to the committee and want to 
thank you for being here in attendance today. Please proceed 
with your opening statement as well.

  STATEMENT OF JUSTIN WOLFERS, Ph.D., SENIOR FELLOW, PETERSON 
  INSTITUTE FOR INTERNATIONAL ECONOMICS; PROFESSOR OF PUBLIC 
 POLICY, GERALD R. FORD SCHOOL OF PUBLIC POLICY; AND PROFESSOR 
  OF ECONOMICS, COLLEGE OF LITERATURE, SCIENCE, AND THE ARTS, 
             UNIVERSITY OF MICHIGAN, ANN ARBOR, MI

    Dr. Wolfers. Thank you, Chairman Hatch, Ranking Member 
Wyden, and members of the committee, particularly my home State 
Senator, Senator Stabenow, and my brother in orange paisley, 
Senator Cornyn. [Laughter.]
    The good news is, we are very much in an improving economy 
right now. Last year we created 246,000 jobs per month, on 
average, which is the fastest rate of job creation since 1999. 
The unemployment rate now is down to 5.6 percent, and, 
importantly, through this recovery, unemployment has been 
falling at a full percentage point per year. It is down from 10 
percentage points. So if it is at 5.6 and it is falling by 
about a point per year, that tells us that sometime this year, 
depending on how optimistic or pessimistic you are about how 
far we can go, the economy will finally be back to normal.
    But I should urge, as much as that is the natural 
projection, that we should not declare mission accomplished 
prematurely. Historically, we regarded a 5.6-percent 
unemployment rate as being a bad outcome, and it is certainly 
the case, I think, that we can do better.
    I think we learned through the mid- to late-1990s that the 
U.S. economy can sustain a 4-point-something-percent 
unemployment rate rather than a 5-point-something-percent 
unemployment rate. And I hear a lot of talk that we might be 
near capacity, but I think there is good reason to be 
optimistic that the recovery could run a lot further.
    That is all I want to say about the short run. I am more 
concerned, I think, about the longer-run issues that come out 
of the recent business cycle.
    First is, we still have elevated rates of long-term 
unemployment. Historically, in the U.S., we would measure 
unemployment in the number of weeks that people were out. You 
would lose your job, you would probably have another job in 6, 
sometimes 12 weeks. Today we measure unemployment in months 
and, in many cases, years. That is a new development for us, 
and it appears to me that moving people back into the labor 
force who have been out of work for 1, maybe 2 years, we do not 
yet have the systems in place to do that. And so perhaps there 
is a need for greater job search assistance. Also, perhaps we 
need to think about the social insurance that may be necessary 
if long-term unemployment is going to be with us for the longer 
run.
    During the recent recession, Congress saw fit to extend 
unemployment insurance, emergency unemployment compensation, 
for those who were out of work a long period of time, and it 
seems to me that we want to be prepared for the next time that 
something like this happens again, which is to say that, rather 
than acting on the spur of the moment, it would be useful to 
have a program in place that triggers longer unemployment 
insurance when the next deep recession hits.
    I think that is part of the second, broader thing I want to 
talk about, which is, I think what we have learned from this 
recession is that the Federal Reserve cannot necessarily do all 
that it needs to do to offset a cyclical downturn. We are at 
zero interest rates right now, and the Fed has not been able to 
be as aggressive as it would otherwise be. That suggests to 
many of us a greater role for automatic stabilizers. If, when 
downturns hit, taxes could be lower and spending could be 
higher, that, I think, would lean against the worst excesses of 
the business cycle. It also has the advantage that we would 
actually be spending money at a time when labor and materials 
are cheap and when interest rates are particularly low.
    So what I would urge the committee to do is to look for any 
opportunities in any legislation under any circumstances to try 
to build in triggers where we spend more and tax less during 
recessions and, in turn, we tax more and we spend less during 
booms. We could imagine doing this for things like Pell grants. 
We could do it for TANF. We could do it for high-wage spending 
and all sorts of things.
    The third issue I want to talk about is, of course, rising 
inequality. So, as much as the aggregates tell us the economy 
is doing quite well, we are not seeing that for a lot of 
families out there. We are seeing a sharp shift in the share of 
the national pie that goes to capital rather than labor. This 
is the issue of wage stagnation. And we are seeing that, 
whereas historically economic growth went to the rich as much 
as it went to the poor, over the past 30 years, most of the 
gains of economic growth have actually accrued to the top 10 
percent, and the bottom 90 percent of the distribution have 
seen almost no rise in average income whatsoever.
    I realize there is a fierce debate on Capitol Hill about 
the right scope for government and the right size of aggregate 
taxes, but I think there is a separate and far more useful 
debate to be had, which is, what is the right distribution of 
those taxes? There are groups who need greater incentives, 
greater work incentives, and other groups who could use those 
marginal dollars a little better.
    The final point I would like to add--and it is somewhat 
outside the committee's jurisdiction--is to talk about the 
importance of education. One of the driving forces for 
education in the United States for the last century has been 
rising levels of education. This came out of the high school 
movement. But that has run its course.
    My generation was the first ever to not get more education 
than their parents, and, at the moment, it looks like the next 
generation is not getting more education than their parents.
    I think the President's ideas of potentially expanding 
community colleges or, also, early childhood education are 
potentially ways to reverse that long-run trend and could 
really be engines for growth.
    Let me stop there.
    The Chairman. Thank you so much.
    [The prepared statement of Dr. Wolfers appears in the 
appendix.]
    The Chairman. We do have a quorum here now. I want to thank 
my colleagues for their attendance. We will now interrupt the 
hearing to conduct a few items of committee business.
    [Whereupon, at 10:43 a.m., the committee proceeded into 
open executive session, resuming the hearing at 10:47 a.m.]
    The Chairman. Now we can resume the hearing. So we will 
turn to questions now and hopefully everybody will enjoy 
participating even more. Perhaps I can start off the questions.
    Governor Engler, there is bipartisan interest in this 
committee to continue to carefully examine options and 
tradeoffs involved in tax reform and to get things done. I put 
forward principles to guide tax reforms, a detailed report, and 
I am working with Ranking Member Wyden and members of this 
committee on both sides who have agreed to work in five 
different policy groups.
    Governor, what are your thoughts on how tax reform can help 
grow jobs and the economy and promote a healthy economy?
    Governor Engler. Mr. Chairman, thank you. As I indicated in 
my testimony, I was delighted to see--and the Roundtable 
strongly supports--the creation of those working groups, and I 
think they are a positive step for the Senate as a whole.
    We have looked at an array of issues, and we talk about the 
United States in terms of maximizing its economic potential. It 
is the sense of the Business Roundtable CEOs that the most 
important single thing that we could do for the U.S. economy is 
to modernize and restore our tax code to a competitive state. 
And that, as I testified, means addressing rate, it means 
addressing the international situation.
    We believe that tax reform should be comprehensive in scope 
and that, if this were to be done, it would have a dramatic and 
direct impact. We think that there is an opportunity for the 
United States today to lead, even more vigorously, a global 
recovery and that bringing $2 trillion back home as part of 
this would be an important contribution.
    But we also look at things like mergers and acquisitions. 
We actually have a deficit--if we look back in time, we would 
like to see U.S. companies being acquirers, not being the 
acquired. We would like to see the U.S., as it seeks to meet 
one of the President's goals of doubling exports, being able to 
be more competitive so it can do that.
    We have a tremendous energy advantage as a Nation. We are 
attractive to foreign direct investment coming here. Both of 
these things would be enhanced by a tax code that is more 
competitive, Mr. Chairman, and, if we bring in trade a little 
bit, both of these have the opportunity to impact jobs and 
wages in this country in a very positive way.
    The Chairman. Thank you, Governor. I appreciate those 
comments.
    Dr. Hall, we just went through a devastating financial 
crisis, the so-called Great Recession, and financial 
deleveraging by American households. I wonder what the effects 
were of all those things on labor markets in terms of how long 
it has taken our labor markets to recover and whether there 
will be lasting damage. I also wonder what the Federal 
Government should do to support job creation.
    Before you respond, let me note that some people, such as 
Larry Summers, the former economic advisor to President Obama, 
seem to have somewhat of a pessimistic economic outlook long-
run, or what he calls, quote, ``secular'' stagnation. That is a 
future with persistent sluggishness, near-zero interest rates, 
lack of an ability of monetary policy to do much, and what he 
seems to see will be a need for a far greater role for the 
Federal Government in the economy.
    So I would like to have your viewpoints on those things as 
well.
    Dr. Hall. Thank you, Senator Hatch. So I was Larry 
Summers's teacher at MIT, and he and I have been debating these 
issues. In fact, recently we have had two very interesting 
public debates on this subject.
    There is a right part and there is a wrong part to the 
concept of stagnation. There is a paper on my website if anyone 
wants to see more about this. Stagnation is a real thing in the 
U.S., but not so much in the areas that Larry Summers has 
talked about. Rather, the earnings that families take from the 
labor market have been stagnant in purchasing power terms since 
about 2000. Prior to that, they have enjoyed substantial 
growth.
    Now, when you take that apart, it falls into a number of 
interesting, important categories. One is--and 2000 is also 
when productivity growth slowed down. The number one priority 
by far for restoring growth and prosperity is to get 
productivity growth up. It is a proven fact that the benefits 
of productivity growth vary widely in the economy. It raises 
the earnings of many different groups. The other factor is the 
one I already mentioned in my previous remarks, that we have 
seen this withdrawal from the labor market of certain types of 
people, especially teenagers.
    If you want to know what is most wrong with the U.S. 
economy, here is a simple fact. In 2000, half of all teenagers 
worked. Today, only one-quarter of teenagers work. The 
withdrawal of teenagers from the labor market, I think, is a 
symptom of what is going on.
    Now I wish I could say, well, that is because they are 
getting more education or they are doing other useful things, 
but that is not what the data show. Instead, teenagers are 
spending more time enjoying themselves. That is not, by itself, 
a bad thing, but I think that it is important to understand 
those are the two big factors.
    Dr. Wolfers mentioned the third factor, which is that there 
has been a shift of the distribution of actual income away from 
labor and toward capital. We are not really sure why that is 
happening, but it has been the third important source.
    But that does not mean that the outlook is uniformly bad. 
We could restore productivity growth, especially with tax 
reform. There are certain changes, for example, in disability 
programs, which clearly have a factor in declining 
participation, that badly need reform and for which there are 
good ideas for reform.
    So I am not nearly as pessimistic as Larry Summers is. He 
made a big splash with that, but I think that when you actually 
look at and take apart the numbers carefully, a lot of his 
pessimism is not right. With respect to the United States, one 
overwhelming fact that we all need to be proud of is that the 
performance of the U.S. economy has been so much better than 
other advanced economies, especially those of southern Europe. 
We should be very proud of how well our system works, and I 
think it is going to continue to work.
    The Chairman. Thank you, sir. We will get to you, Dr. 
Wolfers, later. My time has expired.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Gentlemen, for years this committee has debated the merits 
of supply-side economics, and often, as the consumer sees it, 
trickle-down economics. My own view is that that kind of 
approach is a particularly poor fit for an economy where two-
thirds of the economic activity is driven by consumer spending. 
I think we all understand that the affluent can only buy so 
much. What is needed for sustained economic growth is more 
people buying homes and cars and other goods and services that 
make life better for them and their families. So what you 
really need are policies, as I was touching on, that are going 
to put more money in working family's paychecks.
    I think what I would like to do is just go down the row and 
have each one of you give me your sense of a policy that would 
do the most to increase the paychecks of the typical American 
worker.
    We will start with you, Governor.
    Governor Engler. Thank you, Senator. I think that a 1-
percent boost in the U.S. GDP would be the thing that would 
result in many more Americans coming back into the workforce. 
It would raise wages for workers in the workforce. And that is 
achieved in a set of policies that is not simply one thing, but 
it is focused on infrastructure, it is doing many things.
    It is getting the tax code right. It is having the right 
trade agreements. It is investing in infrastructure. It is 
delivering on the promise of our education investment, both at 
the K-12 and university level. And I think immigration reform 
is part of it.
    We have a very complex, interrelated, integrated economy, a 
global economy here in the U.S., and we have done well. I think 
it has been testified to today. We have made great strides in 
our recovery, but there is so much more upside potential.
    Senator Wyden. Dr. Hall, the Governor is right that it is 
complicated. I would just like to get your sense. If you could 
do one thing, what would it be, to help raise the paychecks of 
the typical worker?
    Dr. Hall. I think tax reform. I think that there are a lot 
of improvements in our economic performance that we could 
achieve mainly by rationalizing the tax system and eliminating 
double taxation so that we have closer-to-uniform tax rates.
    In particular, for example, entrepreneurial income, which 
is subject first to the corporate income tax, as almost all 
startups are organized as C corporations, is then taxed again 
as capital gains or dividends, mostly capital gains. I think 
that is definitely holding things back.
    I think that we could restore earlier rates of productivity 
growth, in particular, which, as I have said before, would be a 
huge factor in improving paychecks.
    Senator Wyden. I think certainly tax reform is part of it. 
Senator Coats and I--and we were pleased that former Chairman 
Camp picked up on this--in our bipartisan tax reform bill, what 
we do is, we triple the standard deduction for middle-class 
people. We think that is the kind of thing that can help raise 
paychecks.
    Dr. Wolfers?
    Dr. Wolfers. You have very much, Senator Wyden, emphasized 
the importance of increasing the size of paychecks. But even 
more important to most families is increasing the number of 
paychecks, getting people back to work. You get a second 
paycheck in a family, that will double their income, whereas if 
we raise wage growth a little, it will increase it by maybe 3 
percent. So anything that keeps the economy moving forward and 
gets more people back to work will be helpful.
    Governor Engler described the importance of a 1-percentage-
point rise in GDP. That was exactly the right assumption 
through to about the 1970s. This used to be an economy where a 
rising tide would lift all boats. That connection appears to be 
broken today.
    So we need to not just raise the size of the pie, but make 
sure some of it gets out there, and that is where I think the 
important work of the tax system is most critical.
    You asked for a very specific suggestion, what would put 
more money in people's paychecks. I think the childless EITC, 
the Earned Income Tax Credit, is a great way of ensuring that 
those who work get the rewards that they deserve.
    At the moment, we mostly reserve that for parents. Why not 
non-parents? And actually, to be clear, a lot of the 
beneficiaries under the childless EITC would, in fact, be 
parents. They would be noncustodial parents. So there are broad 
swaths of the population where I think this would have a huge 
effect in increasing take-home pay.
    Senator Wyden. I am going to see if I can get one other 
question in, Dr. Wolfers.
    This is for you, Dr. Hall. Let me also note--you may not be 
aware--my mother was a research associate at the Hoover 
Institution when Glenn Campbell was president. People were very 
nice to her. What I remember most is that they would always 
tease and say they liked Mrs. Wyden so much, they have chosen 
to ignore the fact she is a Democrat. There was a lot of 
teasing. [Laughter.]
    The Chairman. I feel the same way about him, you know. 
[Laughter.]
    Senator Wyden. There you are.
    Here is my question. It is on infrastructure.
    This is on infrastructure investment, which is something 
you have been interested in. We are clearly falling behind. The 
American Society of Civil Engineers gives us a D-plus. You 
cannot have big-league economic growth with little league 
infrastructure.
    Recently, there was a forum in Chicago, a forum on global 
markets. You said the United States needs user charges for 
roads and bridges. When you said that, I picked up on it at the 
time. What kind of user charges would you be interested in for 
funding infrastructure?
    Dr. Hall. Senator Wyden, in California and other parts of 
the country, we have adopted rational pricing of infrastructure 
of highways, and that is so-called real-time pricing.
    So there are lanes in San Diego, and there is one near 
where I live, where it is guaranteed that you can go 60 miles 
an hour in that lane because there is a knob that gets turned 
automatically that raises the price. That does two things. It 
relieves congestion, which is a good thing, because congestion 
is pure economic waste, and it generates government revenue, 
which is a great thing.
    So I would love to see better pricing of our infrastructure 
of all types, but especially congestion pricing of highways. It 
would give a signal about where additional infrastructure is 
needed. That would be any area where the price is always high 
relative to how much it would cost to expand.
    It would be a huge step forward relative to where we are 
today, where there is expansion of infrastructure, highways, in 
particular, which often generates highways that are not very 
heavily used and does not relieve serious congestion.
    In the short run, we can relieve the congestion by pricing 
it. In the longer run, we can use the price signal to decide 
where to expand the infrastructure. It would be a whole new 
ballgame, and we are seeing that all over the economy, real-
time pricing of private areas like airlines, in particular. 
There has been a huge increase in airline efficiency because 
all airplanes fly full now, and that, by itself, is a 10-
percent productivity improvement in the airline business, and 
it is all from real-time pricing.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Cornyn?
    Senator Cornyn. Thank you, Mr. Chairman. Thanks to each of 
the witnesses for being here. And thanks, Mr. Chairman, for 
having this hearing. I have really two items I want to touch on 
briefly.
    One is, since the recession in December of 2007, 1.2 
million net jobs have been created in my State of Texas. Only 
700,000 net jobs have been created in the other 49 states. And 
it is no coincidence, I would submit, that Texas is the number-
one exporting State in the country since 2002.
    We make a lot of stuff, and we grow a lot of stuff that 
gets sold to markets all around the world. So I am extremely 
interested, and I share the President's commitment to see trade 
be high on our list of bipartisan things that we can work on, 
because I think it will provide the kind of economic growth 
that Governor Engler alluded to and that you have mentioned.
    I know the President was celebrating a high quarter of GDP 
growth last quarter, but I am wondering whether he is spiking 
the football a little early. Here is my concern, and I would 
appreciate your comments on this. We have accumulated $18 
trillion in debt. The Federal Reserve has a huge balance sheet, 
because it has been purchasing our own bonds that it is going 
to have to at some point unwind, and interest rates will go up.
    I worry, because of all the things that the American 
taxpayer pays for via their Federal tax dollar, that we are 
going to spend more and more money servicing that Federal debt 
and crowding out other important priorities from national 
security to safety net programs.
    So I would be interested in hearing from each of you, 
briefly, what you see in the future, in terms of the prospect 
of this looming debt challenge and rising interest rates if the 
Federal Reserve does what I think we all expect them to do and 
begins to, obviously, reduce the pace at which they are buying 
U.S. bonds, but also begins to unwind that program.
    Governor Engler, would you care to tackle that? Maybe then 
we will go down the line really quickly.
    Governor Engler. Thank you, Senator Cornyn. Not an easy 
question. I am not sure my crystal ball is any better than 
anybody else's, and maybe not as good as some on this 
committee.
    Looking ahead, I guess one of the fundamental principles 
that we have tried to articulate at the Roundtable comes back 
to this idea of growth. I used the statistic that just a one-
tenth-percent increase in GDP is probably $300 billion to the 
Treasury, and looking ahead at 1 percent, then you get $3 
trillion.
    We have to have a growth economy in order to generate the 
kind of revenue that the government needs. Then that has to be 
accompanied by prudent decisions relative to spending. And 
ultimately, entitlement reform has to be addressed, because so 
much of the spending is non-discretionary.
    You are exactly right. I do not know that we are close to a 
rapidly rising interest rate environment, given what is going 
on around the world and what the E.U. is up to today. On the 
other hand, the numbers are scary when you look and project if 
interest rates did go up. We are a very liquid market. It is 
the time to invest. And I certainly want to support the notion 
that we have heard in this committee room from my fellow 
panelists that infrastructure investment is also an optimal way 
to be thinking about leveraging this low interest rate 
environment that we are in.
    We have a lot of rebuilding that needs to be done in the 
country, and there are some creative ways. There are some 
public-private partnerships that are out there, some of the 
very transportation systems that Dr. Hall talked about. We see 
it in Senator Warner's State, and I think he probably played a 
role in it as the Governor. I mean, those are all priced and 
built privately.
    So there are mechanisms, but there are still big public 
decisions that need to be made. Inland waterways of America, 
the air traffic control system, the electric grid--there is 
tremendous work that needs to be done. That also would be 
accompanied by a tremendous demand to train the skilled workers 
to do that.
    Senator Cornyn. With all due respect, I hear a lot of ideas 
about how we can spend money, but I do not hear a lot of great 
ideas about how we can pay down our debt as opposed to pass it 
on to the future generations.
    Dr. Hall and Dr. Wolfers? I know that my time is limited. I 
would appreciate your thoughts.
    Dr. Hall. Senator, first of all, I strongly share your 
concern about the balance between revenue and spending. I run a 
spreadsheet that looks 100 years into the future, obviously not 
accurately, but it is still worth doing. One of the 
assumptions--and the CBO does the same thing on a shorter time 
span--factors in a growth of interest rates, and that, of 
course, feeds back into a further requirement for revenue to 
pay that, and it is scary.
    The trend is adverse. The trend is for revenue as a 
fraction of GDP to rise substantially more slowly than 
spending, and that is long-term, and it has not changed. It is 
just remarkably stable.
    According to this spreadsheet, say, by the end of this 
century, we would be just immersed in debt. We would have way 
more debt than we could possibly pay. Something has to give, 
and it has to give in the sense of either more revenue or less 
spending. I think our democratic system, sitting here, needs to 
be very seriously concerned about that, and I share your 
concern.
    Senator Cornyn. If the chairman will permit--Dr. Wolfers, 
my time has expired, but please go ahead, if the chairman will 
allow. Go ahead.
    Dr. Wolfers. Let me just make four points. First, the 
budget deficit is roughly back to normal now. We are around 
about the 40-year average as of last year, and set to improve 
somewhat with an improved----
    Senator Cornyn. Are you talking about the deficit or the 
debt?
    Dr. Wolfers. Deficit. So the flow of new debt, the deficit.
    Second, if you look at the projections and the sorts of 
spreadsheets Bob was just talking about, the debt-to-GDP ratio, 
which I think is the right way of thinking about this, is 
likely to be roughly stable over the next 10 to 15 years.
    It is only beyond that that stuff starts to explode, and 
the truth is, we do not actually know much about what is going 
to happen to the economy 20, 30, 40 years out. So these point 
estimates might be right, but the range of uncertainty is such 
that we may find ourselves in 2 decades wondering why the debt 
is too low rather than too high.
    The third point is to say, should we be worried about the 
sustainability of this? The very sophisticated pinstriped folks 
on Wall Street who trade in government debt seem to think it is 
not a problem. The 10-year government bond right now is at 1.7 
percent, which suggests not only that there is perceived to be 
little risk behind this, but also that it looks like interest 
rates are going to stay low and low for a generation.
    Finally, what is the role of infrastructure in all of this? 
Your concern, which I think is an important one, is that we do 
not saddle future generations with debt; it is equally 
important we do not saddle future generations with crumbling 
infrastructure.
    So then it is not just a question of how much spending to 
do, but when to do it. And I think the important issue here is 
let us try to do the spending when it is cheap. It is most 
important and it is going to be cheapest to do infrastructure 
spending when an economy has select resources and when interest 
rates are low, and that I think is the case for infrastructure 
spending today.
    The most interesting piece of economic research I have seen 
in recent years is, the IMF has actually done some calculations 
which have suggested that government infrastructure spending in 
an environment like this, with low interest rates and select 
resources, can actually end up lowering the debt.
    It stimulates sufficient economic activity that it can 
actually--I am not quite sure that I am going to go so far as 
to suggest it will actually lower the debt, but the long-run 
costs, when you think about how the benefits come out--the 
growth benefits of infrastructure and how that then comes back 
in tax revenues--can be fairly small.
    The Chairman. Senator Stabenow?
    Senator Stabenow. Thank you very much, Mr. Chairman. 
Congratulations on holding the gavel. And I want to 
congratulate you that two out of three of your first witnesses 
are from Michigan. So it reaffirms my confidence in your good 
judgment.
    The Chairman. Well, if we can have good witnesses like this 
every time, Michigan is going to be in play.
    Senator Stabenow. Thank you. Let me first start by saying 
that I have always thought and have been taught that, if 
something works, we should do more of it, and, if it does not 
work, we should do less of it.
    So when we look at the economy, we can see the Clinton 
years focused on education, innovation, much more focused on 
middle-class income--booming times, for lots of reasons, but 
booming times, with 22 million jobs added.
    We go to the next administration, the Bush administration, 
which focused on tax cut policy predominantly for the top, with 
the theory that it will trickle down, funding wars without 
paying for them, creating massive debt, lack of oversight of 
financial institutions, and we ended up with what we now call 
the Great Recession.
    So I am concerned that we do what works--and we are not out 
of it yet by any means, but we have helped save American jobs 
in the auto industry, and, even though folks lost home equity 
and 401(k)s and jobs and everything that happened in the Great 
Recession, it is beginning to come back.
    Dr. Hall, you mentioned that fewer young people are 
working. I just want to say that the first thought that came to 
my mind is that it is because folks in their 50s, 60s, and 70s 
are taking the jobs now at fast food restaurants, because we 
have way too many folks who are seniors who are having to come 
back into the workforce to supplement their income or folks who 
lost their job in manufacturing coming back and doing jobs that 
used to be done by young people.
    But we are turning things around. Jobs are up; 11 million 
jobs have been created. Wall Street has doubled; the yearly 
deficit is down by two-thirds; and it seems to me the challenge 
really is for us to make sure now that everybody who wants and 
needs a job that pays well, where they can have one job to 
raise their family instead of two or three, has that.
    I am pretty proud that Henry Ford had the right idea. 
Despite everybody's criticism at the time--folks in the 
business community thought he was crazy--he actually more than 
doubled wages and paid folks top dollar, and he created the 
middle class in this country. I am pretty proud that that 
happened in Michigan.
    So I would like to ask each of you a question. What I hear 
from our manufacturers in Michigan right now is just--at a new 
announcement, Mr. Chairman, with Magna, a great company 
expanding in Michigan, hundreds of jobs, what they said was, we 
need skilled people to match the jobs.
    The number-one issue is job training, is skill development. 
I know our State is focused on that. The President talked about 
that. So, if we talk about how to capture this and grow middle-
income jobs, there are lots of things, but I wonder if each of 
you might speak to the desperate need for skill development to 
match those jobs; not that people do not have skills, they are 
just not the skills for the jobs that are being created.
    So job training, costs of college, the fact that folks are 
coming out of 4-year schools. Maybe they should be going to 2-
year schools, but they are going to 4-year schools, coming out 
with massive debt, cannot buy a house. I hear from realtors all 
the time terrific concerns now about young people not being 
able to get credit, buy a house, because of all the debt. It 
seems to me that is a huge issue that we can be coming together 
and working together on--the business community, the public-
private sector, and so on.
    Governor Engler, I wonder if you might speak from your 
perspective.
    Governor Engler. Thank you, Senator. I would be happy to. I 
think this is a really important issue. There are 4 million 
jobs today unfilled in the American economy, and it is because 
people do not have skills. They certainly do not have the right 
skills, and I think in some cases they flat out do not have 
skills.
    For too long we have had a dropout rate that is too high. 
We invest as a Nation $700 billion roughly on an annual basis 
on our K-12 system, and we have to have a system that can send 
people off to college without needing remediation when they get 
there. And, if they are not going to go to college--about 40 
percent in the country do not--of those who do not, maybe they 
have a skill that hopefully is, I would say, measured and 
certified along industry standards so that they are work-ready, 
and the dropout rate has to be zero. That is the biggest 
mistake that a young person can make.
    The Roundtable strongly works on policies, and one area we 
think is a mess is the labor market analysis. We do not 
actually know where the 4 million jobs are. We do not know 
enough about what the skills are that are needed to hold those 
jobs. So I think industry needs to do a better job of saying, 
these are the competencies that we require, but then it needs 
to be aligned with the training.
    I think, from the Federal job-training perspective, that we 
should stop spending money when we enroll people, and reward 
people when they graduate with mastery of the competencies 
required to go to work. Certainly, with the innovative programs 
in the country that are bringing community college training 
down into the K-12 level, we can skill up young people much 
earlier than waiting until they finish high school. We need to 
get rid of the wasted senior year for a lot of these kids.
    I think, Senator, this is an area where there is tremendous 
national need and opportunity on a bipartisan basis, and I know 
that Senator Alexander and members of his committee are 
interested in this issue, as some of you on this very committee 
are. I know Senator Wyden is focused on some of this.
    We need to give young people the information they need, and 
we need to do a much better job of labor market analysis in the 
country. It is a dismal status.
    Senator Stabenow. Briefly, Dr. Hall? Dr. Wolfers?
    Dr. Hall. Thank you, Senator. I love the idea that we 
should do more of what works. I would call attention to the 
fact that what works on a global basis is the U.S. economy. The 
U.S. economy has 20, 30, 40 percent higher paychecks than any 
other country in the world of any size. In particular, it is 
way ahead of Europe, especially southern Europe.
    So what works is the U.S. system, and there is some 
tendency to move in the direction of European institutions, 
which troubles me. If you look in Europe, countries that 
specifically said, let us free up the labor market, let us let 
the market work and not constrain the policies of employers--
Britain and Germany--they have by far had the best experiences 
after the financial crisis. So that is what works.
    If you ask what does not work in the U.S. today, which 
touches exactly on the themes that you were talking about, it 
is the failure of secondary education. When kids get to 
college, they are at a big disadvantage relative to countries, 
say, especially Scandinavian countries, that have very 
effective secondary education.
    We need a major thrust. Of course, secondary education is 
the responsibility of local government, not the Federal 
Government, but still, whatever the Federal Government can do 
to try to boost the quality and the appropriateness of what is 
taught to kids in high school would make a huge difference in 
terms of all the things that you talked about.
    The Chairman. Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Senator Stabenow. Excuse me. I am sorry. Mr. Chairman, if I 
could just get one--maybe 30 seconds from Dr. Wolfers. I am 
sorry. He did not have an opportunity----
    The Chairman. That will be fine. I would caution all of us 
that we have a 5-minute rule here.
    Senator Stabenow. Yes. I appreciate that.
    The Chairman. And it is true we have only three witnesses 
and some have utilized asking each one. But if we can try to 
keep it within 5 minutes, we will get through everybody.
    Senator Stabenow. I appreciate that.
    The Chairman. Go ahead.
    Dr. Wolfers. I will try to show that a wolverine can be 
brief.
    Professor Hall was just talking about what works, and he 
used the U.S. as an example. And of course, he is precisely 
right, if you are talking about the 1970s and if you use 
averages.
    If instead you look at today and you look at medians, the 
American middle class is not doing better than, for instance, 
our neighbors north of the border. And so there has been a 
long-run stagnation, and our median family earnings are not as 
high as they are elsewhere.
    The most important place to look at skills here is of 
course education. There is a presumption, and it is widely 
understood in the United States, that the government will fund 
education through to the 12th grade, and we now accept that, 
although at the time that that was first put forth, it was 
ridiculed widely as an absurd idea that anyone would need that 
much education. And I think that that history is possibly quite 
useful in framing and looking at arguments for either greater 
involvement in pushing post-secondary education, which should 
be the new middle-class aspiration, or to try to remediate gaps 
before they ever appear, which would be early childhood 
education.
    Senator Stabenow. Thank you.
    Senator Thune. Mr. Chairman, thank you, and congratulations 
on your chairmanship. I look forward to working with you and 
the members on our side, as well as Senator Wyden and members 
on his side, on issues that are in front of this committee that 
are so important to our economy.
    I want to thank our panel today. It has been mentioned, I 
mean, wages are flat. They are not growing. In fact, median 
household income is down $3,000 in this country from where it 
was in 2009, and the labor participation rate is at a 
historically low level. A lot of people have dropped out of the 
labor force. Those are big issues, and we have a lot of work to 
do to try to fix that.
    I am a big believer that comprehensive tax reform can 
unleash a lot of economic activity in this country. I know, 
Governor Engler, the BRT has been a very strong advocate for 
tax reform, and I know the BRT represents primarily larger 
companies in this country. I am interested in knowing, with 
regard to tax reform as a way to improve the tax system for all 
businesses, how you think we might deal with the issue of pass-
throughs.
    In my State of South Dakota, 90 percent of our businesses 
are pass-through entities. Fifty percent of income in this 
country, business income, is in the form of some pass-through, 
subchapter S, partnership, or LLC. So, given these realities, 
what do you think Congress ought to do to ensure that all 
businesses benefit from a reformed and simplified tax code?
    Governor Engler. We always talk about comprehensive 
business tax reform, because we recognize that we have the 
corporate entities and the non-corporate entities, and there 
are many more numerous non-corporate entities.
    We look also at which ones are facing global competition 
and which ones are more domestic. But it is important, even 
when looking at that, to understand that many domestic 
companies are part of a supply chain which feeds into the 
global economy.
    So we would argue that both need to be dealt with. Dr. Hall 
talked about the two different types of structures, and he has 
thoughts about how that might change in the future. We are 
probably not as optimistic that that kind of a fundamental 
change can be achieved here in the short term.
    So, in the realm of possibility, it seems to me that we 
have to do something that is fiscally sustainable, given the 
deficits we have just talked about. We have tried to look at 
this from a standpoint of, how do you achieve benefits for 
everybody without cross-subsidization or not asking individuals 
to pay for corporate relief, not asking corporations to fund 
individual relief?
    But if you can sort through this, I think there are ways 
that you can make it work. I think the corporate relief is 
easier, frankly, because there are fewer variations. The 
structure is a little different, but they are going to still 
have double taxation.
    The pass-through entities, we have those in our membership 
as well. We have spent considerable time and are spending time 
to try to think through how can we make similar progress there.
    The rates have always been different, I guess. After the 
1986 tax reform, we saw people moving from the corporate to the 
unincorporated status just because they deemed that to be a 
better position to be in.
    I would hope that, regardless of business structure, we can 
improve the competitiveness of everyone, because you have 71 
million Americans who are engaged in the kind of work where 
there are globally competitive companies that are impacting the 
economy. And we also have seen that the increase in hiring can 
be led--if I can bring trade in for a second--by those 
increases in trade.
    So there is a real benefit to getting the global part of 
this right, but not ignoring the domestic side.
    Senator Thune. Dr. Hall, Dr. Wolfers, both of you mentioned 
in your testimony the decline in the labor force participation 
rate and offered some theories about what causes that. Other 
than demographic changes associated with baby boomers retiring, 
I want to ask this question--and then I am going to ask a 
follow-up, and if you would answer them both together, since we 
have limitations on time.
    What do you think is the single biggest factor that is 
keeping more Americans from seeking work and what, if anything, 
can Congress do to reverse that? And then a specific question: 
Dr. Hall, in your testimony, you mentioned the rise in the 
number of Americans receiving Social Security Disability 
payments and the negative impact that that might be having on 
the labor force. Could you elaborate on that point? So, what is 
causing it, what can Congress do about it, and how does the 
Social Security Disability payment issue contribute to that?
    Dr. Hall. Let me start. First of all, the research that I 
have done on the participation rate focuses very much on young 
people, and especially the fact that they are differentially 
from higher-income families, those who have withdrawn. It is 
not obvious that it should be a major goal of Federal policy to 
reverse that.
    With respect to what has happened to participation among 
older workers, I think that the Disability program does badly 
call for reform. The Disability program, Social Security 
Disability, essentially prohibits people within the program to 
even think about working again. You would lose your benefits 
instantly if you are found working.
    The scholars who have looked carefully into reforming 
Disability have been very clear that the right answer is to do 
what has been done in some other countries, which is to turn 
Disability into a transition program in which workers are 
helped to re-enter the labor market and take jobs for which 
they are physically capable.
    The Disability program was created to deal with people 
doing very physical work. Today, most work in the U.S. is not 
physical. It is people sitting at desks, and yet there is no 
channel by which people drawing Disability can be placed back 
in the labor force working at desks, which they are physically 
capable of. So there is just obvious reform that I think 
everybody who has looked at this agrees should be a top 
priority, and it is clearly one of the trends that is adverse 
for participation in the labor market.
    The Chairman. Senator Coats?
    Senator Coats. Thank you, Mr. Chairman. I will try to stay 
within the 5-minute limit. So I am going to quickly raise a 
point and ask the three panelists to just give a very brief 
answer, because I would like to get two questions in here, if I 
could.
    Governor Engler, you stated in your proposal that you gave 
to us here that trade-related jobs grew three times faster than 
average job growth over the last decade and that export-related 
jobs pay about 13 percent to 18 percent higher wages than other 
jobs, all of which suggest trade policy issues that we need to 
deal with.
    While we would agree with that and agree that that is true, 
obviously that can be a dynamic aspect in terms of improving 
our economy, and a lot of emphasis should be put on these trade 
agreements and so forth. On the other hand, does it give you 
pause when we receive reports back that China's growth was less 
than anticipated, there has been a slowing down there, and 
Japan is in negative growth at best, and Europe has slipped 
into negative growth? The instability in the world, not just 
the Middle East, but its impact on Europe and its impact on 
markets, clearly is going to be a factor.
    While, obviously, we should go ahead with these trade 
initiatives, should we be concerned about these factors and not 
achieving what we would like to achieve?
    Governor Engler. Two points perhaps. On the numbers, the 
written testimony that I have submitted has footnotes that 
provide source documentation for the increase in wages related 
to export-related jobs and in terms of the job growth in trade-
related jobs. So that information is there, and I will not go 
into that.
    On the pause for thought about other nations, I am moved by 
the fact that where we have FTAs in place, with just 20 
countries, nearly half--and that is in my BRT document--46 
percent of all of our exports go to the 20 countries where we 
have FTAs in place, and we have a positive trade balance there.
    The TPP is a negotiation with 11 Asia-Pacific countries. 
TTIP is 28 members of the EU. Those two together would be about 
60 percent of world GDP and 40 percent of total world trade. We 
think the opportunities are too good, and the highly relevant 
experience that we have had previously argues to go forward.
    So, yes, there are details to consider, and much of those 
are addressed in your TPA directions to the Trade Negotiator, 
Ambassador Froman, but we think the risk is outweighed by the 
opportunity.
    Senator Coats. I hope that is the case. Dr. Hall, do you 
have any comments on that?
    Dr. Hall. Just one very quickly. I wanted to reiterate that 
there are two benefits of opening up trade through agreements 
or by other means. One is, as the Governor has just indicated, 
that it is a way to get good jobs in the U.S.
    But the other thing, which is equally important, is that it 
is a way to get cheap goods into the U.S. in return. The 
imports--do not neglect the import side or the benefits of the 
import side. There have been huge increases in real income in 
the United States as a result of having very inexpensive 
products available at Walmart and elsewhere that are 
astonishingly cheap imports always, and that raises U.S. 
standards of living. The research on standard of living shows 
unambiguously that trade is great for these two reasons.
    Dr. Wolfers. I would just make two observations. Are the 
returns to trade as great when, say, Japan is in recession? 
Japan is a huge economy. The fact is, if Japan were not in 
recession, it would be a huge economy plus 3 percent. So the 
returns are not that different no matter what is going on with 
Japan's business cycle or any of our other trading partners.
    The second observation is, I think that, to the extent you 
were talking about the world becoming more chaotic and what 
does this mean about the returns to trade, I think arguably 
that raises the returns to trade. A more interrelated world is 
one where we have greater shared interests, and it is one where 
foreign trade also becomes an arm of foreign policy as well.
    There are greater returns to cooperating with your 
neighbors when you have deep economic linkages with them. And, 
even if you want to put it even more bluntly in terms of the 
foreign policy thing, we have had a huge effect in Russia 
because we used to trade with Russia. And so sanctions have 
been quite effective.
    So there are, I think, very big foreign policy issues on 
the table as well.
    Senator Coats. Those are reassuring answers. Obviously, we 
hope that these numbers are correct, and we hope that this can 
be a very essential element of helping drive economic growth in 
the United States.
    I just wanted to get your thoughts relative to the 
potential instabilities and sluggish trade partners' impact on 
that. But thank you for that.
    Mr. Chairman, my time has expired. I will withhold my 
second question and try to get it in at another time.
    The Chairman. Thank you, Senator Coats. We will go to 
Senator Menendez at this point.
    Senator Menendez. Thank you, Mr. Chairman. I want to 
congratulate you on your ascendency to the chair. I look 
forward to working with you. I would be more effusive, but, 
since my time is limited to 5 minutes, I am going to go to my 
questions.
    The Chairman. I understand.
    Senator Menendez. Let me say I appreciate the panel.
    We have made some enormous strides in our economic recovery 
since the financial meltdown and recession starting in 2008. We 
have seen some robust job growth, declining unemployment, 
growing GDP. But there is still work to do and, in my mind, the 
measures that we should be looking at are strengthening middle-
class incomes, investing in our infrastructure, and improving 
educational opportunities.
    So with that in mind, most, I think, members of this 
committee believe that there is a pressing need to reform and 
simplify our tax code. However, opinions begin to diverge when 
we are talking about what the goals for reform are, what they 
should be, and how exactly we go about accomplishing those 
goals.
    I think the President made it pretty clear where he stands 
on this question, and I strongly agree with him that we need to 
be focused on measures to help middle-class families instead of 
keeping in place tax loopholes geared toward special interests 
with high-paid lobbyists.
    So regarding this prioritization, Dr. Wolfers, very simply, 
what is more beneficial to the economy and individual families, 
measures targeted toward the middle class and households across 
the income spectrum--such as tax credits to help working 
parents afford childcare, students afford college--or further 
tax breaks for those who are at the top of the bracket who do 
not need, and in many cases, are not asking for them?
    Dr. Wolfers. I think my answer is that tax breaks and 
policies targeted toward the middle class are going to yield a 
much bigger dividend. I mean that in two respects. One is, 
there is an emerging body of evidence that inequality may be an 
important force that is going to be a drag on our economy. So 
we could ameliorate that directly if we can start to do things 
like make college available to much of the middle class so it 
would be an important pressure for growth.
    Then there is another point. The other issue is, what is 
the point of having economic growth if it actually delivers 
nothing for most? And so, to the extent that these policies 
could do that, I think it is worthwhile.
    I also think that there is some really simple stuff we 
could do. When someone first explained to me what so-called 
stepped-up basis was, the trust fund loophole, the mind 
boggled, and I think that that would be true for not only most 
economists, but also most of your constituents--the carried 
interest loophole as well. These are all loopholes which have 
basically no economics behind them and no economic benefit. So 
they potentially would free up a whole bunch of money for 
something far more useful.
    Senator Menendez. So if we, in essence, help educate a 
workforce that the private sector needs in order to deal with 
the human capital requirements in the global economy and, at 
the same time, help more middle-class families have greater 
resources to help educate that child and/or to be able to get 
to work so they can have their child be taken care of without 
losing so much of their disposable income, they will have more 
income to spend in our society and that will help fuel our 
economy, would it not?
    Dr. Wolfers. Absolutely, Senator.
    Senator Menendez. Now, let me ask Governor Engler and you 
as well about the importance to our economy of investing in our 
infrastructure, particularly at a time when interest rates are 
near historic lows and there is continued slack in the 
construction industry.
    Today there is a report that came out in New Jersey, Mr. 
Chairman, that was led by a nonprofit transportation entity, 
and it said that New Jersey's bad roads and bridges are costing 
individual drivers almost $2,000 and contributing to higher 
numbers of fatal crashes, and it goes on to talk about a whole 
host of elements.
    When we are thinking about this, talking about people 
getting to work, sales forces getting out there, being able to 
sell the products, being able to move our products to 
marketplace through ports and whatnot, can you talk about the 
importance of investments in infrastructure? Because we always 
look at this with a transportation trust fund that continuously 
seems to be broken, and we do it in short-term extensions 
instead of also looking at the investment and the ripple effect 
that that generates.
    Can you respond to that?
    Governor Engler. I am a believer in infrastructure, and I 
am a believer in investing in infrastructure, and I think you 
have to sort of break it down.
    I think there are elements of infrastructure investment 
where the user can pay, and there is a great return on 
investment to allow for that investment to be made up-front and 
paid off over time. Examples of that are, you certainly have 
everything from the air traffic control system to--I mentioned 
the electric grid earlier. There is tremendous upgrading that 
could be done to water systems, all of these kinds of things.
    Roads and bridges are harder. It has gotten harder to 
insist upon a user-pay approach because some vehicles do not 
pay traditional fuel taxes. The efficiency of the fleet is such 
today that we drive many more miles for the cents in tax paid. 
So I think that is going to have to be adjusted over time. You 
have been fixing the trust fund holes with general fund 
borrowing. That is probably not sustainable. And we have a big 
hole coming up this spring again.
    One of the things that is driving all of America crazy is 
the inability to plan longer-term for anything, because of tax 
provisions that expire. We had a change in the code for 2 
weeks, if we go back to December. Well, infrastructure is the 
same thing in a State, and we have a few northerners around the 
table here. You cannot build roads year-round in some parts of 
the country. So you need to be ready to go in the spring. If 
the trust fund is not funded and you cannot budget your money 
accordingly, you underperform that way.
    So I think that there is, in this low-interest-rate 
environment, a tremendous opportunity to do projects. I mean, 
if you borrow money, you have to pay it back, and I think many 
of these projects have a value proposition to allow that to 
take place. In other cases, there is public investment that is 
required. And I think, if you have a hole in the roof, you 
should fix it.
    The Chairman. Senator, your time is up. Senator Scott?
    Senator Scott. Thank you, Mr. Chairman, and congratulations 
as well.
    My first question will go to Governor Engler. When I think 
about the impact of lowering the corporate tax rate on job 
creation in our country, I think it could have a significant 
impact. I think also about the recent tax inversions that have 
occurred.
    Could you comment on what you think the long-term impact on 
perhaps research and development and other aspects of companies 
that move and/or invert their companies to foreign countries 
will be on job creation in our country?
    Governor Engler. Secretary Lew yesterday, in his remarks 
over at Brookings, referred to our backward international tax 
rules and the need to root out the part of the system that 
encourages companies to shift their income overseas. That is 
exactly what we have in the current code.
    So part of the change is to get where virtually the rest of 
the world is and allow the taxes on those foreign earnings to 
be paid in the country where they are earned and then be 
brought back home. That has to be advantageous to the United 
States to allow that. And I think once home, that money then is 
available for capital spending or hiring or higher dividends. 
Let us bring it home so it gets spent here for any number of 
productive purposes, including research and development.
    The R&D tax credit is a good example of something that has 
been in the tax code since 1981. At the time it was put in, we 
were the best in the world. We are not in the top 25 today. It 
has devalued over time, plus it is temporary. We do not have 
one as of today--the R&D tax credit has expired.
    So we need permanency in the code. We need predictability, 
and I think the code needs to be competitive. As I said in 
response to Senator Thune's question, we think there is room 
for improvement across the entire spectrum. Whether one is in a 
corporate status or a non-corporate entity, we can improve. But 
we particularly want to think about anybody in either status 
who has to compete globally, because today we have the worst 
competitive environment.
    Senator Scott. Thank you, sir.
    Dr. Hall, on labor force participation, I note with some 
interest that if we were using about the same labor 
participation rates as we had in 2009, 65 percent or 65-point-
something percent, versus where we are now, there would be 7 
million more folks in the labor force to be counted.
    It does not seem like all of that can be attributed to 
retirement. How would you help me understand the percentage of 
folks working or involved in the labor force?
    Dr. Hall. Senator, there is a table in my prepared 
testimony that breaks it down by age and sex. As I mentioned 
earlier, the big declines in participation have been among 
young people.
    There is a theory, and I am not going to sponsor this 
theory, but there is a theory that entertainment--I think this 
is most relevant for teenagers--compelling entertainment has 
become quite cheap and that makes a difference in how teenagers 
decide how to allocate their time.
    There are many things like that. I think you should be 
encouraged to see that this is perhaps not a total disaster. 
One thing is, these are not, in most cases, primary earners. We 
are not talking about the middle class. If you look at people 
and the peak earning and family responsibility years, there has 
been no decline in their participation. I think that is a very 
good thing. The decline has been in people under 35, especially 
teenagers.
    I think we may figure out--and of course, some of this may 
reverse; there is always that possibility. To me, it does not 
cry out for any policy change, at least until we understand it 
better and see how permanent it is.
    Senator Scott. Thank you. A final question for you as it 
relates to the President's proposal. He talked about increasing 
the capital gains tax. What impact would that have, especially 
when you think of the backdrop of Dodd-Frank and constricting 
capital leaving banks going toward entrepreneurship--what 
impact would that have on more entrepreneurs, fewer 
entrepreneurs, and what would that mean for our job market 
long-term?
    Dr. Hall. Well, it would be pushing up an already high tax 
on entrepreneurial activity. So, entrepreneurs create a C 
corporation. The C corporation pays the corporate income tax 
at, by worldwide standards a very high rate, and it gets taxed 
again before it goes into the hands of the entrepreneur.
    So the tax rates on entrepreneurial activity are really 
high, and I do not think that they should be elevated. I think 
we need to straighten this all out and have an integrated tax 
system that is careful to get the rates right for everything 
instead of the hodgepodge that we have now. For example, the 
topic of carried interest came up. That goes in the other 
direction. That is something where what should be taxed as 
ordinary income is sneaking in only as capital gains, and it is 
not income that has previously been taxed under the corporate 
system.
    So we need to change this. We need to get the rates on 
entrepreneurial activities down. We need to get the rate that 
takes the form of carried interest up. We need to straighten 
all those things out and kind of get reasonable, uniform tax 
rates for all activity. That would just be a huge step forward.
    Senator Scott. Thank you. My time is up.
    The Chairman. Senator Cardin?
    Senator Cardin. Well, Chairman Hatch, first of all, thank 
you very much, and we all look forward to working with you as 
chairman of our committee, and we wish you the best.
    Senator Wyden, I think, expressed the views of all the 
members on our side. So we are looking forward to a very 
productive time.
    I want to thank our panelists. I think this has been 
extremely helpful. We are looking at ways in which America can 
have a stronger economy, build on the success that we have, 
create more jobs, and particularly increase real wages in this 
country to keep up with productivity gains, which is a major 
concern.
    So there is a lot of focus on the business tax, and, when 
you talk business tax, I think you have to talk about not only 
the corporate rate, but you have to talk about the individual 
rate, since so many businesses pay at the individual rate.
    We hear frequently that the United States has some of the 
highest marginal income tax rates in the industrial world. And 
I find that somewhat surprising considering that, when you look 
at the reliance upon the public sector among the industrial 
nations of the world and revenue into the public sector, the 
United States is near the bottom of the industrial countries. 
Of course, the reason is that the United States relies almost 
solely on income taxes, whereas the rest of the industrial 
world has a heavy reliance on consumption taxes. And when the 
World Trade Organization was developed, we thought it was just 
fine to allow for border adjustment on the consumption taxes, 
whereas the income taxes are not border-adjusted, putting the 
United States at a real competitive disadvantage.
    So I want to try to get to the core of the problem. I am 
not sure that just rearranging the chairs on the deck is going 
to make much difference if we still rely heavily on income 
taxes that are not 
border-adjusted when the rest of the industrial world relies on 
consumption taxes.
    And when I suggest that we make some changes, I usually 
hear from two groups of people. One says, ``Well, we do not 
want to have a revenue machine for government,'' and there are 
ways to deal with that through using some form of automatic 
rebate if revenues exceed what you anticipate them being. So 
you can deal with that issue.
    The other thing, of course, I hear is that we do not want 
middle-income families to be more burdened than they already 
are today. And through use of rebates based upon income, you 
can deal with that issue. And both of these matters can be 
dealt with in a much simpler way than our current income tax 
structure, with its complexities, et cetera.
    So I guess my question to you is, from a policy point of 
view, from the point of view of America's competitiveness, why 
would it not benefit our country to take advantage of our 
natural advantage, that is, that we rely less on the 
governmental sector for revenues than our competitors in 
industrial nations? Why should we not be looking at a way to 
take advantage of that competitively? Dr. Hall, you are shaking 
your head the way I want it to be shaken.
    Dr. Hall. You have just listed all the selling points of 
Hall-Rabushka. In particular, a key idea that you mention is 
that you could have a rebate built into it so that you can get 
the right distribution of the burden; in particular, excuse 
low-income families from paying the tax at all and then have 
the low average tax rate in middle income as opposed to higher 
incomes.
    Hall-Rabushka is a consumption tax, just as you were 
suggesting, which I think most economists think is a great 
idea. Our proposal did not include border adjustments, but it 
is easy to come up with a version of that, if you like border 
adjustments. Economists are not as enthusiastic about border 
adjustments because we think that it comes out in the wash in 
other ways, but I know that politicians love border 
adjustments, so--fine.
    So all the advantages you discussed and all the advantages 
I have mentioned too, all combine into making just a terrific 
idea.
    Senator Cardin. Thank you. I will take that. That is 90 
percent of what I wanted.
    Governor Engler, do you want to comment on that?
    Governor Engler. Well, I will put my old manufacturer's hat 
back on. We used to look at this with some envy because, what a 
neat thing it would be at the border to be able to put the tax 
on everything coming in and take it off on everything going 
out. That had some real attractiveness.
    It is a heavy lift for a Congress which cannot even make 
things like the R&D tax credit permanent to be able to get 
there.
    Senator Cardin. Let me just challenge you. It seems like 
small things are heavy lifts. Maybe big things are going to be 
lighter lifts. Be visionary.
    Governor Engler. Well, all I know is that the conversations 
about the flat tax, your legislation on the progressive 
consumption tax that you have introduced--I am kind of tax-
wonky. I like to talk about all these kinds of things. But I 
also, with respect to our chair and ranking member, in some of 
the work they have done, recognize that probably we have a room 
full of possibilities on certain things and we should put them 
on a study committee, maybe the sixth committee that gets 
formed, to take a look at the long-term structure.
    It is a big change, and we are willing to talk about 
anything that makes the U.S. more competitive.
    Senator Cardin. I appreciate it. We study things to death, 
and I know that we do not have consensus yet. So there is going 
to be a need for us to bring about greater consensus.
    Everything we are talking about has been tried in other 
countries, so nothing is new here----
    Governor Engler. That is right.
    Senator Cardin [continuing]. So we know what will happen, 
and the United States will be much more competitive than we are 
today. At one time, we did not have to worry about taxes on 
competition. Today we do.
    So I thank you. Again, I thank the panel for their 
discussions.
    Thank you, Mr. Chairman.
    Senator Isakson [presiding]. Senator Heller?
    Senator Heller. Mr. Chairman, thank you. I think you are 
the chair of all my committees now. I look forward to working 
with you on Veterans' Affairs.
    I want to thank Senator Hatch and Senator Wyden. I am 
looking forward to working with you. It is great to be on this 
committee. And I am really pleased that the first issue that we 
discuss is economic growth and creating jobs. I think for most 
of the American people, that is where they come down.
    I want to say hello to the Governor. It is good to see you 
again. And to everybody on the panel, thank you for being here 
and for your words and efforts.
    The economic recession affected everyone, but in my home 
State of Nevada, it was especially harmful. Nevada experienced 
the Nation's highest unemployment rate, nearly 14 percent at 
its peak. I would argue that real unemployment in Nevada today 
is north of 9 percent, and we have the highest foreclosure rate 
in the Nation and the highest personal bankruptcy rate. So it 
has been a rough few years.
    Though our situation has improved, Nevada's unemployment 
rate, unfortunately, remains one of the highest in the Nation. 
Recovery has been slow. Thousands of Nevada families are still 
waiting for true economic recovery that they can see and, in 
fact, feel in their pocketbooks. Americans have been told the 
economy is getting better, but they are not feeling the 
effects, especially in my home State. And though the national 
unemployment rate has gone down, millions of Americans have 
dropped out of the workforce entirely.
    The fact is that this administration's policies have put up 
barriers to economic growth. We already have a burdensome tax 
code that has only become more complicated under Obamacare. 
Businesses continue to face mountains of new Federal rules and 
regulations. And we have a health care law that makes it harder 
to see your doctor, makes it more difficult for employers to 
grow, and raises taxes on hardworking American taxpayers.
    To truly grow our economy, there are key factors that 
deserve the attention of Congress. Americans deserve a cleaner, 
simpler tax code; trade policies that assure America's 
competitiveness in the growing international marketplace; and 
health care policies that actually focus on improving access, 
affordability, and quality. As a member of this committee, I 
look forward to working with the chairman and the ranking 
member to move these issues forward.
    And with that, I have a few questions today. There is an 
article today that came out in Politico. As you know, we have 
not had tax reform in this country since 1986, and I think 
there are pretty good reasons why that occurs.
    I will just read two paragraphs out of this morning's 
article. It says, ``Lawmakers and the White House are 
overstating the benefits of a business code rewrite. Some of 
the economists are predicting that any likely overhaul will do 
little for growth and may even hurt the economy. That is 
because, for all the complaints about special interest 
loopholes and sky-high rates, the biggest corporate tax breaks 
are generally believed by economists to promote growth.''
    So I think that voice is going to get louder and louder and 
louder as we work together as a committee to improve the 
corporate tax code that we have. But I guess my question to 
you, Governor, is, is there any truth behind these comments, 
and what are the risks that you see moving forward on corporate 
tax reform?
    Governor Engler. Well, one of the risks of not moving 
forward is that we continue to retain a patchwork, temporary 
tax code that we have to come back to every few months, it 
seems, to try to extend. It allows nobody to plan in advance, 
nobody to rely on it, whether you are, frankly, an individual 
or business taxpayer.
    As far as the unnamed economists who say that certain 
provisions have benefits, of course. Many of those benefits 
were put in to offset some of the negative effects of the code 
we have. That was the whole goal.
    Since 1986, we have seen changes made, but what has really 
changed since 1986 is what the rest of the world has done in 
reaction to our code. And so then we react to that, and some of 
those provisions are designed exactly to try to make us more 
competitive against some other region of the world or some 
other practice out there.
    I think that a simpler, flatter, fairer tax--I mean, I 
certainly enjoyed the conversation with Senator Cardin, but it 
is a long way to get where he would like to go. But we can 
clearly see a simpler tax code in our future if we act now on 
some of the things that I think are doable in this committee.
    Senator Heller. We have talked a little bit about 
education, and I know BRT has a solid position, so I would like 
to get your view on this. But in Nevada, about 30 percent of 
the high school graduates go on to a post-high school 
education. Unfortunately, by 2020, 65 percent of the jobs in 
this country will need post-high school education.
    How do you feel about the President's proposal on Tuesday 
for free community colleges?
    Governor Engler. Well, the free community colleges are 
spending a lot of their time doing what the high school did not 
do in the first place. So I am frustrated by that proposal a 
little bit, and I am certainly frustrated by what is offered as 
a way of trying to pay for it.
    Nobody has seen the details on what he is actually, 
specifically proposing. But I would say that--take Clark 
County, NV. We really need to have for each student, kind of, 
their individual plan. If it is going to college, they need to 
get there and be able to do college work when they arrive. If 
they are not going to go directly to college, maybe they will 
go into the gaming industry, maybe into the resource industry. 
Then what kind of jobs are those and what skills are needed in 
those jobs? Can we not start earlier than post-12th grade? Let 
us start at the 10th grade and help people.
    What we are seeing in the real world is that people who get 
skilled will often then also gain confidence with that and 
conclude that they want even more education, then go back to 
school to gain that. And oftentimes they are able to pay for 
it, because they are now employed. It is a much more virtuous 
circle.
    The other thing is to end the dropouts, because, if you 
drop out, you are really dropping out of the whole economy.
    Senator Heller. Governor, thank you. My time has run out, 
Mr. Chairman.
    Senator Isakson. Which triggers my time. And I am going to 
be very brief, but I wanted to note that each one of the three 
of you has raised one of the $64,000 questions of tax reform. 
So I want to assign you with a little bit of a homework 
assignment to get us back an answer to the questions that you 
raised.
    Governor, I appreciate all the many great things you have 
done for the country and for your State, and I appreciate your 
being here. I am a big fan of the BRT. And somewhere at the 
BRT, in the bowels of the BRT, there is a list of sacred cows 
that cannot be used as offsets for lowering the tax rate from 
35 percent to 25 percent. I am sure it must be there.
    Can you tell us, if we go through a comprehensive report of 
C corps using tax treatments to offset the reduction in 
revenues from the percentage rate, is there a sacred cow list 
or could we possibly come up with a consensus for this 
committee and the BRT as to what could be used to drive the 
rates down?
    Governor Engler. Yes, there is absolutely a list that I 
think works. There is a reluctance--Chairman Camp, maybe 
against somebody's advice, certainly ours, floated a little 
excise tax. He brought in a new tax on banks. The next thing we 
find out is, now it is a proposal to pay for new spending. So 
there is a reluctance sometimes to put all the cards face up on 
the table until it is that magic moment when we are ready to do 
a deal.
    But we have done the math. There is no question that, in a 
fiscally responsible way, we can put together a plan that 
works. We are still certainly looking hard at the pass-through 
entities and how that works there and how much can be done, and 
we are optimistic some great progress can be made on all types 
of business entities. So we are eager to work with you.
    Senator Isakson. I would love to see that list. Thank you 
very much.
    Dr. Wolfers, you made a statement--and I could not find it 
in your printed testimony, although I am sure it is there--but 
you made a statement in your verbal testimony that you 
recommended triggers for automatic stabilizers, those things 
that would lower tax rates when times were tough and raise tax 
rates when times were good, and with spending correspondingly 
going up and down.
    Can you supply us with what those triggers are, what 
triggers you would use, as a professor of economics and one 
knowledgeable in that area, and where you would have those 
triggers come in and how you would have them come in?
    Dr. Wolfers. If you wanted a very simple formula right now, 
whenever the unemployment rate is above 7.5 percent, trigger on 
a bunch of stuff, and whenever it is back below 7.5, trigger it 
off.
    Senator Isakson. So you would use the unemployment rate 
versus some other index.
    Dr. Wolfers. It strikes me as the single best index of the 
business cycle.
    Senator Isakson. I have a second question on that. There 
are many types of taxes, as we all know: payroll tax, income 
tax, capital gains tax, et cetera. What taxes would you trigger 
with that stabilization mode, all taxes or the income tax, the 
payroll tax?
    Dr. Wolfers. I would need to think harder about the 
question. For sure, income taxes. Beyond that, I would need to 
think harder.
    Senator Isakson. It would be helpful to know, if you would 
think about that, because it is an interesting concept, and I 
appreciate it. And it does beg the $64,000 question; that is, 
tax policy drives economic outlook, and if you have automatic 
stabilizers, index-based on the health of the economy in terms 
of raising or lowering taxes, it tells us that anytime we raise 
or lower taxes, there are economic consequences, so we had 
better do it correctly.
    Which brings me to Dr. Hall. You are an advocate of the 
flat tax, if I am not mistaken. And in one of the answers that 
you gave, you talked about the tax code we have right now. The 
name you give an income determines the tax rate it has: 28 
percent on the proposed capital gains, or 20 percent or 23.4, 
whatever it might be, taking a carried interest assignment at a 
capital gains-type rate, or a dividend rate rather than the 
earned income rate.
    That was a testimony for a flat tax or a fair tax for 
certain; is that correct?
    Dr. Hall. Right.
    Senator Isakson. Let me ask you this question then, if I am 
correct in my assumption. The biggest stumbling block to 
simplicity of the tax code is transition from the code we are 
in to the code we would have that is simpler. For example, you 
have longitudinal tax treatments: depreciation, investment tax 
credits, low- and 
moderate-income housing tax credits, and I could go on and on.
    Have you ever designed a model for if you one day woke up 
and there was all of a sudden an 18-percent flat tax, just 
pulling something out of the air, what you would grandfather in 
from the previous tax code where people had invested their 
money and what you would not?
    Dr. Hall. So a while ago, 20 years ago, I went through that 
whole topic in detail. Depreciation, in the Hall-Rabushka 
proposal, there is first-year write-off. So that is forward-
looking, and that is easy.
    The question then is how you treat the hangover of the 
previously promised depreciation deductions. It would cost a 
lot of money, but we could just honor them. That is probably 
what I would recommend.
    There are some other issues having to do with personal 
saving vehicles, but those can all be worked out and have been 
worked out. So it does get into some detail that I cannot go 
into this morning, but certainly it is something I have thought 
about, and it is doable.
    But you are right. You have to do it right, and there is a 
fairly long list of fair, correct transition rules that would 
have to be applied, but it is doable.
    Senator Isakson. I appreciate your answer, and I would 
love, if you did that paper a number of years ago, if you would 
give it to me so I can read it. I like to learn, and I get 
bored at night watching TV. So I would love to read it and see 
what happens.
    But the reason I raise the point is, when Reagan reformed 
taxes in 1986, the one thing we made a mistake on was, we took 
passive loss and passive gain and changed the treatment of 
those things midstream in investments, which took a large 
segment of the economy, primarily commercial and investment 
real estate--it caused the savings and loan collapse, to be 
honest with you.
    So you have to be very careful when you change the 
treatment of taxation mid-investment, when it is already made. 
You have to make sure you are not creating the unintended 
consequence of causing a recession. That is the reason I asked 
that question.
    With that said, I am going to turn over everything to the 
ranking member, Senator Wyden.
    Senator Wyden. Thank you, Senator Isakson. I share a lot of 
your concerns as well, and I look forward to working with you.
    Let me, if I might, go back, Governor Engler, to what you 
and Senator Thune talked about, because you have been kind to 
take the time over the years to talk with me about it. I think 
you know how strongly I feel about bipartisan, comprehensive 
tax reform.
    I think a big part of this debate is really going to come 
down to Pete's Auto Supply and Fran's Hardware Store, because, 
if they walk away thinking that all the discussion in 
Washington, DC is about the big guys--the big guys are going to 
get the breaks, the multinationals are going to get the breaks, 
and Pete and Fran are not going to get anything--when they 
start looking at the numbers, they may think they are going to 
have to pick up some of the costs in order to have the break 
for the big guys. I think that is a show-stopper, both 
substantively and politically. And you, to your credit, have 
indicated that you are interested in talking about this.
    I understand that there is some discussion going on in the 
business community in an effort to try to think this through, 
and you have to find a pay-for and the like. But given the fact 
that these small businesses, well over 80 percent, pay taxes as 
individuals rather than businesses, I understand there is some 
discussion about the concept of perhaps coming up with a 
general small business credit, something that would allow the 
small business people on day 1 to see that there was an effort 
to try to ensure that, as we do tax reform, we want everybody 
in America to get ahead and we are recognizing those small 
businesses.
    I know that this is not the time to talk in specifics or 
how everything is going to be paid for, but what is your sense 
of that discussion and where it might go?
    Governor Engler. Well, I think that, first of all, it is an 
unavoidable discussion. It has to be part of the whole 
conversation. And I think as long as we are working with the 
constraint of what is I think described generally as fiscally 
responsible tax reform, that sort of means that if you are 
going to try to bring rates down, which costs revenue, as was 
just mentioned by Senator Isakson, what then offsets that 
revenue loss?
    I personally would think that there is a fairly dynamic 
effect that is there. There is certainly some effect if you cut 
tax rates. I happen to think it is a beneficial effect and that 
it will be seen in higher revenues. But I understand the 
scoring rules that we use.
    So if we say, what is fiscally responsible, how do we want 
to do it? Those that are corporate ratepayers, what do they 
pay? Those that are non-corporate entities that pay at the 
individual rate--nobody should subsidize the other. I mean, 
they should not be subsidizing corporate relief, and I would 
argue vice versa, that corporate should not be subsidizing 
their relief.
    So how do you get them a better tax code? How do you get 
that corporate taxpayer a better tax code? I think we have 
figured out kind of where we would like to be on the corporate 
side. The other is a little more complex because--you just 
astutely, in your question, pointed out the diversity.
    There are many, many of them clustered at the bottom, and 
then they kind of go up, and some are pretty big. I think some 
pass-through entities, more than 200, are bigger than $2 
billion in revenue. So those are big guys up there.
    So as we look at this, your question about a small business 
credit or something, all of those ideas are intriguing. And we 
are very open to working with the committee to see what could 
be done, because we certainly always speak of comprehensive tax 
reform, and, if it is comprehensive, that means that they are 
not left out.
    Senator Wyden. Let me ask one other quick question, if I 
might, and then I am going to recognize Senator Carper.
    One of the most troubling aspects of where this country is 
economically is the huge gap between economic recovery in urban 
areas and economic recovery in rural areas. The National 
Association of Counties recently released a report noting that, 
of the 3,000 rural counties, only 65 are in economic recovery. 
No county in my State has seen a full economic recovery. 
Twenty-three rural counties in my State have lagged well behind 
the State's more urban and populous counties.
    Clearly, in my State--and I just came from town hall 
meetings in rural Oregon--I am not going to accept turning 
those rural communities into sacrifice zones where we just 
write them off and say, that's the way it goes and ``the end.''
    I would just like to go down the row, before I go to 
Senator Carper. Maybe if you would like to start, Dr. Wolfers. 
But again, if you have an idea, just one, because time is 
short, to try to deal with this huge gap between recovery in 
urban areas and recovery in rural areas, I would be interested 
in an idea from each of you.
    Dr. Wolfers?
    Dr. Wolfers. I am going to try the professor's usual 
gambit, which is to reject the question rather than answer it.
    Senator Wyden. Fair enough.
    Dr. Wolfers. There is enormous variation in unemployment 
across the country. There is variation between blacks and 
whites, between men and women, between States, and between 
urban and rural areas.
    I think we should weight each of these as real people with 
dignity, and that does not mean favoring one group over the 
other. I think the important part of your question is, 
implicitly, the claim that the economic recovery has a lot 
further to run.
    On that I completely agree, and we can push down to a 4-
point-something-percent unemployment rate rather than a 5-
point-something unemployment rate. It is not going to do 
anything particularly for rural versus urban differences, but 
it is going to help both groups.
    Senator Wyden. Dr. Hall?
    Dr. Hall. The trend toward urbanization has been going on 
throughout the history of the U.S. And exactly what comforts 
should be given to the people who are still in rural areas is 
an open question. But it is very important to understand that, 
especially certain big urban areas that are at the other 
extreme--for example, in the urban area that I live in, the 
unemployment rate today is 4 percent. Well, it is a huge magnet 
for people from rural areas, and rural populations are 
declining as urban populations rise.
    We have a progressive tax system which helps a lot in that 
respect, and we have a social safety net. I am not sure that it 
would be appropriate to go beyond that to have something 
specifically aimed at rural areas. Certainly Europe--one of the 
huge problems in Europe is very consistent attempts to prevent 
people from migrating to big cities, and that has been one of 
the many drags on the growth of productivity in Europe.
    So again, I am against the Europeanization of the U.S., and 
we would not want to move in that direction. But I do want to 
say we have a pretty robust social safety net. The numbers on 
that are quite impressive at the bottom end of the income 
distribution, how much help we do give, and, in particular, 
excuse people in that area completely from paying taxes.
    So I think we do a reasonable job, but I still recognize--
--
    Senator Wyden. I want to go to Governor Carper. I can tell 
you, in rural Oregon, people are first and foremost interested 
in family-wage jobs. They want those opportunities in trade. 
They want an improved infrastructure. They want a balanced 
approach on natural resources. Nobody this weekend said the 
answer was just safety net programs.
    Governor Engler, is there anything else you want to add? 
Then I want to go to Governor Carper.
    Governor Engler. Really quickly, as somebody who grew up in 
Beal City, MI, kind of one of those communities, I do think 
that technology has a huge role to play in bridging that gap, 
and I really feel that if everybody had high-speed access, we 
could take the work to where the people are today in many 
cases, and I think we should be doubling down on those 
strategies.
    The one thing, though, that is simply not negotiable is, 
even in rural schools today, with technology you can have the 
very best education that is available in the world, but you 
have to get that technology. You have to insist upon it, and 
you have to build it.
    If I was leading one of those communities today, I would 
really put my emphasis on the education of the workforce. The 
skills are delineators in terms of opportunity and incomes 
going forward, and it is just going to get more acute.
    Senator Wyden. Well said. Governor Carper?
    Senator Carper. Thanks very much. He knows how to warm me 
up when he calls me ``Governor.'' This is what I tell people 
around the country, when they ask, ``What do you do?'' I say, 
``I am a recovering Governor,'' and I am.
    Governor Engler. Please do not recover.
    Senator Carper. I will never fully recover. Johnny and I 
used to work together when we were Governors at the same time. 
We worked together on a lot of stuff, like welfare reform. We 
had married sort of later in life to these wonderful women and 
had young families. And so we had our kids at the National 
Governors Association and spent a lot of time together.
    And we share a passion for a particular baseball team that 
has now traded away two of the best pitchers in baseball, Doug 
Fister and Max Scherzer, to the Washington Nationals. The 
Nationals should be pretty good this year. But we will see how 
good our Tigers are. I am hopeful, though, that we still have 
plenty of punch.
    Having said all of that, we also are always interested in 
how to foster greater economic growth. And whether you are 
Governors or Senators or Presidents, we do not create jobs, we 
help create that nurturing environment. I was pleased with the 
President's speech, very pleased actually, and he focused on 
some things that I think could help create an even more 
nurturing environment for job creation and job preservation.
    One of those is trade. Trade policy and trade agreements 
actually make it easier for us to sell our goods and products 
into foreign markets. He talked a bit about tax reform, and I 
have had a long-time interest in broadening the base, lowering 
the rates, and moving toward a territorial tax system on the 
corporate side.
    He spent some time on cyber-security. We have a lot of 
folks trying to steal our intellectual seed corn, from places 
like DuPont Company and AstraZeneca in my State and from 
universities, whether it is Michigan, Ohio State, Delaware, you 
name it. And we are, I think, doing a better job, but it is a 
big job.
    He spoke about immigration reform. Someone mentioned it. I 
do not know who it was who mentioned it here today. Immigration 
reform actually will, over the long term, reduce budget 
deficits and foster greater economic growth.
    And the last one is--this is where I am going--
transportation, and investments in transportation and 
infrastructure.
    Governor Engler, before his current job and after being 
Governor, one of the things that he did is he led the National 
Association of Manufacturers. They put out a work study done by 
some very smart people looking at what kind of GDP growth we 
get if we fully fund the transportation system--a 
transportation plan for the next 6 years.
    And it said we would get a fair amount of GDP growth and 
economic boost from putting 600,000 or 700,000 people to work 
building roads, highways, and bridges across the country, a lot 
of whom are long-term unemployed. But the real growth, the real 
growth in terms of GDP from a fully funded transportation 
program comes in a just-in-time economy, to be able to move 
goods and products across the country, out of the country, and 
into foreign markets, and that is where we get the real GDP 
growth.
    The big question around here has always been, how do you 
pay for this stuff? In the last 5 years, we have seen 12 times 
that we have kicked the can down the road and really not done 
much of anything. We end up borrowing money from the general 
fund, which is broke. So we borrow money from China and other 
places around the world. I do not think that is a very smart 
policy--reduced pension smoothing and stuff that has nothing to 
do with transportation.
    One of you, I think it was you, Dr. Hall, may have 
mentioned something like user fees. I know in Michigan, the 
Governor up there--is Governor Snyder still your Governor? I 
know he tried to double the gas tax from $0.19 to $0.39. I 
think it passed the Senate up there last year but not the 
House, and now they are going to go to a referendum and see if 
they can pass it that way.
    Lastly, I chaired, until 10 days ago, the Senate 
Subcommittee on Transportation Infrastructure. I serve on 
Environment and Public Works, and I have a great interest in 
that and in funding it through this committee.
    Here is my question. Our ranking member, your former 
chairman, he is from Oregon. They have been working for 10 
years on something called a road user charge. It is another way 
of saying vehicle miles traveled.
    In Delaware, if you go through my State on I-95, you pay a 
toll. We have a highway speed E-ZPass so people can move 
through rather expeditiously. If you go south in my State from 
I-95 down to the beaches, Rehoboth and all those places you go 
through, it is a user fee on State Route 1, in the form of a 
toll. So we have a combination of tolls. We have road user 
charges. Dr. Hall, I think you were talking about congestion 
funding and charging, and I think that makes a whole lot of 
sense.
    Two questions. One, given this advice, we are going to run 
out of money in the transportation trust fund yet again, for 
the 12th time in 5 years. We run out of money at the end of 
May. What advice would you have for us? My sense is it needs to 
be a combination of things, but we have not raised the gas tax 
or diesel tax for 21 years.
    A $0.19 diesel gas tax today is worth a dime. A $0.24 
diesel tax today is worth about $0.15. And we all know what is 
going on in the price of gas and diesel; you feel it across the 
country.
    What are your recommendations for each of us when we take 
up these issues in about a month or so? What should we do?
    Do you want to lead it off, Governor Engler?
    Governor Engler. I am happy to start. I do think that, as 
part of a comprehensive business tax reform proposal, there are 
some opportunities to do some things--I do not think they are 
permanent fixes, but I think they are multiple-year fixes in 
the transportation fund. They would not be as good, though, as 
if you were to address overall revenues from the fund from 
dedicated user fee sources.
    But I do think that there are some creative ideas. Chairman 
Camp got at some of them, and the President sort of endorsed 
that. So I look at that as a possibility.
    There have been also in the press comments that just do not 
add up, where they say, let us just repatriate one time and use 
that money from a scoring standpoint. That does not work.
    But there is a way to do it, and, as I said, Chairman Camp 
got at some of that in the proposals made in the House in the 
last Congress.
    There have been also--and I will not discuss them at 
length, because I do not want to use up my colleagues' time 
here--but some of the other proposals about how you might even 
change how the highway trust fund is administered, at what 
level--you are completely right that we could make a 
contribution that could be very helpful, buy some time, but we 
really need to step it up dramatically from where we are. The 
needs that are unmet are pretty staggering.
    Senator Carper. Thank you.
    Dr. Hall, please.
    Dr. Hall. I am not equipped to deal with these day-to-day 
problems, especially from 2,600 miles away.
    Senator Carper. Where do you live?
    Dr. Hall. In California.
    Senator Carper. Where?
    Dr. Hall. In Menlo Park.
    Senator Carper. Our road was right where the--very close to 
the Stanford Golf Course. The road came right by the Stanford 
Golf Course, right by my house. I went back there a couple of 
years ago. I was a naval flight officer out there. They had a 
sign in the front of the house that said, ``Tom Carper may have 
slept here.'' [Laughter.]
    Dr. Hall. But taking a somewhat longer perspective on 
infrastructure in general, especially roads, the roads should 
make a profit for the owners of the roads. So if the owners 
are, in some cases, the Federal Government, then the government 
ought to make a profit, because they sit on a lot of land that 
is worth a lot, and, if they are not making a profit, they are 
not making good use of the land.
    So that shows how different infrastructure policy is today 
from the way it should be, because we know we are pouring a lot 
of money into it.
    Now, on the gas tax, there is a case that we should have a 
gas tax as part of a carbon tax, since gasoline has a lot of 
carbon. Otherwise, as has been pointed out earlier, the gas tax 
is an extremely inefficient and now ineffective way to deal 
with recovering fees. We need to recover fees from a 
transponder, E-ZPass, or whatever it is called in different 
parts of the country.
    Senator Carper. We do a lot of that in Delaware.
    Dr. Hall. Yes. Yes. Exactly, and that is great. That is the 
way we should do it.
    Senator Carper. We also have a gas tax.
    Dr. Hall. Sure. We should have a gas tax because of the 
carbon content. But that does not mean we should keep raising 
it all the time.
    Senator Carper. We have not raised it in 21 years.
    Dr. Hall. Then it is probably too low. But in any case, 
intelligent policy, I think, should be very focused on getting 
the right level of real-time pricing of the users of 
infrastructure.
    And air travel--the same thing. It is scandalous that, 
since most people who fly are at least middle-income, it is 
scandalous that we subsidize airports through infrastructure 
funds. So we need to get that straightened out too. There 
should not be any Federal subsidy to air travel.
    Senator Carper. Thank you. Dr. Wolfers?
    Dr. Wolfers. I would say three things.
    Senator Carper. Are you from Australia?
    Dr. Wolfers. I am, mate.
    Senator Carper. Are you still an Australian citizen?
    Dr. Wolfers. I am a dual citizen.
    So first, raise the gas tax, and I think you will find----
    Senator Carper. Would you say that again?
    Dr. Wolfers. Raise the gas tax.
    Senator Carper. I thought that is what you said.
    Dr. Wolfers. And I think you could ask almost any economist 
in the United States and they would say exactly the same thing, 
and I can think of two reasons. One, at the moment, we are 
effectively subsidizing the dirtiest forms of transport rather 
than the cleaner ones, with enormous environmental 
consequences. Professor Hall is right, there are even better 
things we could do. But in the world we live in, this is the 
simplest instrument we could use.
    Second, I was struck--I actually like to run to work. Well, 
when I run to work, I have to join a gym just to shower. On the 
days I drive to work, I can use tax-exempt money to pay for a 
parking spot. So we are actually subsidizing one form of 
transportation rather than another, and I would argue probably 
not the right form, although my fellow Michiganders might 
disagree.
    The second thing is how to get more bang for your buck from 
the transportation fund. One way is to think about spending 
more when stuff is cheapest. So we have a lot of construction 
workers out of work right now, and we have low interest rates. 
Now is a great time to spend. If the boom keeps going, 5 years 
from now will probably be a terrible time to spend. We can get 
more bang for our buck by countercyclical spending.
    Third, you began by saying that you had asked some 
economists what the economic growth payoff for better 
transportation policy would be. I think that is actually the 
wrong question.
    The real payoff from good transportation policy is moms and 
dads who get home to see their kids 15 minutes earlier every 
day. That is not economic growth, but it is an improvement in 
living standards, and one we should take seriously.
    Senator Carper. That is a good point. Texas A&M does a 
study every year, and they figure out how much time we just sit 
in traffic--just sit in traffic, not move 5 miles, just sit 
there. It is about 2 full days per year. So that is a point 
well-taken.
    Mr. Chairman, thanks. You are very generous with your time.
    Senator Wyden. Governor Carper has been our leader on 
infrastructure.
    Thank you all, and, on behalf of Chairman Hatch, we are 
adjourned at this time.
    [Whereupon, at 12:24 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              

   Prepared Statement of John Engler, President, Business Roundtable
    Good morning, Chairman Hatch, Ranking Member Wyden and members of 
the committee.

    My name is John Engler and I serve as President of Business 
Roundtable, an association of CEOs of major U.S. companies operating in 
every sector of the economy.

    Business Roundtable CEO members lead companies with $7.2 trillion 
in annual revenues and nearly 16 million employees. Business Roundtable 
member companies comprise more than a quarter of the total market 
capitalization of U.S. stock markets and invest $190 billion annually 
in research and development (R&D)--equal to 70 percent of U.S. private 
R&D spending. Our companies pay more than $230 billion in dividends to 
shareholders and generate more than $470 billion in sales for small and 
medium-sized businesses annually. Business Roundtable companies also 
give more than $3 billion a year in charitable contributions.

    Thank you for the opportunity to appear before you today to address 
the policies necessary for creating jobs and sustaining a healthy 
economy. Business Roundtable members are committed to promoting 
policies that will help America reach its full potential. Indeed, just 
this week we released, Achieving America's Full Potential: More Work, 
Greater Investment, Unlimited Opportunity, which outlines the 
priorities we believe are necessary to drive economic and job growth. 
This report drew on extensive input from our more than 200 CEO members, 
and its policy recommendations include many areas that fall within this 
committee's jurisdiction.

    To sustain strong and consistent U.S. economic performance, we 
believe that Congress and the Administration must work together to 
adopt pro-growth policies. As communicated in Achieving America's Full 
Potential, these policies include maintaining fiscal stability, 
enacting pro-growth tax reform, expanding U.S. trade, investing in 
physical and digital infrastructure, fixing our broken immigration 
system and adopting a smarter approach to regulation.

    Fiscal stability means completing budgets on time and avoiding 
showdowns and shutdowns that threaten the economy. We ask that you keep 
in mind that, despite near-term projections of a declining federal 
budget deficit, deficits are projected to begin expanding further 
within the next 10 years, placing the United States on an unsustainable 
fiscal path. To avoid this fate, America needs long-term fiscal 
stability that creates the right conditions for sustained business 
investment, economic and wage growth and job creation.

    With more than one in five American jobs supported by trade and 95 
percent of the world's consumers living outside of the United States, 
expanding U.S. trade opportunities is critical to supporting U.S. 
growth, well-paying American jobs and U.S. business investment.

    Business tax reform that results in a modern tax system with 
competitive rates and competitive international tax rules may be the 
single most effective means of accelerating business investment, 
boosting job creation and wages, and providing greater opportunity for 
America's working families.

    On this topic, Mr. Chairman and Ranking Member Wyden, we thank you 
for recently launching five working groups to examine areas of the tax 
code. This initiative represents the kind of serious, bipartisan work 
Congress will have to undertake to enact tax reform.

    Immigration reform will help keep America secure and is essential 
for a healthier economy--accelerating growth, encouraging hiring and 
creating American jobs.

    America relies on digital and physical infrastructure that 
facilitates the movement of people, information, physical goods and 
financial assets that drives economic activity. Congress and the 
Administration should come together to enact policies that strengthen 
these vital national assets.

    Business Roundtable supports smart regulatory policies that will 
ensure American businesses retain the capacity to operate and innovate, 
while promoting the health and welfare of employees, customers and 
communities.

    Clearly, there is a lot of work to be done to get the right pro-
growth policies fully developed and enacted. The members of the 
Roundtable look forward to working closely with you to achieve these 
important goals.
                             expanded trade
    I'd like to first discuss the importance of international trade and 
investment policies to promoting U.S. economic growth and American 
jobs.
A. Trade and U.S. Trade Agreements Help Support U.S. Growth and Jobs
    More than 95 percent of the world's population and 80 percent of 
its purchasing power currently lies outside the United States. U.S. 
trade policy has traditionally recognized the growing importance of 
international markets and, as a result, U.S. Administrations--both 
Democratic and Republican--have long pursued market-opening trade 
agreements to create opportunities for U.S. companies, farmers and 
workers in the global marketplace.

    These bipartisan efforts have been successful. To highlight just a 
few examples:

   Today, more than one in five American jobs are supported by 
        international trade; \1\
---------------------------------------------------------------------------
    \1\ Baughman and Francois, ``Trade and American Jobs, The Impact of 
Trade on U.S. and State-Level Employment: 2014 Update'' (2014), 
available at:
    http://businessroundtable.org/resources/trade-and-american-jobs-
2014-update.

   U.S. job growth from 2004-2013 was three times higher for trade-
        related jobs compared to average job growth; \2\
---------------------------------------------------------------------------
    \2\ Ibid.

   Export-related jobs pay 13 to 18 percent more than the average U.S. 
        wage; \3\
---------------------------------------------------------------------------
    \3\ Riker, ``Do Jobs in Export Industries Still Pay More? And 
Why?'' (2010), available at: 
http://www.trade.gov/mas/ian/build/groups/public/@tg_ian/documents/
webcontent/tg_ian_
003208.pdf.

   More than 300,000 U.S. companies are exporters. Of this total, 
        297,995, or 98 percent, are small and medium-sized enterprises 
        (SMEs) with fewer than 500 workers; \4\
---------------------------------------------------------------------------
    \4\ Census, ``A Profile of U.S. Importing and Exporting Companies, 
2011-2012'' (2012), available at: http://www.census.gov/foreign-trade/
Press-Release/edb/2012/index.html.

   In 2013, U.S. free trade agreement (FTA) partner countries 
        purchased 12 times more goods per capita from the United States 
        than non-FTA countries did; \5\ and
---------------------------------------------------------------------------
    \5\ Business Roundtable, ``How the U.S. Economy Benefits from 
International Trade & Investment'' (2015), available at:
    http://tradepartnership.com/wp-content/uploads/2015/01/
US_State_Study.pdf.

   Nearly half of all U.S. manufactured goods exported go to the 20 
        countries that have FTAs with the United States.\6\
---------------------------------------------------------------------------
    \6\ Derived from U.S. Census Bureau data.

    Business Roundtable members believe strongly in the benefits that 
trade and high-standard trade agreements bring to the United States. 
That is why our 2015 policy agenda, Achieving America's Full Potential: 
More Work, Greater Investment, Unlimited Opportunity, includes two key 
---------------------------------------------------------------------------
recommendations relating to trade.

   First, we recommend that Congress and the Administration work 
        together to enact updated Trade Promotion Authority (TPA) as 
        soon as possible.

   Second, we recommend that the Administration, in consultation with 
        Congress, aggressively pursue and secure high-quality and fair 
        agreements, particularly the Trans-Pacific Partnership (TPP), 
        Transatlantic Trade and Investment Partnership (TTIP), and 
        Trade in Services Agreement (TISA).

    Business Roundtable's 2015 trade priorities also include support 
for:

   A multiyear reauthorization of the U.S. Export-Import Bank as soon 
        as possible before its nine-month extension expires at the end 
        of June;

   Negotiations on an expanded World Trade Organization (WTO) 
        Information Technology Agreement;

   Implementation of the WTO Trade Facilitation Agreement;

   U.S. Bilateral Investment Treaty negotiations with China and India; 
        and

   Accession of China to the WTO Government Procurement Agreement.
B. TPA is a Critical Tool for Negotiating and Implementing High-
        Standard Trade Agreements that Support U.S. Growth and Jobs
    Trade Promotion Authority is a critical tool for negotiating and 
implementing high-standard trade agreements that create strong, 
enforceable trade rules and support U.S. growth and jobs. In fact, all 
U.S. FTAs since 1974 (except for the U.S.-Jordan FTA in 2000), or 14 
agreements, were concluded pursuant to TPA. The GATT Tokyo Round and 
World Trade Organization Uruguay Round agreements were also concluded 
pursuant to TPA. When TPA was not in effect from 1994 to 2002, the 
United States fell behind our foreign competitors who continued 
negotiating trade and investment agreements that advantaged their 
companies, farmers and workers over ours in international markets. We 
cannot let that happen again.

    TPA creates a constitutional partnership between Congress and the 
President. It helps ensure congressional input and oversight of U.S. 
trade negotiations and allows the executive branch to negotiate and 
conclude strong trade agreements that are in the United States' best 
interests and reflect Congressional priorities for trade.

   Congress uses TPA to tell the President and his Administration what 
        the key U.S. negotiating objectives are in trade negotiations. 
        This strengthens Congress's role in helping to shape their 
        outcomes and helps U.S. negotiators get the best possible deal.

   Congress keeps oversight of trade negotiations through 
        comprehensive and strong consultation procedures in TPA, which 
        require the President and U.S. negotiators to keep Congress and 
        the public informed during all stages of negotiations. This 
        helps ensure that Congress and the public are consulted in a 
        transparent way and can provide input on issues in the 
        negotiations.

   TPA also establishes procedures to help Congress consider each 
        completed trade agreement, decide whether to approve it, and, 
        if it is approved, implement the agreement in a timely way so 
        that American companies, farmers and workers can take advantage 
        of the benefits that U.S. negotiators obtained.

   TPA and its negotiating objectives and procedural requirements also 
        reassure our trading partners that Congress and the 
        Administration are committed to reaching and implementing 
        strong trade agreements.

    TPA was last enacted in 2002, and it expired in 2007. Since then, 
new trade issues and barriers have emerged for American businesses, 
workers and farmers in today's global marketplace. For example, state-
owned enterprises that benefit from subsidies and differences in 
regulatory treatment are increasingly competing with U.S. companies in 
global markets. Foreign countries whose companies are unable to compete 
with innovative U.S. companies are using localization policies and 
restrictions on cross-border data flows to tilt the playing field in 
their favor. Cyber theft and piracy are serious problems in certain 
markets. U.S. trade negotiators are doing good work in pushing back 
against these types of challenges in an ad hoc way as they arise, but 
their hands would be strengthened if they could negotiate and enforce 
new rules. By working together to modernize and pass a 21st Century 
TPA, Congress and the Administration can give our negotiators the tools 
they need to do just that.

    To make the already persuasive case for TPA through education and 
advocacy, Business Roundtable in 2013 led the creation of the Trade 
Benefits America Coalition, a broad-based group of more than 230 U.S. 
business and agricultural associations and companies. In the coming 
months, the coalition will continue to promote the benefits of trade, 
help pass TPA and advance ongoing U.S. trade negotiations.
C. The Administration Should Aggressively Pursue and Secure High-
        Quality Results in Trade and Investment Negotiations
    As important as TPA is as an exercise of Congress's constitutional 
authority over trade, TPA is also a means to an end. It is a critical 
tool for Congress and the President to work together to ensure the 
negotiation of high-quality trade agreements and ultimately their 
consideration and approval by Congress. The United States currently has 
one of its most ambitious trade agendas in a long time, including the 
TPP, TTIP and TISA.

   The TPP is a negotiation with 11 other Asia-Pacific countries.

   The TTIP is a negotiation with the 28 members of the European Union 
        (EU).

   The TISA is a negotiation with 50 countries (including the EU 
        members) that are committed to creating new opportunities for 
        trade in services.

    The TPP and TTIP agreements would cover about 60 percent of world 
GDP and 40 percent of world trade.\7\ TISA would cover about 65 percent 
of world GDP \8\ and over 70 percent of world services trade.\9\
---------------------------------------------------------------------------
    \7\ Derived from United Nations and World Trade Organization data.
    \8\ Derived from United Nations data.
    \9\ Coalition of Services Industries, ``Why America Needs a New 
Trade in Services Agreement,'' (2013) available at: https://
servicescoalition.org/images/TiSA_Background.pdf.

    By passing TPA early this year, Congress will help get the 
strongest possible outcomes in and conclude the TPP negotiations, 
setting the stage for possibly implementing the final agreement in 
2015. It will also provide clear guidance to U.S. negotiators in the 
TTIP and TISA negotiations to help ensure strong outcomes in them, too. 
These are just the types of high-quality trade agreements that are 
essential to opening new markets for U.S. companies, farmers and 
---------------------------------------------------------------------------
workers and helping them compete with our foreign competitors.

    They are also an effective means to ensure that trade and 
investment is free and fair. The record of our past trade agreements 
demonstrates that FTAs are a force to level the playing field by 
developing new rules to deal with new issues and also by improving 
existing rules, often raising the standards in other countries. For 
example, our most recent FTAs with South Korea, Colombia and Panama 
swept away foreign barriers, and they created even stronger rules in 
such areas as labor and the environment. Each of these agreements 
eliminated the majority of tariffs on U.S. exports as soon as they 
entered into force, and many American exporters have benefited from 
this new market access. That said, FTAs like these take years to be 
completely implemented and fully realize their benefits.

    Finally, as the committee and Congress as a whole moves forward on 
bipartisan TPA legislation and continues to work with the 
Administration on the TPP, TTIP, TISA and other trade agreements, 
Business Roundtable hopes you will keep in mind: (1) that we are in a 
different global economy than we were 20 years ago; and (2) that the 
global economy will move forward with us or without us.

    If the United States does not stay engaged in pursuing new trade 
agreements that address the new challenges that U.S. companies face in 
international markets, we risk falling behind other countries that are 
pursuing agreements of their own. We also surrender the opportunity to 
be the ones setting the global rules of the road. If we don't take the 
initiative ourselves, others will do it for us, but the rules they 
negotiate will serve their interests, not ours.

    That is why, if the United States wants to achieve its full 
potential to have a healthy economy with greater opportunities for all 
Americans, Congress and the President need to work quickly to enact 
updated TPA and to bring high-quality trade agreements like the TPP, 
TTIP and TISA to fruition.
                         pro-growth tax reform
    Next, I'd like to discuss the importance of enacting tax reform 
that provides a modernized, competitive and permanent tax system to 
boost job creation, wages and long-term economic growth. Business 
Roundtable urges Congress and the Administration to move forward in 
2015 to enact tax reform.
A. Tax Policy Recommendations to Increase Investment, Jobs, Wages and 
        Growth
    Tax reform is fundamental to ensuring that American workers and 
businesses are competitive in global markets. Tax reform should improve 
the competitiveness of all businesses, whether taxed as corporations or 
taxed directly to business owners under the individual income tax 
system.
    Business Roundtable's key tax reform recommendations for 
corporations include:

   Setting the corporate tax rate at a competitive 25 percent; and

   Adopting a modern international tax system (a ``territorial-type'' 
        tax system) that ends the double taxation of U.S. corporations' 
        foreign earnings and aligns the United States with the tax 
        systems of our major trading partners.

    Business Roundtable supports these reforms being undertaken in a 
fiscally responsible manner, understanding that domestic reform will 
require broad repeal of the so-called ``tax expenditures'' to offset 
the revenue loss of the corporate rate reduction. As for the U.S. 
international tax system, reform should be accompanied by appropriate 
safeguards to protect America's tax base, consistent with the rules of 
our major trading partners.

    Other important principles for pro-growth tax reform include:

   Making the important decisions on the structure of tax reform so as 
        to maximize its growth effects;

   Measuring the impact of tax reform on revenues relative to a 
        baseline that acknowledges that longstanding tax provisions 
        extended repeatedly on a short-term basis are in reality a 
        permanent feature of current law;

   Not unfairly targeting or favoring any industry. Rather, tax reform 
        should recognize that a streamlined tax system stripped of 
        preferences would better allow the engine of the economy to 
        operate without the distortions created by the current tax 
        code; and

   Reforming the corporate tax code should not be paid for by tax 
        increases on individuals or non-corporate businesses. Likewise, 
        individual and non-corporate reforms should not be paid for 
        with tax increases on the workers, customers, and shareholders 
        of corporations.
B. America's Antiquated Corporate Tax System
    Reform of the U.S. corporate tax system and its treatment of 
international income are of significant importance to the growth of the 
U.S. economy. U.S.-headquartered companies with operations both in the 
United States and abroad supported 71.2 million jobs in 2011.\10\ These 
American companies directly employ 23 million American workers in well-
paying jobs, with an average compensation of $76,500 in 2012.\11\ In 
addition, these U.S.-headquartered companies support more than 48 
million additional American jobs through their supply chains and 
spending by their suppliers and employees. The ability of American 
companies to compete in both domestic and foreign markets is essential 
to improving economic growth in the United States, adding jobs and 
increasing wages and providing for rising American living standards.
---------------------------------------------------------------------------
    \10\ PwC, ``Economic Impacts of Globally Engaged U.S. Companies,'' 
(July 2013) available at: http://businessroundtable.org/sites/default/
files/BRT_Final_Report_Economic_Impacts_of_Glo
bally_Engaged_US_Companies_July_2013.pdf.
    \11\ Bureau of Economic Analysis, ``Activities of U.S. 
Multinational Enterprises in 2012,'' Survey of Current Business, August 
2014.

    Corporate tax reform can directly boost wages by increasing 
investment in the United States. Increased investment enhances worker 
productivity and leads to higher wages. The Joint Committee on Taxation 
(JCT), the Congressional Budget Office (CBO) and the U.S. Treasury 
Department all recognize that a significant portion of the corporate 
income tax is borne by workers in their official distributional 
estimates.\12\ A number of academic studies conclude that workers bear 
50 percent or more of the burden of the corporate income tax, with one 
study by the CBO finding that workers bear slightly more that 70 
percent of the corporate tax burden.\13\
---------------------------------------------------------------------------
    \12\ See Joint Committee on Taxation, ``Modeling the Distribution 
of Taxes on Business Income'' (JCX-14-13), (October 2013); 
Congressional Budget Office, ``The Distribution of Household Income and 
Federal Taxes, 2008 and 2009'' (July 2012); Julie Anne Cronin et al. 
``Distributing the Corporate Income Tax: Revised U.S. Treasury 
Methodology,'' Office of Tax Analysis Technical Working Paper (May 
2012).
    \13\ William C. Randolph, ``International Burdens of the Corporate 
Income Tax,'' CBO Working Paper (2006).

    The U.S. corporate income tax system today is an outlier relative 
to the tax systems of our trading partners at a time when we can least 
afford to be out of step with the rest of the world--when capital is 
more mobile and the world's economies are more interconnected than at 
---------------------------------------------------------------------------
any time in history.

    The combined U.S. federal and state statutory corporate tax rate is 
now the highest in the Organization for Economic Cooperation and 
Development (OECD), 14 percentage points above the average of other 
industrialized countries (Figure 1).\14\ A competitive 25 percent 
corporate tax rate is an essential element of meaningful corporate tax 
reform.
---------------------------------------------------------------------------
    \14\ OECD Tax Database, Table II-1, available at: http://
www.oecd.org/tax/tax-policy/tax-database.htm. As noted in the footnote 
to Table II-1, Japan lowered its combined rate to 34.6 percent in 2014.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    The United States is also the only G-7 country that taxes the 
worldwide income of its corporations. Within the 34 countries of the 
OECD, 28 countries use territorial systems for the taxation of foreign 
earnings, whereby little or no additional home country tax is imposed 
on active trade or business profits earned abroad when those earnings 
are reinvested at home.\15\ Since 2000, 15 OECD countries have adopted 
territorial systems. In 2009, Japan and the United Kingdom reformed 
their tax codes to increase the competitiveness of their locally 
headquartered multinationals and boosted their economies by adopting 
territorial tax systems.\16\ The U.S. worldwide system of taxation 
significantly magnifies the damage done by the high U.S. corporate tax, 
and significantly impairs American businesses competing in world 
markets.
---------------------------------------------------------------------------
    \15\ Business Roundtable, ``Comprehensive Tax Reform: The Time is 
Now,'' (July 2013).
    \16\ PwC, ``Evolution of Territorial Tax Systems in the OECD,'' 
(April 2013), available at: http://www.techceocouncil.org/
clientuploads/reports/Report%20on%20Territorial%20Tax%20Sy
stems_20130402b.pdf.

    Wherever American companies compete abroad, they are now virtually 
certain to be competing against foreign companies that have more 
favorable tax rules. Within the OECD, 93 percent of the non-U.S. 
companies in the Global Fortune 500 are headquartered in countries that 
use more favorable territorial tax systems--up from 27 percent in 
1995--and all of these countries have a lower home country corporate 
tax rate.\17\
---------------------------------------------------------------------------
    \17\ Business Roundtable, ``Comprehensive Tax Reform: The Time is 
Now,'' (July 2013).

    Since the last major reform of the U.S. corporate tax system in 
1986, the world's economies have become increasingly integrated. The 
importance of cross-border trade and investment has grown 
significantly, with worldwide cross-border investment rising seven-
times faster than world output since 1980. At the same time, U.S. 
companies account for a smaller share of worldwide cross-border 
investment today than in 1980, down nearly 40 percent.\18\
---------------------------------------------------------------------------
    \18\ United Nations Conference on Trade and Development database.

    Today, the U.S. corporate tax system hinders the ability of U.S. 
companies to grow and compete in the world economy with the consequence 
of less investment in the United States, a reduced ability to compete 
overseas, and a weaker economy with fewer job opportunities and lower 
wages for American workers. The ability of American companies to 
compete and invest abroad is vital for opening foreign markets to U.S.-
produced goods and expanding the scope of investments in R&D and other 
---------------------------------------------------------------------------
activities in the United States.

    A thorough modernization of the tax system through tax reform also 
has the potential to help provide solutions to address America's 
infrastructure needs. Business Roundtable is examining funding 
proposals for infrastructure in the context of the deliberations of 
permanent tax reform.
C. The Significant Economic Growth Effects from Tax Reform
    As Congress undertakes tax reform, critical decisions will be made 
that affect the ability of American workers and the companies that 
employ them to compete in the global economy. Tax reform should be 
designed to increase investment, jobs, wages and growth and take into 
account the significant gains that can be achieved through a more 
efficient and competitive tax system.

    America's business leaders have consistently maintained that tax 
reform will boost wages, growth and investment. Accordingly, Business 
Roundtable commissioned Rice University Professors Diamond and Zodrow 
to independently analyze Chairman Camp's 2014 tax reform proposals.\19\ 
The Diamond-Zodrow findings were consistent with this long-term view 
showing that the Camp plan would:
---------------------------------------------------------------------------
    \19\ John W. Diamond and George R. Zodrow, Tax Policy Advisers LLC, 
``Dynamic Macroeconomic Estimates of the Effects of Chairman Camp's 
2014 Tax Reform Discussion Draft,'' (March 2014).

   Boost after-tax wages for American workers by 2.3 percent two years 
---------------------------------------------------------------------------
        after enactment and by 3.8 percent after 10 years;

   Increase U.S. annual GDP by 0.9 percent two years after enactment 
        and by 2.2 percent after 10 years; and

   Expand U.S. annual domestic investment by 1.8 percent two years 
        after enactment and by 6.5 percent after 10 years.

    Business Roundtable fully supports and encourages your vigorous 
pursuit of tax reform.
                            fiscal stability
    A key aspect of fiscal stability in the near term is managing the 
federal budget in a timely, responsible and predictable manner. Recent 
showdowns over the federal budget and national debt have contributed to 
spikes in policy uncertainty and dips in consumer confidence.

    Major fiscal deadlines are quickly approaching for which immediate 
action will be needed to maintain fiscal stability. In the months 
ahead, Congress will need to take action to increase the debt ceiling 
and promptly address other key fiscal deadlines, including expirations 
impacting Medicare health care providers and the Highway Trust Fund. 
The U.S. economy and American workers and their families cannot afford 
the negative consequences of another debt ceiling showdown or stalled 
budget negotiations that threaten jobs, slow investment and halt the 
economic recovery.
A. Deficit Reduction Remains a National Imperative
    Despite declining deficits in the near term, deficit reduction 
remains a national imperative. Except for World War II, the federal 
debt of this country has never been larger as a share of income than it 
is today. Simply put, the United States is on an unsustainable path of 
continuing increases in debt burdens relative to our country's ability 
to service that debt.

    The Congressional Budget Office's August projections estimated 
federal budget deficits of $7.2 trillion through 2024 under its 
official baseline. Under an alternative fiscal scenario, comprising a 
set of policy assumptions with less fiscal restraint, the cumulative 
deficit over this period rises to $9.5 trillion under CBO's 
projections.\20\
---------------------------------------------------------------------------
    \20\ Congressional Budget Office, ``An Update to the Budget and 
Economic Outlook: 2014 to 2024,'' (August 2014).

    CBO's long-term budget projections show that under current law the 
federal debt will increase from 74 percent of GDP in 2014 to 80 percent 
of GDP by 2025--and will reach 100 percent in 2036. Under the 
alternative fiscal scenario, deficits grow even more rapidly. These 
projections also ignore any harmful impacts of the growing debt on the 
economy, including higher interest rates and a contracting economy, 
consequences that cannot be ignored and which would result in an even 
more rapidly increasing debt burden. CBO concludes that with debt 
rising faster than GDP, the United States is on an unsustainable fiscal 
---------------------------------------------------------------------------
path.

    Rapid increases in America's debt burdens will drive up the cost of 
borrowing, as lenders demand a greater risk premium and the government 
competes to borrow funds. Higher interest rates mean greater debt 
service costs for the federal government and even larger deficits. More 
importantly, higher interest rates crowd out productive private 
investment in the economy, meaning slower economic growth and lower 
wages for American workers.

    Policies focused on growth can help reduce these debt burdens and 
put the country back on a sustainable path. CBO estimates that adding a 
sustained one-tenth of one percent to GDP growth would reduce budget 
deficits by over $300 billion over a decade. A sustained increase in 
the growth rate of GDP of a full percentage point annually would reduce 
the budget deficit by $3.1 trillion over a decade.\21\
---------------------------------------------------------------------------
    \21\ Congressional Budget Office, ``The Budget and Economic 
Outlook: 2014 to 2024,'' p. 131 (February 2014).

    While government policy should do everything possible to encourage 
private sector growth, spending restraint is also a necessary component 
---------------------------------------------------------------------------
of ensuring that government finances are on a sustainable path.

    CBO's budget projections show annual government outlays increase by 
$2.3 trillion between 2014 and 2024. Spending on interest, Social 
Security and government health care programs account for 85 percent of 
this increase. By 2024, two-thirds of total federal spending will be 
devoted to interest, Social Security and government health care 
programs. Since interest costs are tied directly to the growing debt, 
reducing spending will require controlling the explosive growth of 
spending on Social Security and government health care programs and 
putting them on a sustainable path.
B. Strengthen Medicare and Social Security
    Modernizing Medicare and Social Security modernization is a 
critical element for ensuring fiscal stability and our country's 
prosperity.

    To ensure that future generations of American retirees can rely on 
the assurance of basic retirement security, changes are needed to 
strengthen the Medicare and Social Security programs.\22\ Our proposals 
would gradually bring changes into alignment with America's fiscal and 
demographic realities while fully protecting current retirees and those 
near retirement. Our goal is to preserve the safety net for future 
generations.
---------------------------------------------------------------------------
    \22\ Business Roundtable, ``Social Security Reform and Medicare 
Modernization Proposals'' (January 2013), available at: http://
businessroundtable.org/resources/social-security-reform-and-medicare-
modernization-proposals.

    Specifically, Business Roundtable supports gradually increasing the 
eligibility age for full benefits, updating the method of computing 
cost-of-living adjustments, implementing means testing for higher-
income recipients and expanding competitive models of care within 
---------------------------------------------------------------------------
Medicare.

    Acting sooner rather than later means the changes can be gradual, 
current retirees and those near retirement would be fully protected and 
the programs can be strengthened, which preserves the programs for 
future generations.
                      investment in infrastructure
    America relies on infrastructure that facilitates the movement of 
people, information, physical goods and financial assets that drives 
economic activity. Business Roundtable supports prudent public 
investments in infrastructure and policies that facilitate increased 
private investment.

    Despite its importance to virtually every aspect of economic 
activity, our public infrastructure is not up to the challenge. A 
recent survey of U.S. manufacturing leaders found that 65 percent 
believe our nation's infrastructure cannot meet the demands of a 
growing economy over the next 10 to 15 years.\23\
---------------------------------------------------------------------------
    \23\ Hart Research Associates/McLaughlin & Associates. Online 
survey conducted 05/29/13-06/28/13, and one-on-one interviews conducted 
in 05/13; as cited in National Association of Manufacturers & Building 
America's Future (March 2013). ``Infrastructure: Essential to 
Manufacturing Competitiveness'' (2013), available at: http://
www.nam.org/Data-and-Reports/NAM-BAF-Infrastructure-Survey/NAM-BAF-
Infrastructure-Survey.pdf.

    U.S. roads and bridges, for example, are in disrepair and suffering 
from chronic underinvestment. Of particular concern is the Federal 
Highway Trust Fund, the balance of which is expected to turn negative 
this year. In the absence of additional funding, rising expenditures 
and falling income will drive increasingly large Federal Highway Trust 
Fund deficits over the next 10 years. Public investment in the nation's 
infrastructure is steadily declining, falling from 3 percent of GDP in 
the mid-1960's to just under 1 percent of GDP today. Indeed, between 
2003 and 2012, the level of real public investment in infrastructure 
decreased by 11 percent.\24\
---------------------------------------------------------------------------
    \24\ Jeffrey Werling & Ronald Horst, ``Catching Up: Greater Focus 
Needed to Achieve a More Competitive Infrastructure'' (September 2014), 
Inforum Report to the National Association of Manufacturers, available 
at:
    http://www.nam.org/Issues/Infrastructure/Surface-Infrastructure/
Infrastructure-Full-Report-2014.pdf.

    That is why Business Roundtable believes Congress and the 
Administration should adopt policies that develop and maintain a world-
---------------------------------------------------------------------------
class infrastructure for the United States. That means:

   Providing consistent and reliable funding streams to support 
        infrastructure projects that are key to economic growth and job 
        creation;

   Enacting policies that better enable the private sector to invest 
        in infrastructure projects that lead to long-term economic 
        growth; and

   Streamlining the federal permitting process for all major 
        infrastructure projects.
                               conclusion
    Mr. Chairman, thank you again for the opportunity to discuss the 
challenges we face--and the solutions we support--to get our economy 
firing on all cylinders. Business Roundtable CEOs stand with you as you 
begin to take steps to put these policies in place. Like you, we 
believe that America's best days are ahead of it and that by acting 
today, we can help our nation achieve its full potential.
    I am happy to answer any questions you may have.
                                 ______
                                 

                   ACHIEVING AMERICA'S FULL POTENTIAL

          More Work, Greater Investment, Unlimited Opportunity

                                                       January 2015

                   Business Roundtable SM

                     More Than Leaders. Leadership.

                         2015 POLICY PRIORITIES

                     A Plan to Move America Forward

        TO REACH AMERICA'S FULL POTENTIAL AND CREATE GREATER 
        OPPORTUNITY FOR ALL AMERICANS, THE U.S. ECONOMY NEEDS TO FIRE 
        ON ALL CYLINDERS. THAT LEVEL OF PERFORMANCE REQUIRES PRO-GROWTH 
        POLICIES THAT FACILITATE BUSINESS INVESTMENT, WHICH DRIVES 
        PRODUCTIVITY GAINS, ACCELERATES ECONOMIC GROWTH AND PROMOTES 
        JOB CREATION.

        AMERICA'S BUSINESS LEADERS SUPPORT POLICIES THAT ENSURE THE 
        UNITED STATES IS THE BEST PLACE IN THE WORLD FOR PRIVATE SECTOR 
        INVESTMENT, EXPANSION AND HIRING--POLICIES THAT WORK FOR THE 
        ECONOMY AND THE AMERICAN PEOPLE.

        THE CEO MEMBERS OF BUSINESS ROUNDTABLE HAVE IDENTIFIED THE 
        FOLLOWING PRIORITIES AS THE BEST WAY TO ACHIEVE AMERICA'S FULL 
        POTENTIAL, AND WE URGE CONGRESS AND THE ADMINISTRATION TO WORK 
        TOGETHER TO ENACT THEM IN 2015:

     FISCAL STABILITY

     PRO-GROWTH TAX REFORM

     EXPANDED TRADE

     IMMIGRATION REFORM

     INVESTMENT IN PHYSICAL AND DIGITAL INFRASTRUCTURE

     SMART REGULATION

                            fiscal stability
While America's annual federal deficit has declined in recent years, 
the U.S. federal debt as compared to the nation's gross domestic 
product (GDP) remains at levels not seen since the end of World War II. 
Social Security, Medicare and interest on the debt will account for an 
increasing share of federal spending, crowding out other priorities and 
squeezing public investment. America needs long-term fiscal stability 
solutions that create the right conditions for sustained business 
investment, economic growth and job creation.
_______________________________________________________________________

 
        87%                   $3.11T                       2x
 
Share of American   Reduction in the federal   Ratio of publicly held
 voters who think    deficit over a 10-year     federal debt to GDP
 the current level   period attainable with a   doubled between 2007 and
 of the national     P1 percent increase in     2014.
 debt is Pstifling   GDP growth..
 the economy.
 

_______________________________________________________________________

POLICY RECOMMENDATIONS

Congress and the Administration should:

  Address the debt limit in a timely manner to allow for required 
        borrowing and to protect the full faith and credit of the 
        United States.

  Pass annual budgets on time and appropriate funds early enough in 
        the legislative session to allow for proper planning and avoid 
        disruptions to government operations.

  Constrain federal spending in a manner that reduces long-term 
        spending growth rather than imposing abrupt and arbitrary 
        reductions in near-term outlays, regardless of effectiveness or 
        priority.

  Strengthen Medicare and Social Security by gradually increasing the 
        eligibility age for full benefits, updating the method of 
        computing cost-of-living adjustments, implementing means 
        testing for higher-income recipients and expanding competitive 
        models of care within Medicare.
                         pro-growth tax reform
With the highest corporate tax rate in the developed world, America's 
outdated, anti-competitive business tax system frustrates business 
investment and limits both the potential of the U.S. economy and 
opportunities for American working families. Business tax reform that 
results in a modern tax system with competitive rates and competitive 
international tax rules may be the single most effective means of 
accelerating business investment, jumpstarting U.S. economic growth and 
boosting job creation.

America needs a simplified tax system that is permanent in law, 
minimizes the burden of compliance costs on individuals and businesses 
and enhances the competitiveness of all our enterprises, regardless of 
whether they are global or domestic.
_______________________________________________________________________

 
       39.1%                  +2.2%                       71M
 
U.S. combined       Boost to U.S. GDP after    Number of American jobs
 corporate tax       10 years if former         supported by U.S.
 rate, the highest   Representative Camp's      globally engaged
 in the developed    plan for comprehensive     companies.
 world.              tax reform were
                     Penacted..
 

_______________________________________________________________________

POLICY RECOMMENDATIONS

Congress and the Administration should enact pro-growth tax reform 
that:

  Sets the corporate tax at a competitive 25 percent rate;

  -  Domestic reform will require broad repeal of many of the so-called 
            ``tax expenditures'' to offset the revenue loss of the 
            corporate rate reduction.

  Adopts a modern international tax system (``territorial-type'' tax 
        system) that ends the double taxation of U.S. corporations' 
        foreign earnings and is consistent with the practices of 
        America's major trading partners;

  -  Reform of the U.S. international tax system should be accompanied 
            by appropriate safeguards to protect America's tax base, 
            consistent with the rules of our major trading partners.
                             expanded trade
With more than one in five American jobs supported by trade and 95 
percent of the world's consumers living outside of the United States, 
expanding U.S. trade opportunities is critical to support U.S. growth, 
well-paying American jobs and U.S. business investment.
_______________________________________________________________________

 
      1 in 5                    3x                        46%
 
More than one in    Trade-dependent jobs grew  Nearly half of all U.S.
 five U.S. jobs--    more than three times      goods exports go to the
 nearly 40           faster than the rate of    20 countries that have a
 million--are tied   overall U.S. job growth    free trade agreement
 to trade.           between 2004 and 2013..    with the United States.
 

_______________________________________________________________________

POLICY RECOMMENDATIONS

  Congress and the Administration should work together to enact 
        updated Trade Promotion Authority legislation as soon as 
        possible.

  The Administration should aggressively pursue and secure high-
        quality results in trade and investment negotiations, including 
        the Trans-Pacific Partnership, Transatlantic Trade and 
        Investment Partnership, Trade in Services Agreement, expanded 
        World Trade Organization Information Technology Agreement and 
        U.S. Bilateral Investment Treaty talks with China and India.

  Congress and the Administration should enact a multi-year 
        reauthorization of the U.S. Export-Import Bank to help U.S. 
        companies compete for sales abroad and support the U.S. jobs 
        that depend on those sales.

  The Administration should continue to implement reforms to outdated 
        U.S. export controls.
                           immigration reform
As business leaders representing every sector of the economy, Business 
Roundtable members understand the importance of fixing America's broken 
immigration system. Immigration reform, done right, will help keep 
America secure and is essential for a healthier economy--accelerating 
growth, encouraging hiring and creating American jobs.
_______________________________________________________________________

 
       $1.2T                  +4.8%                       40%
 
Reduction in the    Boost to U.S. GDP over 20  Percentage of Fortune 500
 federal deficit     years from enacting        companies that were
 over 20 years       immigration reform..       founded by immigrants or
 from enacting                                  their children.
 immigration
 reform.
 

_______________________________________________________________________

POLICY RECOMMENDATIONS

Congress and the Administration should:

  Enact reforms that welcome legal immigrant workers, including 
        increasing visas for higher-skilled workers and establishing a 
        new system for lower-skilled workers.

  Find a solution for undocumented immigrants that integrates them 
        into our society, including allowing those already residing in 
        the United States to earn a legal status.

  Improve the technological capability to enforce U.S. immigration 
        laws, ranging from increased resources for border security to 
        an E-Verify system for all U.S. employers.
           investment in physical and digital infrastructure
America relies on a platform of digital and physical infrastructure 
that facilitates the movement of people, information, physical goods 
and financial assets that drives economic activity.

Business Roundtable supports prudent investments in public 
infrastructure, policies that encourage increased private investment 
and a smarter, more agile approach to cybersecurity that protects the 
freedom to innovate and more effectively counters rapidly evolving 
threats.
_______________________________________________________________________

 
        65%                    -11%                       100%
 
Share of U.S.       Decline in public          Share of multinational
 manufacturing       infrastructure             corporations that have
 leaders who         investments between 2003   malicious traffic on
 believe U.S.        and 2012..                 their networks,
 infrastructure                                 according to a Cisco
 cannot meet the                                Systems, Inc.
 demands of a                                   examination of threat
 growing  economy                               intelligence trends.
 over the next 10-
 15 years.
 

_______________________________________________________________________

POLICY RECOMMENDATIONS

Congress and the Administration should:

  Adopt policies that develop and maintain a world-class 
        infrastructure for the United States, including by:

  -  Providing consistent and reliable funding streams to support 
            infrastructure projects that are key to economic growth and 
            job creation; and

  -  Enacting policies that better enable the private sector to invest 
            in infrastructure projects that lead to long-term economic 
            growth.

  Adopt policies to more effectively counter escalating cybersecurity 
        threats, including by:

  -  Providing tools to combat growing risks, including information 
            about potential threats and strong legal and privacy 
            protections for private sector information sharing 
            participants;

  -  Avoiding overly prescriptive regulatory solutions that are poorly 
            matched to a rapidly evolving threat environment and the 
            reality of privately owned and operated information assets; 
            and

  -  Integrating smart and agile cybersecurity policy into U.S. 
            relations with other countries, including trade 
            negotiations. Addressing cybersecurity and privacy concerns 
            need not and should not result in restrictions on the flow 
            of data across national borders that could fragment 
            information systems and slow global innovation.
                            smart regulation
Business Roundtable CEOs have consistently identified the cumulative 
burden of federal regulations as a major barrier to increased 
investment, growth and job creation. At the same time, well-conceived, 
science-based regulations are essential to protect human health and 
safety.

Business Roundtable supports smart regulatory policies that will ensure 
American businesses retain the capacity to operate and innovate, while 
promoting the health and welfare of employees, customers and 
communities.
_______________________________________________________________________

 
        6%                     41st                       48%
 
Share of major      U.S. rank out of 189       Percentage of Americans
 regulations         countries in terms of      who think there is ``too
 issued by           ease of construction       much regulation,'' up
 independent         permitting..               from 28 percent in 2002.
 regulatory
 agencies that
 received full
 cost-benefit
 analysis Pbetween
 2002 and 2013.
 

_______________________________________________________________________
POLICY RECOMMENDATIONS
Congress and the Administration should:

  Enact the Regulatory Accountability Act (RAA), which would modernize 
        the 70-year-old Administrative Procedure Act. The RAA would 
        require objective cost-benefit analyses for every major rule, 
        including those issued by independent agencies.

  Provide greater certainty for business planning by requiring public 
        transparency about all future regulations. The Administration's 
        Regulatory Agenda should be updated in real time to provide 
        this information.

  Require each agency to issue a notice of initiation for every new 
        regulation and put this information online. This will ensure 
        that regulatory agencies engage with stakeholders early, 
        allowing greater public input before regulators draft a 
        proposed rule.

  Streamline the federal permitting process for all major 
        infrastructure projects, in accordance with the recommendations 
        of the President's Council on Jobs and Competitiveness. 
        Currently, delays in federal approvals keep many worthwhile 
        projects in limbo, impairing business investment and risking 
        job creation.

_______________________________________________________________________
Business Roundtable SM
300 New Jersey Avenue, NW, Suite 800
Washington, D.C. 20001

202.872.1260

brt.org
                                 ______
                                 
Prepared Statement of Robert E. Hall, Ph.D., McNeil Joint Senior Fellow 
and Professor, Hoover Institution and Department of Economics, Stanford 
                               University
    Chairman Hatch, Ranking Member Wyden, and Members of the Committee, 
I am pleased to appear before you today to discuss the state of the 
U.S. labor market. I am an economist with a long-standing research 
program on the labor market and the overall performance of the U.S. 
economy. I am a past president of the American Economic Association and 
a member of the National Academy of Sciences.
         1. low employment growth despite falling unemployment
    At 5.6 percent in December 2014, the U.S. unemployment rate is back 
to normal. But the number of people at work is well below its 
historical growth path. Between 2011 and 2014, unemployed fell by a 
heartening 2.7 percentage points. This three-year decline was the 
second largest in the history of the unemployment survey, exceeded only 
by a decline in 1951 during the Korean War. But employment rose by only 
4.6 percent over those three years. Normal three-year employment growth 
during expansions with large declines in unemployment has been 7.1 
percent. The U.S. has suffered a severe employment shortfall despite 
the excellent progress in bringing unemployment back to normal since 
the depths of the Great Recession.

    Though the labor market is, overall, in normal conditions today, 
some imbalances remain from the financial crisis and deep recession. On 
the one hand, short-term unemployment--the fraction of the labor force 
who became unemployed within the past 6 weeks--is remarkably low. At 
1.6 percent, it is lower than ever before recorded. This measure of 
unemployment was 1.7 percent in the strong labor market of 2007, just 
before the crisis, when the overall unemployment rate was a robust 4.6 
percent, and was 1.8 percent in the even stronger labor market of 2000, 
when the unemployment rate was 4.0 percent. Another measure showing an 
exceptionally strong market is the average time taken by employers to 
fill jobs. Longer recruiting times indicate that the condition of the 
labor market is favorable to jobseekers and correspondingly more 
difficult for employers to match with those jobseekers. At 28 days, 
average duration is the same as in the strong market of 2007 and above 
the 26 days recorded in 2001, a year of low (4.8 percent) unemployment.

    On the other hand, long-term unemployment, a legacy of the wave of 
deep job loss from the crisis, remains above normal. In 2014, workers 
still searching after 6 months of unemployment accounted for 2.1 
percent of the labor force, down from a peak of double that level in 
2010, but above the normal level of about one percent of the labor 
force. Fortunately, long-term unemployment is on a fairly steep 
downward path and should reach normal soon. Another indicator showing 
remaining slack in the labor market is the fraction of workers who 
would choose full-time work if available, but are now on part-time 
schedules. At 3.0 percent, it is above its normal level of about two 
percent. It too is declining and should reach normal soon.

    Another indicator of that some economists bring into the diagnosis 
of labor-market conditions is the rate of increase of workers' pay. The 
Employment Cost Index of the Bureau of Labor Statistics is a 
comprehensive measure of pay, including fringe benefits, and 
incorporating adjustments for the changing composition of the 
workforce. Its recent rate of growth, in 2012 and 2013, has been just 
under two percent per year, below its average level from 2000 through 
2011 of 3.1 percent. Because the rate of growth of the cost of living 
fell by about one percent per year over the same period, growth in 
real, inflation-adjusted wages has been close to constant. Declining 
rates of productivity improvement have also been a drag on wage growth. 
The role of labor-market conditions in determining wage growth appears 
to be fairly small--over the period of stable, low inflation starting 
in 1985, the ECI grew by 3.6 percent per year in years of below-average 
unemployment and by 3.1 percent per year in years of above-average 
unemployment. Most of the fluctuations in wage growth arise from other 
factors, including productivity growth.

    My conclusion is that the U.S. labor market is back to normal in 
terms of unemployment, job-finding, and recruiting. The success of the 
our economy in repairing the damage in the labor market from the 
financial crisis is a tribute to the functioning of our market-based 
economy. U.S. success in restoring normal unemployment stands in sharp 
contrast to some major European economies, where unemployment remains 
high--in some cases, much higher than it ever reached here.
                   2. disappointing employment growth
    Many observers take the low rates of employment growth during the 
recovery from the Great Recession as a conclusive indicator of poor 
labor-market performance. My investigation suggests that the forces 
governing employment growth are more complicated. The starting point 
for the analysis is the simple observation that employment is the 
number of people desiring to work multiplied by the fraction of them 
who are working. Those desiring to work are called labor-force 
participants. They comprise the employed plus the unemployed. Thus 
unemployment is a central determinant of employment--if the number of 
participants is constant, employment fluctuates in the opposite 
direction from unemployment. On the other hand, if unemployment is 
constant, fluctuations in employment arise from fluctuations in the 
number of participants. With growth in the working-age population, it 
is customary to state these relationships in terms of the employment/
population ratio, the labor-force participation rate (participants/
population), and the unemployment rate (unemployment/participants).

    Thus the key to understanding the puzzlingly low growth of 
employment during the recovery from the Great Recession is the decline 
in the labor-force participation rate. Figure 1 shows the history of 
the rate for years since 1990. The working-or-searching fraction of the 
working-age population rose gradually during the 1990s, began to 
decline in 2000, flattened for a few years, then began falling 
dramatically starting in 2009.

    In the years immediately after 2009, the decline was generally 
interpreted as a response to the high unemployment of the Great 
Recession. In early recessions, small declines in participation 
occurred. But that interpretation is not tenable today, because the 
recovery of unemployment resulted in no recovery in participation. 
Rather participation fell by about the same amount per year while 
unemployment was rising, in 2009 and 2010, as when it was falling, in 
2011 through 2014. The evidence points unambiguously toward other 
forces, in addition to poor availability of jobs prior to 2014.

    The changing composition of the working-age population is one 
candidate to explain the decline in participation--the entry of the 
baby-boom generation to years of possible retirement decreased the 
participation rate. But another demographic trend, toward higher 
education, had the opposite composition effect, and the net effect of 
demographic change is essentially zero, according to research by Robert 
Shimer at the University of Chicago.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    Economists have pointed to the increasing role of the social safety 
net in the labor market over the years since the crisis as a source of 
declining participation. A bulge in the number of individuals receiving 
disability benefits is one aspect of this trend. The social security 
disability program discontinues support for claimants who start 
working, so those receiving benefits face a strong disincentive to join 
the labor force. A much larger bulge in the fraction of families 
receiving food-stamp benefits is a similar source of disincentive. Both 
bulges have failed to dissipate despite the recovery of normal job 
availability.

    Professor Nicolas Petrosky-Nadeau of Carnegie-Mellon University 
(currently on leave at the Federal Reserve Bank of San Francisco) and I 
have launched a research project aimed at understanding the forces 
leading to the decline in overall labor-force participation rate and 
variations around that rate in segments of the labor force. This 
testimony and the attached brief report are early results of the 
project.

    Table 1 shows the change in participation from the years of high 
participation, 1998-1999, to recent years, 2011-2013, broken down by 
age, sex, and two categories of household income (above or below the 
median). Income includes all cash earnings plus all cash benefit 
receipts. Teenagers had huge declines in participation in all four 
groups: men in lower and higher income households and women in those 
households. In most cases, the teenagers are not the major contributor 
to income. The most telling finding for teenagers is that for both men 
and women, the decline in participation was greater in the more 
prosperous families.

  Table 1: Changes in Labor-Force Participation Rates by Age, Sex, and
               Family Income,  From 1998-2000 to 2011-2013
------------------------------------------------------------------------
                              Men                        Women
                 -------------------------------------------------------
                   Lower half    Upper half    Lower half    Upper half
------------------------------------------------------------------------
Teenagers                -7.1         -15.6          -8.8         -15.9
 
20 to 34                 -4.4          -4.7          -1.9          -3.8
 
35 to 59                  1.4          -1.7           0.4          -0.9
 
60+                       4.7           2.8           3.9           8.9
------------------------------------------------------------------------

    Young adults, those aged 20 through 34, also had declines in all 
four groups, with about equal declines in the two income groups for men 
and larger declines for women in the more prosperous families. In the 
group containing the highest earners, those aged 35 through 59, 
participation remained about the same, with small increases in lower-
income families and slight decreases in higher-income ones. Among 
people of retirement age, 60 and above, men had moderate increases in 
participation, larger in lower-income families, while women had quite a 
large increase in participation in higher-income families and a 
moderate increase in lower-income families.

    The table makes it clear that a single force, such as low 
availability of work, is an unlikely candidate to explain the changes 
that occurred in participation. Rather, the changes seem likely to be 
different for people in different situations. Most of the decline in 
participation occurred among teenagers and young adults. The finding 
that these effects tend to be larger in more prosperous families points 
strongly away from much of a role for rising influence of benefit 
programs, because these programs, especially food stamps, are only 
available to families with incomes well below the median.

    Some indication about the changing balance between work and other 
uses of time comes from the American Time Use Survey, which began in 
2003. Table 2 shows the change in weekly hours between 2003 and 2013 in 
a variety of activities. For men, the biggest change by far is the 
decline of 2.5 hours per week at work, a big drop relative to a normal 
40-hour work week. A small part of the decline is attributable to 
higher unemployment--the unemployment rate was 6.0 percent in 2003 and 
7.4 percent in 2013. The decline for women is much smaller, at 0.8 
hours per week. For both sexes, the big increases were in personal care 
(including sleep) and leisure (mainly video-related activities). 
Essentially no change occurred in time spent in education. Women cut 
time spent on housework.

                 Table 2: Changes in Weekly Hours of Time Use, 2003 to 2013, People 15 and Older
----------------------------------------------------------------------------------------------------------------
                                Personal      Household
                                  care          work      Market  work    Education      Leisure        Other
----------------------------------------------------------------------------------------------------------------
Men                                   1.3           0.1          -2.5           0.2           1.3          -0.4
 
Women                                 1.6          -0.7          -0.8          -0.1           0.8          -0.8
----------------------------------------------------------------------------------------------------------------

                             3. conclusions
    The return to essentially normal unemployment conditions is an 
important milestone for the U.S. labor market. The period of abnormal 
difficulty for new job-seekers is over, and the legacy of long-duration 
unemployment appears likely to work itself out soon. In that respect, 
the labor market is performing well, especially in comparison to the 
markets of many other countries. No special policies related to 
unemployment and job-finding are indicated at present.

    The decline in labor-force participation is one of the factors 
contributing to the stagnation of the earnings of American families, 
especially those not enjoying the rising wages of the highly educated. 
But a study of the data on the decline does not suggest the 
desirability of policy changes focusing on reversing the decline. In 
particular, the data do not seem to support the view that the social 
safety net is discouraging participation--participation by those in 
low-income families has generally risen, not fallen. That said, the 
case for structural reform of some parts of the safety net, notably 
disability programs, remains strong, because reform promises payoffs 
apart from stimulating participation.
                                 ______
                                 

Changes in US Household Labor-Force Participation by Household Income *
---------------------------------------------------------------------------

    * This note is an early report on a research project on labor-force 
participation. Visit the authors' websites for updates. Opinions here 
are those of the authors and not the Federal Reserve Bank of San 
Francisco. We thank Canyon Bosler of the bank for excellent research 
assistance.
---------------------------------------------------------------------------

                             Robert E. Hall

             Hoover Institution and Department of Economics

                          Stanford University

                  National Bureau of Economic Research

            rehall@stanford.edu; http://stanford.edu/rehall

                        Nicolas Petrosky-Nadeau

                 Federal Reserve Bank of San Francisco

                     and Carnegie Mellon University

   nicolas.petrosky-nadeau@sf.frb.org; https://sites.google.com/site/
                            npetroskynadeau/

                            January 19, 2015
    The fraction of the working age population in the U.S. working or 
looking for work--the participation rate--decreased steadily from a 
high of 67 percent in the late 1990s to 64 percent in 2013. But the 
overall trend masks important differences in labor supply behavior 
across households of varying levels of income. The Survey of Income and 
Program Participation (SIPP) reveals that individuals living in the 
poorest households have bucked the trend--their participation in the 
labor market rose over the same period.

    Administered by the Census Bureau since 1983, the SIPP is a panel 
survey intended to provide comprehensive information on the income and 
program participation dynamics of individuals and households in the 
United States. The sample is selected to be representative of the 
civilian non-institutional population age 15 and over, and the survey 
collects detailed information on respondents' labor force activities, 
cash and in-kind income, wealth, and participation in government 
programs, as well as a wide range of demographic data.

    The federal government created the SIPP to remedy shortcomings in 
the existing survey data on household incomes and benefit-program 
dependence. Prior to the SIPP, the primary source of such data was the 
March Income Supplement to the Current Population Survey (CPS), 
administered by the Bureau of Labor Statistics. Among the major 
limitations of the March Supplement data was its reliance on 
respondents' ability to recall their income accurately over the prior 
year and its reliance on a single observation for each household, which 
prevented most analysis of the evolution of individuals' and 
households' income and program participation over time. The SIPP's 
design addressed these shortcomings by interviewing respondents every 
four months over the course of several years. The SIPP User's Guide 
(2001) provides additional information on the history and method of the 
survey.

    Figure 1 shows the participation rates of individuals 16 and older 
broken down by the total income of the household in which they live. 
Incomes are stated as ranges of percentiles, starting with the bottom 
10 percent of the income distribution and ending with the top 10 
percent. The data run from February 1996 through April 2013. In the 
latter period, the 10th-percentile group has incomes less then $935 per 
month. The next cut off, $1,740 per month, encompasses the lower 
quarter of U.S. household in terms of total income. The median 
household income is $ 3,360 per month, while the cut offs for the 75th 
and 90th percentiles are, respectively, $5,920 and $9,215 per month.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    The period we call 1998-1999 runs from December 1997 through 
November 1999 and the one we call 2011-2013 runs from May 2011 through 
April 2013. We chose these periods to avoid the times when one cohort 
of respondents is leaving the SIPP and another joining. In the bottom 
10 percent of households by household income, 33 percent of individuals 
participated in the labor market in 1998-1999. By 2011-2013 this 
proportion was 44 percent. At the other end of the household income 
distribution, the rate of labor market participation fell from 81 to 76 
percent. The largest decline was for individuals living in households 
in the third quartile of the household income distribution, where the 
participation rate fell from 74 percent to 68 percent. The total 
decline in participation between the two periods was quite similar in 
the SIPP and the CPS. The CPS does not collect data on household income 
comparable to the data collected in the SIPP.

    There is variation by age and sex in these trends. Table 1 reports 
the percentage point change in labor market participation rates for 
women and men of different age groups, and living in households in 
different quartiles of the household income distribution. Several 
striking feature appear in the table. First, the overall pronounced 
decline in participation of teenagers, from 46 to 33 percent, is 
concentrated in households in the upper half of the income 
distribution. Teenagers living in the 25 percent of households with the 
highest incomes had a 16 percentage-point decline in participation, 
compared to a 5 percentage-point decline for teenagers in the lowest 
quartile. Second, men and women aged 35 to 65 in the lowest income 
quartile increased participation substantially, by 8 percentage points 
for men between the ages of 35 and 50 and 11 percent for men in between 
the ages of 50 to 65. Third, the decline in labor market participation 
of prime aged workers is concentrated in household in the upper half of 
the income distribution. Finally, the overall increase in participation 
of individuals 65 years of age and over, from 13.7 percent to 18.2 
percent, is mostly attributable to the increased participation of 
individuals in the highest household income quartile.

               Table 1: Change in Labor Market Participation Rates: Age, Sex, and Household Income
----------------------------------------------------------------------------------------------------------------
                            1st                     2nd                     3rd                     4th
    Quartile     -----------------------------------------------------------------------------------------------
                      men        women        men        women        men        women        men        women
----------------------------------------------------------------------------------------------------------------
Teenagers               -3.3        -7.1        -9.6       -10.4       -13.5       -15.6       -16.9       -16.2
20 to 35                -2.0         1.5        -5.3        -4.1        -5.6        -5.9        -3.9        -2.0
35 to 50                 8.1         1.2        -0.2        -2.3        -1.5        -1.7        -1.0        -2.1
50 to 65                11.3         6.9         4.7         3.6        -0.4         3.3        -2.5         1.8
65 and over              3.0         1.4        -0.8         1.9        -0.2         4.4         6.2         8.7
----------------------------------------------------------------------------------------------------------------
Notes: Authors' calculations based on the SIPP. Each entry reports the difference in labor market participation
  rates between the average from December 1997 to November 1999, and the average from May 2011 to April 2013.
  The average cutoff for the ``2011-2013'' period for the first quartile is $1,740 per month, for the second $
  3,360 per month, and third $5,920 per month.

References

Bureau, C. (2001). Survey of Income and Program Participation User's 
    Guide (Third ed.). Rockville: Census Bureau.

Data
Household total income

The SIPP collects a total household income variable and eleven 
variables tracking different types of income at the household level. 
The eleven variables cover social security (thsocsec), supplemental 
security (thssi), unemployment compensation (thunemp), veterans' 
payments (thvets), food stamps (thfdstp), earned income (thearn), 
means-tested cash transfers (thtrninc), property income (thprpinc), 
public assistance (thafdc), noncash/in-kind income (thnoncsh), and 
``other'' income (thothinc). Total household income is the sum of the 
household-level earned, property, means-tested transfers, and ``other'' 
income variables.
Labor market status

Unlike the CPS, the SIPP constructs a comprehensive, week-by-week labor 
force history for all respondents, recorded on a weekly basis in the 
five variables rwkesr1-rwkesr5, with five different classifications:

(1) with job--working,

(2) with job--not on layoff, absent without pay,

(3) with job--on layoff, absent without pay,

(4) no job--looking for work or on layoff,

(5) no job--not looking for work and not on layoff.

This labor force history allow us to construct a CPS-style labor force 
classification for individuals in the SIPP. To do so, we classify 
someone as employed in a given month if their SIPP labor force status 
was 1 or 2 in the CPS reference week. For those whose SIPP status in 
the reference week was not 1 or 2 in the CPS reference week, we look at 
their status in the CPS reference week and the preceding three weeks. 
If during any of those weeks their SIPP labor force status was 3 or 4, 
they are classified as unemployed. If their SIPP labor force status was 
5 for all four weeks, they are classified as not in the labor force.
                                 ______
                                 
 Prepared Statement of Hon. Orrin G. Hatch, a U.S. Senator From Utah, 
                     Chairman, Committee on Finance
WASHINGTON--U.S. Senator Orrin Hatch (R-Utah), Chairman of the Senate 
Finance Committee, today delivered the following opening statement at a 
committee hearing on jobs and a healthy economy:

    Welcome everyone to the first hearing of the Senate Finance 
Committee in the 114th Congress. It is appropriately titled ``Jobs and 
a Healthy Economy.''

    Despite the numerous differences and disagreements that exist here 
in Washington, I believe that--regardless of our party affiliation--we 
can all agree that job creation and a strong, vibrant economy are good 
things.

    The Senate Finance Committee has a long tradition of effectiveness 
and bipartisanship. Given the size and scope of our jurisdiction, 
that's only appropriate.

    One of my main goals, as the new chairman of the committee, is to 
continue that tradition, to allow the committee to function and produce 
results as it has so many times in the past.

    That is why I chose this topic for our first hearing.

    Today, I hope we can have a discussion that will help us find 
consensus on these challenges, rather than highlighting our 
differences. I will be sorely disappointed if it devolves into yet 
another back and forth with each side trying to score political points 
rather than seeking solutions to the problems ailing our economy.

    The Finance Committee is uniquely equipped to address the 
challenges related to jobs and the economy. Indeed, our jurisdiction 
places us on the front lines of the most important debates we'll have 
in this effort.

    For example, we have jurisdiction over our nation's tax code.

    There is bipartisan agreement on the need to fix our tax system to 
help hardworking taxpayers and allow businesses to grow, compete, and 
create more jobs. Our current tax code creates numerous unnecessary 
roadblocks that stand between us and sustained economic prosperity.

    For these reasons, I have made tax reform my highest legislative 
priority for this Congress.

    Over the past few years, I have been working to make the case for 
tax reform on the Senate floor, in public appearances, in written work, 
and in private conversations. I'm going to continue to do so.

    Recently, Ranking Member Wyden and I set forth the first steps for 
tax reform in the 114th Congress. We created five working groups, all 
assigned to study different areas of tax reform and come up with 
proposals that we will then use as we work on bipartisan tax reform 
legislation.

    We have a number of great Senators on this committee who are just 
as committed to tax reform. I look forward to seeing the results of 
their work. We need to get this done. I'd like to ask each of the 
witnesses on our panel to use at least some of their time during their 
opening statements to give us specific ideas on how we can improve our 
nation's tax code.

    Another area of the committee's jurisdiction that is essential to 
job growth and a healthy economy is international trade.

    The United States has a long tradition of breaking down barriers 
and providing access for American goods and services in foreign 
markets. This has been great for our economy and must continue into the 
future.

    Ninety-five percent of the world's population and 80 percent of its 
purchasing power reside outside of the U.S. For our job creators to 
compete on the world stage, we must ensure that they have greater 
access to this ever-growing customer base.

    Toward that end, Congress needs to renew Trade Promotion Authority 
(TPA) in short order. This is also something that we need to get done. 
I am engaged with Senator Wyden to find a path on TPA that will provide 
the best opportunities for TPA to succeed. I hope we will be able to 
complete our work soon.

    The Obama Administration is currently engaged in some of the most 
ambitious trade negotiations in our nation's history. The ONLY way for 
Congress to effectively assert its role in these negotiations and the 
ONLY way to get trade agreements that reflect the highest standards is 
through TPA.

    I'd like to ask each of the witnesses on our panel whether they 
think trade is important to the expansion of economic opportunities and 
the development of a healthy economy and to include their answer in 
their opening statements.

    The Finance Committee's jurisdiction expands beyond tax and trade 
into other areas that impact jobs and the economy and economic security 
of American households.

    We have growing health care costs that continue to put strains on 
employers and hardworking taxpayers.

    And, we have a growing entitlement crisis that threatens to swallow 
up our government and take our economy down with it.

    All of these issues impact jobs and the economy. And all of them 
are important.

    I hope we can have a robust conversation today on what the 
committee and Congress can do to address these important issues. Like I 
said earlier, I also hope that we can avoid having a partisan back and 
forth that yields no productive answers or discussion.

    Of course, that doesn't mean critiques of any policy or proposal 
should be considered out of bounds. Nor does it mean that we shouldn't 
have a spirited debate on the issues. But, I do hope that, whatever 
questions we ask or statements we make, we will stay focused on gaining 
a better understanding and on the goal of creating jobs and promoting a 
healthy economy.

    I'd like to take a moment now to recognize that we have some new 
members of the committee: Senators Heller, Coats, and Scott. I want to 
once again welcome them to the Finance Committee and say that I look 
forward to their participation in this hearing and others in the 
future. I have no doubt that each of their contributions will be 
valuable to our efforts.

    Finally, I also want to note that, at any point during the hearing 
that we have a quorum present, I plan to move to Executive Session to 
formally organize the committee, which will include some routine 
matters, such as organizing subcommittees and formalizing a specific 
change to the committee rules.

    With that, I'll turn it over to Ranking Member Wyden for his 
opening statement.
                                 ______
                                 
Prepared Statement of Justin Wolfers, Ph.D., Fellow, Peterson Institute 
  for International Economics, and Professor of Economics and Public 
                     Policy, University of Michigan
    Chairman Hatch, Ranking Member Wyden, and Members of the Committee, 
thank you for inviting me to speak with you today on the important 
issues of job creation and a healthy economy. Before continuing, let me 
add the obvious disclaimer that I am only speaking for myself.
                          an improving economy
    From a macroeconomic perspective, the labor market recovery is 
robust. In 2014, non-farm payrolls grew by an average of 246,000 jobs 
per month, the fastest rate not only through this recovery, but also 
the fastest rate since 1999.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    It finally appears that the recovery has developed reliable 
momentum. Aggregate GDP statistics also bear this out, although they 
suggest that rates of economic growth through the recovery are better 
described as moderate--typically in the 2-2\1/2\ percent range. The 
juxtaposition of moderate GDP growth and robust employment growth 
reflects the fact that productivity growth has been a bit slow through 
the recovery.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    Even so, robust job growth has led the unemployment rate to fall 
from nearly 10 percent through most of 2010, to 5.6 percent at the end 
of 2014. This means that over the past four years, the unemployment 
rate has fallen by about one percentage points per year, a rate far 
faster than most economists had envisioned and faster than has 
historically been typical for an economic recovery.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    If unemployment continues on its current trajectory, unemployment 
will have fallen to around 5 percent by the middle of this year, which 
is a rate that many economists consider to be ``normal.''
                          unfinished business
    As much as there is good news about the direction and rate of 
change of our broad macroeconomic aggregates, we should not confuse 
this with the fact that the level of activity remains below potential. 
The economy is improving, but it is not yet doing well.
    For instance, the level of output remains substantially below the 
economy's long-run potential.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    And while the current level of unemployment at 5.6 percent is far 
better than it was a few years ago, this is not the sort of outcome 
that has historically been regarded as cause for celebration. Indeed, 
today's 5.6 percent unemployment rate is roughly the same as its 
average throughout the post-war period (5.8 percent).
    Even as unemployment has fallen toward the sorts of levels that 
many economists regard as effectively being ``full employment,'' I 
would caution against declaring ``Mission Accomplished'' too early. 
While unemployment has fallen sharply, the proportion of the population 
with a job--which is sometimes called the employment-to-population 
ratio--has not risen much at all.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    Should we feel buoyed by the almost-complete recovery in the 
unemployment rate, or depressed by the minimal recovery in the 
employment-to-population ratio? Mechanically, the different patterns 
shown by these two indicators reflect a decline in the labor force 
participation. In turn, this suggests that the extent to which you 
consider the recovery unfinished business depends on the extent to 
which those who left the labor force in recent years would be willing 
to work if sufficient opportunities for meaningful work were available.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    The decline in labor force participation since 2000--and its 
steepening decline since 2008--is rather remarkable, coming as it does 
after decades of a rising participation. That rising participation had 
reflected the entry of women into the workforce, a phenomena which 
slowed in the 2000s and will likely require policy action such as 
adopting paid parental leave and other family-friendly policies in 
order to see further large gains.

    The more recent decline in participation reflects both cyclical and 
structural factors. Most economists agree that at least half of the 
decline in labor force participation since 2007 is due to population 
aging, and this has become a particularly important force as the 
leading edge of the Baby Boom cohort hit age 62 in 2008. This is just 
the beginning of a longer-run demographic shift that will continue to 
push the participation rate down over the next fifteen years as the 
rest of the Baby Boomers enter prime retirement age.

    While demographics explains half of the decline in participation, 
the factors responsible for the other half remains unclear, as this 
remains a contested issue, and there is no shortage of economists with 
their own preferred explanations.

    It remains possible that much of this may reflect the ongoing 
effects of the recent recession which led many discouraged workers to 
simply stop looking for a job. If this interpretation is correct, then 
today's depressed labor force participation rate disguises a ``reserve 
army'' of unemployed, who will return to the workforce when jobs become 
plentiful. By this view, the recovery still has a long way to run, and 
policy should be focused on ensuring that the recovery is long and 
strong enough to get these folks back to work.

    The view that today's low participation rates partly reflect hidden 
unemployment is consistent with my own preferred interpretation, which 
is based on the evidence that that cyclical downturns continue to 
depress labor force participation for several years after the ensuing 
recovery. By this view, today's weak participation partly reflects the 
weak economy two, three, four or even five years ago. If this view is 
correct--and there is evidence from state business cycles to support 
it--then we are still some distance from full employment, and an 
ongoing economic recovery will lead participation rates to rise 
moderately over the next year or two.

    Beyond this specific view, the more important point is that the 
understanding of economists about what constitutes full employment 
remains quite imprecise, and there is substantial uncertainty about how 
much farther this recovery can continue without igniting inflationary 
pressures. If the recovery continues, we may end up learning that the 
economy can sustain not only higher labor force participation, but also 
an unemployment rate of four-point-something percent, rather than five-
point-something. Certainly, the 1990s suggests that this may be 
achievable. If there is uncertainty about what the economy can achieve, 
policy should err on the side of exploring whether better outcomes are 
possible.

    Let me now shift my focus from the relative short run, and move to 
raising some longer-run issues.
                         long-term unemployment
    Historically, the United States had a highly fluid labor market, in 
which millions of people were hired and fired each month. The result 
was that losing your job was not a catastrophe, as there were plenty of 
new opportunities. Accordingly, so a typical spell of unemployment 
would only last a matter of weeks, before a motivated worker could find 
another job. In turn, this meant that the burden of unemployment on any 
individual was not too great, as even a five percent unemployment rate 
meant that many people were each spending just a few weeks or months 
unemployed.

    Yet following the Great Recession, the burden of unemployment 
became a lot more concentrated, as the average duration of unemployment 
rose sharply. Today we measure unemployment spells in months or years, 
rather than in weeks. Instead of many people sharing the burden of 
short unemployment spells, today's unemployment is due to far fewer 
people each bearing the burden of many months or years of unemployment. 
Beyond the strains on their own lives, this may also have long-term 
macroeconomic consequences, as a long spell of unemployment leads 
people to lose skills, connections and hope, leading to the possibility 
that there will be a group that may never work again--at least without 
intensive assistance. This raises the likelihood that a complete 
recovery from this recession will require much more intensive job 
assistance in order to help the very long-term unemployed return to 
work.

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    The good news is that much of the rise in long-term unemployment 
(defined as having been jobless for at least six months) has declined 
as the recovery has progressed. But beyond the business cycle ups and 
downs, there has been a slow-moving trend over many decades toward 
rising levels of long-term unemployment. Even if current rates of long-
term unemployment return to their pre-recession trend, it will still 
comprise 1.2 percent of the labor force.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    Given that widespread long-term unemployment is so new, it is 
little surprise that our labor market and training programs are not 
well-adapted to dealing with this issue.

    Following the financial crisis, Congress passed Emergency 
Unemployment Compensation, extending the number of weeks for which 
jobless workers could claim unemployment insurance. Subsequent research 
has shown that this actually helped the long-term unemployed remain in 
the labor force and supported their job search.

    Congress should consider making this process of extending benefits 
automatic for future downturns of sufficient severity. Such a move 
would both remove the need for specific congressional action (which 
often comes with a lag), and a well-crafted formula would also offer 
Congress the assurance that such extensions would disappear when 
business cycle conditions returned to normal.

    Indeed, let me expand on this theme a bit, by raising the 
possibility of using such automatic stabilizers more aggressively.
            preventing future recessions and an increasing 
                     role for automatic stabilizers
    The most recent recession has highlighted an important shortcoming 
in relying on the Federal Reserve to manage the business cycle: When 
interest rates hit zero, there is limited scope for further monetary 
action to stimulate the economy. Indeed, we now understand that in a 
low inflation environment, it is very difficult for the Fed to engineer 
the sorts of sufficiently low real interest rates that may be required 
to offset adverse economic shocks.

    This suggests that it may be important to build more automatic 
stabilizers into our economy. We already have some automatic 
stabilizers built in, such as a progressive tax system, which means 
that when income falls, so too will tax rates. Likewise, some federal 
programs, like the Unemployment Insurance Extended Benefits provide 
needed income that lead to increased spending during periods of high 
unemployment.

    This idea of building in a counter-cyclical spending pattern is one 
which Congress could expand substantially, building formulae into an 
array of federal programs that would raise spending during periods of 
slow economic activity, and lower spending during periods of stronger 
activity. I have already raised the idea that the Emergency 
Unemployment Compensation program could be put in place so that it is 
automatically triggered whenever long-term unemployment rises again in 
the future. But the idea is far more broadly applicable, and similar 
triggers could be built into programs ranging from federal highway and 
infrastructure spending, to Pell grants, to making block grants to 
states for TANF responsive to economic conditions.

    Not only would the automaticity of these mechanisms minimize the 
legislative lags that often undermine fiscal stimulus, but they would 
increase spending precisely when the value of that spending was highest 
and curtail spending as the value falls. And the use of formulae would 
allow the debate about how best to respond to cyclical changes to be 
divorced from the very different debate about how much should be spent 
on each of these programs.

    Automatic stabilizers also have important benefits beyond the role 
they play in taming the business cycle. By concentrating federal 
spending during periods when the economy is weak, the federal 
government will be hiring precisely when there is the greatest amount 
most slack resources, meaning that it competes less with the private 
sector for scarce resources. The result is that federal spending would 
be targeted for those times when the cost of hiring workers is lowest.
            rising inequality and the role of the tax system
    For much of U.S. history, the presumption was that economic growth 
would deliver rising well-being for a broad swathe of the population. 
Yet two important trends have undermined that view.

    First, real wages have not risen by much, even as productivity 
continues to grow. The result is that labor's share of national 
income--the proportion of our economic pie that goes to workers in the 
form of wages--has declined sharply over recent decades, suggesting 
that firm owners, rather than workers, are enjoying the fruits of 
economic growth.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    And second, beyond the shift in the functional distribution of 
income between labor and capital, there has been a sharp rise in 
overall income inequality, even within labor or capital earnings. As 
the following chart shows, economic growth raised incomes in roughly 
equal measure for both rich and non-rich from 1947 through to 1979. But 
since 1980, economic growth has delivered large average rises in income 
for the top 10 percent (and much of that was concentrated in the top 1 
percent), but it has yielded very little for the remaining 90 percent.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    If these are the outcomes that our current market system is 
delivering, it suggests a potential role for the tax system in ensuring 
that the fruits of economic growth are more broadly shared. While the 
two major political parties are locked in a debate about the optimal 
size of government, and how large aggregate tax collections should be, 
this raises a conceptually distinct question, which is how best to 
distribute that tax burden. This is a debate that can occur even 
without shifting the overall tax burden. Higher taxes on the few who 
have enjoyed unusually strong returns, if it leads to lower taxes on 
many other workers, may even enhance overall incentives for productive 
activity, while also reducing inequality.
                         investing in education
    For much of the past century, economic growth and opportunity in 
the United States have been supported by rising levels of education. 
Typically, each generation of Americans got around two more years of 
education than their parents. Yet in the past few decades, this trend 
has slowed dramatically, and virtually halted for men. Indeed, the 
current crop of 30-year old men are barely more educated than their 
parents were.

 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]  

    The ``high school movement'' in the early twentieth century led to 
a substantial expansion of secondary education. And while I recognize 
that these issues lie largely outside the committee's jurisdiction, I 
think it nonetheless important to make the case that now is the time 
for a broader ``college movement,'' which makes both two-year and four-
year colleges more widely available.

    The President's proposal to expand access to community college 
seems like a natural first step in this agenda. But this is an agenda 
that would also benefit from four complementary reforms. First, college 
readiness remains an important barrier for many students, and an 
emerging body of evidence suggests that the roots of these gaps arise 
in early childhood. This suggests that investments in pre-K education 
may help also yield better long-run outcomes. Second, while there are 
some excellent tertiary institutions, far too many of them--and far too 
many in the community college sector--yield low-quality education, and 
result only in students dropping out from colleges. The sector needs to 
be reformed, with an emphasis on raising the quality of community 
college education, providing more support for struggling students, and 
the federal government should stop funding under-performing tertiary 
institutions. Third, a variety of innovative education programs have 
shown that even very small low-cost nudges--such as help in navigating 
FASFA, a text message to remind you of your deadlines, a personalized 
letter letting you know that a high-quality college education may 
actually be affordable given the array of funding opportunities 
available--can have very large effects. Successful programs should be 
scaled up, and federal grants should be made for ongoing innovation in 
simplifying the college application process, and making the relatively 
low cost of college substantially more transparent. And fourth, the 
expensive big-ticket items, like the Hope Tax Credit, the Credit for 
Lifelong Learning, and the American Opportunity Tax Credit, are 
potentially useful, but should be tightly tailored to families most in 
need, both because that is where the college attendance gap is the 
largest, and also because this is where extra federal dollars are most 
likely to have their largest affect. Moreover, these credits are most 
likely to be effective if coupled with the sorts of information 
campaigns and nudges I just mentioned.

    Labor markets and a healthy economy are of paramount importance to 
the health, happiness and well-being of all Americans, and I appreciate 
the opportunity to share my assessment with you today.
                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon

    Thank you, Mr. Chairman. On behalf of all of us on this side of the 
dais, I want to join in welcoming the new members of our committee, 
Senators Coats, Heller, and Scott. In particular, I have spent a lot of 
time working on tax reform with Senator Coats, and I hope to build on 
that work.

    Senator Hatch knows that the best legislation is bipartisan 
legislation, and his record of accomplishment reflects that 
understanding. We are grateful for his extraordinary service to the 
Senate and the people he represents, and we look forward to working 
under Chairman Hatch's leadership and with all of our Republican 
colleagues.

    Now on to the matter at hand.

    Seven years after the economic collapse shook the American economy 
to its core, our recovery has improved from a crawl to a walk. Too many 
middle-class Americans--pounded by decades of flat wages--are still 
struggling to make progress. Here's my bottom line: When working 
families see bigger paychecks, America's economic recovery will go from 
a walk to a run.

    Over the last few weeks, I've spent a lot of time talking with 
workers and businesses in Oregon about the challenges they're facing 
seven years after the start of the Great Recession. Just this weekend, 
I held town halls in Klamath, Josephine and Lincoln counties. And to 
me, it's clear as day that there are still a lot of Oregonians waiting 
for the economic recovery to kick in for them.

    For Oregon's middle class, moving the recovery from a walk to a run 
comes down to the five T's. Tech jobs, tax reform, trade done right, 
transportation and timber. Every senator on this committee could tick 
through a similar list for his or her own state, and without question, 
there would be a lot of overlap.

    There are lessons to learn from our own history as policymakers 
work to strengthen the foundations of the American economy. Seventy 
years ago, after winning World War Two and making the long, slow climb 
out of the Great Depression, the United States took bold, new steps to 
build a thriving middle class.

    Congress came together and expanded access to education. It 
connected every corner of the nation--from Portland, Oregon to 
Portland, Maine, from Los Angeles to Miami--with the world's best 
infrastructure. Over time, it reformed the tax system to better fit the 
day's economy, and it found opportunities in markets abroad for 
American manufacturers to seize.

    Those policies helped power an economic boom that grew working 
Americans' paychecks for decades. Year after year, people felt 
confident that their children's generations would do better than their 
own.

    True economic recovery today will restore that confidence. It will 
mean more jobs with a clear ladder to the middle class--jobs in which 
workers can support their families, build their savings, and send their 
children to college--jobs that don't leave families stretching every 
paycheck, month after month.

    So in my view, there's one question for us to ask ourselves with 
every bill we introduce and every vote we take in Congress: ``How will 
this grow the American worker's paycheck?''

    As this committee comes together to overhaul the tax code, we have 
to ask, ``How will this grow the paycheck?''

    As this committee takes on America's infrastructure crisis, we have 
to ask, ``How will this grow the paycheck?''

    As this committee works on getting more students in the door to 
college, we have to ask, ``How will this grow the paycheck?''

    And as this committee finds ways to make American businesses more 
competitive and successful in a cutthroat global economy, we have to 
ask, ``How will this grow the paycheck?''

    The Finance Committee will have a starring role in many of the 
policy debates Congress is expected to tackle over the coming months 
and years--perhaps more than any other committee on Capitol Hill. So 
there will be many opportunities for us to come together on a 
bipartisan basis to ensure that working Americans are sharing in the 
recovery and getting bigger paychecks.

    I know I speak for the Democrats on the committee in saying that we 
look forward to working together to accomplish this goal.
                                 ______
                                 

                             Communications

                              ----------                              

                Statement for the record on behalf of: 
                           Coalition for GSP

                  1001 Connecticut Ave., NW Suite 1110

                          Washington, DC 20036

                              202-347-1085

The Coalition for GSP welcomes the opportunity to submit the following 
statement for the ``Jobs and a Healthy Economy'' hearing record.

The Coalition for GSP is a group of American companies and trade 
associations organized to educate policy makers and others about the 
important benefits to American companies, workers, and consumers of the 
Generalized System of Preferences (GSP) program. Its members range from 
small, family-owned businesses to Fortune 500 corporations and operate 
in all 50 states, the District of Columbia, and Puerto Rico.

Implemented in 1976, the Generalized System of Preferences (GSP) is a 
special trade program that eliminates U.S. import duties on certain 
products from about 125 developing countries. Over time, American 
companies have come to rely on the GSP program to lower costs for 
inputs needed to produce goods in the United States and finished 
products for American families. Lower costs spur demand and allow 
companies to create good-paying American jobs.

However, GSP expired on July 31, 2013 and Congress has not yet passed 
legislation to renew it. As a result, American companies have paid 
nearly $2 million a day--and more than $1 billion to date--in higher 
taxes while awaiting congressional reauthorization of the GSP program. 
The mounting costs and uncertainty surrounding when GSP might be 
renewed have had a chilling effect on companies' ability to grow, or 
even maintain, their workforce. Of course, workers--both existing and 
potential--feel the effects of this negative business environment.

The Coalition for GSP surveyed hundreds of U.S. GSP program users in 
2014 and found that:

   44% of companies have delayed planned hires. For example, Kana 
        Bicycle in Washington has been unable to hire new R&D and 
        product development personnel, while Varaluz in Nevada and 
        McGuire Manufacturing in Connecticut cannot afford to replace 
        workers that have left voluntarily because of higher costs 
        resulting from GSP expiration.

   40% of companies have delayed or canceled job-creating investments. 
        B&C Technologies bought a facility to begin manufacturing in 
        Florida by April 2015, but it cannot afford the necessary 
        building upgrades to create those American manufacturing jobs 
        as planned because of higher costs imposed by GSP expiration.

   22% of companies have cut employee wages and benefits. The cost of 
        import duties has cut into the monies available to Stackhouse 
        Athletic in Oregon to pay for health care, forcing the company 
        to cut health care benefits for its nine workers.

   13% of companies have laid off workers. Matrix Metals laid off 75 
        workers at facilities in Iowa and Texas, while Vispak LLC in 
        Minnesota is going out of business completely because higher 
        production costs resulting from GSP expiration have made the 
        companies uncompetitive.

The full report, which includes many other company-specific examples, 
can be downloaded at http://bit.ly/GSP1Year. As those examples show, 
higher costs resulting rom GSP expiration affect both the quantity and 
quality of jobs in the U.S. economy. Some workers are laid off, while 
others never get an opportunity to work in the first place. Those with 
jobs often face benefits or salary cuts.

In a complex global economy, the best means for supporting American 
jobs and fostering a healthy economy may not be clear. Even when 
Members of Congress agree about the best path forward, they may not 
have the ability to implement the desired policies. That is not the 
case for GSP: Congress has the ability to eliminate the import taxes 
and mitigate past damages by passing an immediate, retroactive GSP 
reauthorization. Renewal has bipartisan support in both the House and 
the Senate. In this sense, renewing the GSP program should be ``low-
hanging fruit'' for Congress as it seeks ways to improve the US job 
environment.

More than 660 American companies and associations have joined the 
Coalition for GSP's call for Congress to do just that. The ever-growing 
list of organizations can be viewed at http://bit.ly/GSPsupporters. 
About 30 of them have provided brief statements (below, grouped by 
state) for this submission on the negative job impacts of GSP 
expiration and/or the potential jobs benefits of a retroactive renewal.

If you have further questions about the impacts of GSP expiration on 
American companies, or would like to follow up with any of the 
companies that provided statements below, please contact Daniel Anthony 
at the Coalition for GSP at Anthony@trade2artnership.com or 202-347-
1085.

The Coalition for GSP looks forward to working with the Finance 
Committee leadership on a bipartisan basis to pass an immediate, 
retroactive GSP renewal.

Zack Stenger, Owner of Blackbeam LLC in San Francisco, California: The 
GSP renewal would allow us to hire three sales and office-related 
employees for our growing small business.

Bruce Marlin, Purchasing Manager at Circa Corporation in San Francisco, 
California: As a rare, surviving U.S. manufacturer of leather goods, it 
is essential to us that GSP be renewed. Our competitors manufacture 
primarily in China and India, and we need as level a playing field as 
possible to remain viable as a U.S. domestic manufacturer.

Shaun Shroff, Vice President of DuraBrake Co. in Santa Clara, 
California: We would be able to reduce dependence on production in 
China and would be able to increase business on the East Coast. We 
would be able to hire two sales people on the East Coast as pricing 
would be competitive.

Peggy Altfater, Owner of Peggy V Designs in Petaluma, California: My 
business is a sole proprietorship. My sales have declined because I 
have needed to raise my prices on my product that no longer has GSP 
status. My job is in dire straits at this time because of price 
increases so I am asking you to please renew the GSP.

Jeffrey Tunstall, Vice President at Port Plastics in Chino Hills, 
California: Our company imports a substantial amount of materials from 
qualified GSP countries. Our total sales were down 7 percent in 2014 
while the economy grew an estimated 2.4 percent. We believe the 
downturn in our business is solely due to the higher costs of our 
products as a result of the GSP program not being renewed. This 
downturn in our business has resulted in our being forced to reduce a 
number of employees.

Fred Cohen, Owner of Omicron Granite & Supplies in Pompano Beach, 
Florida: The failure to renew the GSP has cost my company over $100,000 
per year in additional taxes, which has kept me from hiring at least 
two more workers. Please renew the GSP and make it retroactive.

Peter Allen, President of Royal Tropics, Inc. in McCall, Idaho: The GSP 
expiration and the uncertain return has caused my small company a 
hardship in the sense that the extra funds we have paid in duties has 
caused us to hold back on some planned expansion of our business. With 
the needed expansion we would be able to hire additional employees as 
well as fund some additional equipment. The GSP program is very 
important for small business in the U.S.

Brendan Naulty, Senior Vice President at Ajinomoto North America Inc. 
in Itasca, Illinois: The impact of non-renewal of GSP impact for 2014 
on Ajinomoto North America has been $690,678. This has put this 
business segment into a red figure for 2014. Therefore we could not 
expand our workforce or reinvest profits into other businesses. We 
would greatly welcome retroactive renewal, which would enable us to 
initiate capital projects that have been postponed due to availability 
of funds and uncertainty about the stability of this business segment.

Kelly Weinberger, Owner at WorldFinds Fair Trade in Westmont, Illinois: 
Our fair trade organization has been badly hurt by the non-renewal of 
GSP. A retroactive renewal would help create jobs in our US office, as 
well as to provide more work to our low-income women artisan groups in 
the developing world.

Jim Angers, Partner at K2 Coolers LLC in New Iberia, Louisiana: We paid 
$79,000 in duties in 2014. We need to hire an additional warehouse 
worker and the duties are impacting our margins to the point of causing 
us to delay hiring.

Damian Jones, Designer & Founder at Aid Through Trade in Annapolis, 
Maryland: Our 22 year old fair trade company has depended on GSP since 
our inception. The current lapse and uncertainty makes it hard for me 
to have the confidence I need to invest and hire. Retroactive GSP 
renewal would give me cash and confidence to hire and invest.

Lisa Johnson, Vice President at COLE-TUVE, Inc. in White Marsh, 
Maryland: We sorely need renewal of the GSP so that our company has the 
chance to get back on track. Among other penalizing set-backs (such as 
limiting labor), we have not been able to raise our prices to account 
for this increase as we could not do that and stay competitive. Our 
capital is just about gone, and getting the GSP retroactively approved 
will allow us to reinvest resources back in to the business, to get 
beyond playing catch up and grow along with the prospects of a growing 
manufacturing sector.

Richard Harris, President of Accessories Unlimited in North Harwich, 
Massachusetts: Since the cancellation of GSP we have had our fixed 
margins reduced between 5 and 6 percent. We cannot raise our prices as 
they are set by our suppliers. We can cut corners where we can. We need 
employees on a full time basis, but have had to hire them on a part 
time basis and not hire the type of personnel we need to improve our 
business.

Steve Hill, Vice President at Polysource in Pleasant Hill, Missouri: 
The most damaging result of nonrenewal is the impact it has on U.S. 
manufacturers of global consumer goods. GSP allows U.S. manufacturers 
to take advantage of certain raw materials throughout the world that 
allows them to sell worldwide resulting in jobs and tax revenue. The 
impact on Polysource has limited our ability to compete and hire. We 
could easily justify the inability to hire for two new professional 
positions with full benefits if we had not experienced a loss of over 
$500k in the last 18 months.

Robert J. Murray, Operations Manager at General Carbon Corporation in 
Paterson, New Jersey: The lack of renewal of the GSP has caused General 
Carbon to limit its search for new hires. If the GSP was renewed and 
the duties refunded we would be in a much better position concerning 
new hires and improving the overall future of General Carbon. It may 
also lead us to make capital improvements to our facilities that we 
have been delaying to make pending the GSP renewal.

Gert van Manen, President of iTi Tropicals Inc. in Lawrenceville, New 
Jersey: We have paid $800,000 in duties since GSP expired and we are 
not charging our customers for this for various reasons, mainly we 
believe that it will be reinstated retroactively as it always has been. 
If this is not the case it will have serious consequences for our 
company. We are a small business with 25 people on payroll in business 
for 26 years.

Benny Nabavian, President of EORC in Farmingdale, New York: We are a 
very small company and the GSP expiration is really hurting our cash 
flow and income. Every penny counts in our business, especially in the 
current economic conditions. It is a question of survival for us.

Gabriel Khezrie, President of Fremada Gold Inc. in New York, New York: 
Due to the softness of the jewelry business in general, there has been 
tremendous pushback by our customers. They will not accept the 
additional price increases to accommodate the 5.71 percent tariffs that 
were never part of our pricing equation. This has led to less billings 
at our company. Accordingly we have had to let some staff go.

Benjamin Justman, Royal Chain in New York, New York: Restoration of GSP 
will have a huge positive effect on our company. We will be able to 
reinstate some of the business lost to competition. Some customers have 
stuck with us based on our promise that we will refund the duty paid if 
GSP is renewed retroactively. Going forward, we will be able to rehire 
personnel that were laid off, as well as expand our business.

Nenad Milinkovic, Vice President at Vail International Corp. in New 
York, New York: Lack of GSP Renewal has precluded our company from 
hiring additional personnel, and we are now at a point facing layoffs 
for some of our workforce. We have been trying to hang in there in 
anticipation of the renewal, but this prolonged expiration has now 
placed a very serious financial strain on our business.

Scott Ferguson, President of CCS USA, Inc. in Hickory, North Carolina: 
To date, the expiration of GSP has cost my company over $125,000. It 
has cost jobs, investment and has crippled us competitively with lost 
business. Please retroactively renew this critical trade program!

Fred Starr, President of Thompson Traders in Greensboro, North 
Carolina: Thompson Traders is a start-up company, and after seven years 
of trial and tribulation, made it to a break-even in 2013. Then the GSP 
was allowed to expire, and due to our financial position and our 
inability to pass this charge onto our customers, we had to slow down 
growth, including hiring. We would be a different company today without 
this totally unanticipated tariff.

We've reduced our payroll by eight people, a 40 percent reduction and 
will not be adding people, until we have a better government 
environment, including the renewing of GSP. The renewal of GSP will 
allow us to grow, creating new job opportunities. Moreover, since we 
share profits with our employees, each job will become a better paying 
job whether salaried or hourly.

Most important, the return of our tariff payments, paid out since 
August 2013, will help Thompson Traders enter new domestic and foreign 
markets and build a much larger company, including domestic 
manufacturing investment--more jobs and better-paying jobs.

Greg H. Kirkland, President of Kirkland Associates, Ltd. in 
McMinnville, Oregon: In 2014 our small import company paid over $50,000 
in import duty charges on products imported from India. We currently 
desperately need to hire two additional employees. However, we simply 
can't afford to do that as the company profits will not support two new 
employees and continued import duty charges. If we were to see GSP 
passed, especially retroactively, we would immediately move toward the 
new employee additions. I know we are not a big deal to Washington, 
D.C. but this move would really help our company now and in the future.

Burak Cezik, Account Manager at Kervan USA LLC in Bethlehem, 
Pennsylvania: We ended up with a net loss in fiscal year 2014 due to 
GSP expiration. Accordingly, we are working on ways to cut jobs and 
holding off on our strategy of hiring regional sales managers. We would 
definitely hire new positions in the case of retroactive GSP renewal.

Amy Campbell, Founder of Brilliant Imports in Austin, Texas: Brilliant 
Imports has experienced, what is significant to a budding business, 
cash outflow due to GSP expiration . . . for a company that is less 
than three years old, this has been a hard blow to handle. In addition, 
there is extreme uncertainty on GSP renewal going forward therefore I'm 
keeping `predictable' cash outflows as tight as possible. As the 
Founder and Owner, I've let go of my PR firm, my Virtual Assistant (VA) 
as well as cut back on advertising (these are a few examples). There is 
no projection to hire any help going forward. Retroactive GSP renewal 
would be a nice boost to keep a relatively new business like Brilliant 
Imports afloat as well as lead to a hire of a VA and placement of 
Brilliant Imports in a fulfillment center . . . both of these are 
detrimental to my company's success.

Cathy Korndorffer, Chief Operating Officer at Chantal Cookware Corp in 
Houston, Texas: We are a small, privately owned company in the 
housewares industry. We struggle every year to compete on a global 
scale with huge conglomerates and every penny that our product cost 
increases counts. We have not laid anyone off because of GSP non-
renewal, but we cannot pass this along to our retailers. What happens? 
Our employees do not get raises. There is no money going into their 
401K plan. There is no Christmas bonus. There is a reduction in our 
medical insurance contribution from Chantal. Is it painful? YES!

Wajih Rekik, President of CHO America in Baytown, Texas: Importing 
olive oil from Tunisia and bringing a Tunisian olive oil to the U.S. 
consumer is a big challenge that was supported by the GSP advantage. 
Since GSP expiration, we froze hiring, gave up a plan to expand into a 
new warehouse. A retroactive renewal will be vital to us and will be 
translated into expansion of warehouse and at least three new hires.

Allan Zadik, Owner of FAZ Marketing in Houston, Texas: I had to close 
the import business as my selling price became uncompetitive. I did 
have to let go of two people as there was no way to keep sales up. I'm 
currently not importing products where GSP has affected my business.

Abe Shaheen, Owner of Shaheen Import Export Co. in Virginia Beach, 
Virginia: The GSP expiration and uncertainty about renewal has resulted 
in laying off three of workers at our company, and not being able to 
hire new employees. Retroactive GSP renewal would lead to more jobs at 
our company, and will enable us to expand our business.
                                 ______
                                 

                                  ESCA

                       THE AMERICAN DREAM AT WORK

                        Statement for the Record

                          Stephanie Silverman

                     President & Executive Director

                Employee-owned S Corporations of America

                       805 15th Street, Suite 650

                          Washington, DC 20005

On behalf of the Employee-Owned S Corporations of America (ESCA), thank 
you for the opportunity to submit comments to the Senate Finance 
Committee. We commend the Committee for its continued focus on economic 
growth, as we firmly believe that pro-growth policies are essential in 
addressing the difficulties that continue to vex the U.S. economy, 
working Americans, and their families.

ESCA represents private, employee-owned companies operating in every 
state across the nation, in industries ranging from heavy manufacturing 
to school photography. The rapid expansion of S corporation ESOPs in 
recent years is testimony to the fact that these companies are a 
dynamic and growing part of our economy. We would respectfully suggest 
to the committee that a vital means of promoting both economic growth 
and retirement security for working Americans is to expand the 
availability of S corporation ESOPs for more companies and their 
workers.

Today, S corporation ESOPs are doing exactly what Congress intended 
when it created them in the late 1990s: creating jobs, generating 
economic activity, creating jobs, and promoting retirement savings. By 
any measure, these companies have been a remarkable success story in 
recent years: truly a bright spot in an economy characterized by 
sluggish growth, anemic job creation, and worker insecurity.

It stands to reason that companies with employee stock ownership plans 
have displayed a dynamism and vitality lacking in other sectors of our 
economy. An ownership stake in one's place of work is not only a spur 
to greater productivity, but inspires greater loyalty and 
identification with the fortunes of the business. And 
employee-owned companies aren't subject to the frequently destructive 
adversarial dynamic of suspicion and resentment that takes hold when 
employees are convinced that the interests of stockholders and 
corporate board members are at odds with their own interests. For 
workers in S corporation ESOP firms, what is good for ownership is good 
for them by definition.

The evidence is compelling that expanding the availability of S 
corporation ESOPs for more companies and their workers would not only 
boost the retirement savings of countless Americans, but would also 
create more jobs, generate more economic activity, and encourage the 
formation of businesses that are more stable and successful because 
they provide their employees with the kind of built-in incentives 
conducive to loyalty and productivity.

As the Finance Committee contemplates measures to reform the Tax Code 
and increase access to retirement savings, we urge Senators to support 
tax policies that expand the availability of long-term retirement 
savings opportunities and economic growth through S corporation ESOPs.
Background on S Corporation ESOPs
A Subchapter S corporation is a business entity that provides flow-
through tax treatment to its shareholders. An employee stock ownership 
plan (``ESOP'') is a qualified defined contribution plan that provides 
a company's workers with retirement savings through their investments 
in their employer's stock, at no cost to the worker. ESOPs are 
regulated by the Employee Retirement Income Security Act (``ERISA'') 
just like pension funds, 401(k) plans, and other qualified retirement 
plans.

In 1996, in the Small Business Jobs Protection Act, Congress authorized 
the S corporation ESOP structure, effective January 1, 1998, with the 
goal of encouraging and expanding retirement savings by giving American 
workers a greater opportunity to have equity in the companies where 
they work.

In the Taxpayer Relief Act of 1997, Congress repealed the unrelated 
business income tax (UBIT) originally imposed on the ESOP for its share 
of S corporation income, enabling S corporation ESOPs to become a 
viable new business structure to benefit American workers. Seventeen 
years later, there are more than 2,600 S ESOP companies operating in 
every state of the nation, in industries ranging from heavy 
manufacturing to retail grocery stores, from construction to 
consulting. Because of the structure of S ESOP tax policy, S ESOPs are 
achieving exactly what Congress intended: generating unparalleled 
retirement savings for workers, providing good and resilient jobs in 
high-performing businesses, and creating important macroeconomic 
benefits in their communities.

Over the years, ESCA has worked closely with federal policymakers to 
ensure that S ESOPs hold true to their original purpose of encouraging 
broad employee ownership. We collaborated with members of your 
committee in 2000-2001 to craft anti-abuse rules that became section 
409(p) of the Internal Revenue Code. These rules, enacted in the 
Economic Growth and Tax Relief Reconciliation Act (EGTRRA), now mandate 
that S ESOPs provide for broad-based employee ownership and establish 
strict repercussions for violations.

    As the report language for EGGTRA (H.R. Rep. No. 107-51, part 1, at 
        100 (2001) states: The Committee continues to believe that S 
        corporations should be able to encourage employee ownership 
        through an ESOP. The Committee does not believe, however, that 
        ESOPs should be used by S corporation owners to obtain 
        inappropriate tax deferral or avoidance.

    Specifically, the Committee believes that the tax deferral 
        opportunities provided by an S corporation ESOP should be 
        limited to those situations in which there is broad-based 
        employee coverage under the ESOP and the ESOP benefits rank-
        and-file employees as well as highly compensated employees and 
        historical owners.

Since enactment, Section 409(p) has been highly effective in ensuring 
that S ESOPs serve their purpose. As a result, S ESOPs have become 
perhaps the most effective retirement savings plan under federal law, 
and today the average S ESOP plan participant has significantly more 
money saved in their ESOP account than they do in their 401(k) account.
The Unparalleled Performance of S ESOPs
Many studies over the years have documented why and how S ESOPs have 
proven to be so powerful for both workers as a retirement savings and 
economic security tool, and how they have contributed substantially to 
communities and the broader national economy:

In a study released in June last year, data compiled by the National 
Center for Employee Ownership (NCEO) shows that private employee-owned 
businesses have strikingly fewer loan defaults than other businesses. 
NCEO finds that the default rate on bank loans to ESOP companies during 
the period 2009-2013 was, on average, an unusually low 0.2 percent 
annually. By contrast, mid-market companies in the U.S. typically 
default on comparable loans at an annual rate of 2 to 3.75 percent. The 
tenfold difference between the economic strength of employee-owned 
companies and other businesses highlights the fact that private 
businesses which are owned by their employees have the incentives and 
vision that makes them more stable, more successful, and better for 
employees as well as the larger economy.

A 2012 study by Alex Brill, tax advisor to the Simpson-Bowles deficit 
reduction commission and a former chief economist and policy director 
to the Ways and Means Committee, found that:

   Employment among surveyed S ESOP firms increased more than 60 
        percent from 2001-2011, while the private sector as a whole had 
        flat or negative growth in the same period.
   In the struggling manufacturing industry in particular, the S ESOP 
        structure has buffered against economic adversity and job loss.
   S ESOPs have significantly expanded the pool of US workers who are 
        saving for retirement, while also boosting company 
        productivity--something that has greatly benefited their 
        employee-owners.

In his study, Brill notes that ``in the context of the current tax 
reform debate that seeks to curtail existing tax expenditures in favor 
of lower statutory rates, policymakers should recognize the evidence in 
support of S ESOPs and their positive economic contribution.''

In 2013, Brill produced a follow-on study entitled ``Macroeconomic 
Impact of S ESOPs on the U.S. Economy.'' Key findings of that broader 
assessment revealed that:

   the number of S ESOPs and the level of active participation (number 
        of employee-owners) have more than doubled since 2002.
   total output from S ESOPs and the industries they support is nearly 
        2 percent of GDP.
   S ESOPs directly employ 470,000 workers and support nearly a 
        million jobs in all.
   S ESOPs paid $29 billion in labor income to their employees, with 
        $48 billion in additional income for supported jobs.

Brill's study on the macroeconomic impact of S ESOPs built upon 
findings issued in 2008, in a 2008 University of Pennsylvania report, 
whose authors found that S ESOPs contribute $14 billion in new savings 
for their workers each year beyond the income those workers otherwise 
would have earned, and that S corporation ESOPs offer workers greater 
job stability and increased job satisfaction. The study also found that 
S corporation ESOPs' higher productivity, profitability, job stability 
and job growth generate a collective $19 billion in economic value that 
otherwise would not exist.

The Brill and University of Pennsylvania studies reinforce other 
important evidence about S ESOPs that show how powerful they can be.

In a 2010 Georgetown University/McDonough School of Business study, two 
leading tax economists, former Treasury Department officials Phillip 
Swagel and Robert Carroll, reviewed the performance of a cross-section 
of S corporation ESOP companies during the early part of the prior 
recession and found that these companies performed better than other 
equivalent companies in terms of job creation, revenue growth, and 
worker retirement security. Specifically, Swagel and Carroll found 
that:

   Companies that are S corporation ESOPs are proven job-creators, 
        even during tough times. While overall U.S. private employment 
        in 2008 fell by 2.8 percent, employment in surveyed S 
        corporation ESOP companies rose by 2 percent. Meanwhile, 2008 
        wages per worker in surveyed S corporation ESOP companies rose 
        by 6 percent, while overall U.S. earnings per worker grew only 
        half that much.

   S corporation ESOP companies provided substantial and diversified 
        retirement savings for their employee-owners at a time when 
        most comparable companies did not. Despite the difficult 
        economic climate, surveyed S corporation ESOP companies 
        increased contributions to retirement benefits for employees by 
        19 percent, while other U.S. companies increased their 
        contributions to employee retirement accounts by less than 3 
        percent.

We will have new data to share with Committee members later this year 
about the meaningful distributions paid out to employee owners for 
retirement.

In the last Congress, Senators Ben Cardin and Pat Roberts reintroduced 
bipartisan legislation, S. 742, the Promotion and Expansion of Private 
Employee Ownership Act of 2013, that will:

   Encourage owners of S corporations to sell their stock to an ESOP.
   Provide additional technical assistance for companies that may be 
        interested informing an S corporation ESOP.
   Ensure small businesses that become ESOPs retain their SBA 
        certification.
   Acknowledge the importance of preserving the S corporation ESOP 
        structure in the Internal Revenue Code.

We look forward to working with Committee members on introduction of 
the bill this Congress and appreciate your consideration for moving 
these provisions as part of a tax package that promotes economic growth 
and retirement savings for working Americans. As the Finance Committee 
continues to work on comprehensive tax reform, ESCA would be pleased to 
serve as a resource and we look forward to continuing this important 
dialogue about a retirement savings plan that is enabling hundreds of 
thousands of Americans to achieve the American dream at work.

The Employee-Owned 5 Corporations of America (``ESCA'') is the 
Washington, DC voice for employee-owned 5 corporations. ESCA's 
exclusive mission is to advance and protect 5 corporation ESOPs and the 
benefits they provide to the employees who own them. These companies 
have an important story to tell policymakers about the tremendous 
success of the S ESOP structure in generating long-term retirement 
savings for working Americans and their families. ESCA provides the 
vehicle and the voice for these efforts. ESCA represents employee-
owners in every state in the nation.
                                 ______
                                 

                Statement for the Record--Submitted by:

               The Professional Beauty Association (PBA)

                   Steve Sleeper, Executive Director

Chairman Hatch, Ranking Member Wyden, and other Members of the 
Committee, we thank you for holding this important hearing and we 
appreciate the opportunity to submit a statement for the record. As the 
Committee contemplates measures to ensure job creation and a strong, 
vibrant economy, the Professional Beauty Association (PBA) urges the 
Committee to prioritize policy measures that would promote tax fairness 
within the small business community, thereby enabling salon business 
owners to reinvest in their businesses and employees, granting new 
economic and employment opportunities in their local communities.

More specifically, the Small Business Tax Equalization and Compliance 
Act is an opportunity for the professional beauty industry--comprised 
of salon owners, employees, manufacturers, and distributors of salon 
products throughout the country--to gain tax fairness and ensure a 
strong, continued presence to better the economic health of our nation. 
Current law permits the restaurant industry a dollar-for-dollar tax 
credit, known as the 45(B) tax credit, on the employer's share of FICA 
taxes paid on tip income above the minimum wage. The Small Business Tax 
Equalization and Compliance Act, which we hope will be reintroduced 
later this year, would apply the Section 45(B) FICA tax credit that is 
currently available only to restaurant owners to the salon industry.

In recent years there has been a significant shift from traditional 
employment-based salons, where cosmetologists function as regular 
payroll employees and are required to report tip information to their 
employers, to non-employer salons, where cosmetologists simply rent a 
booth from a salon owner and function as a self-employed contractor, 
responsible for reporting their own tips. This shift has led to an 
increased amount of underreported income. The Small Business Tax 
Equalization and Compliance Act would also help address the tax gap by 
bolstering the reporting of taxable tip income among self-employed 
cosmetologists.

As you well know, small businesses are the backbone of America's 
economy, and the salon industry is an industry of small businesses. 
While job growth has outpaced the overall economy in eleven out of the 
past fifteen years our industry has not been immune to economic 
uncertainty . Extending the 45(B) tax credit to the salon industry 
would serve to support and provide stability to a growing sector of 
America's economy, and one that is vitally important to the success of 
many other industries: according to the U.S. Department of Commerce, 
every dollar spent in the salon industry generates an additional $1.77 
of sales for other industries in the economy.

As Congress looks to encourage economic growth and job creation in 
2015, we hope you will consider including this provision in any pro-
growth measures considered by the Committee. We appreciate your 
interest and the opportunity to provide feedback, and look forward to 
continuing our work with the Committee in the 114th Congress.
                                 ______
                                 

             Written Testimony of Dr. Elaine C. Kamarck and

                     James P. Pinkerton, Co-Chairs,

          Reforming America's Taxes Equitably (RATE) Coalition

Thank you, Chairman Hatch and Ranking Member Wyden, for convening this 
hearing to address a pressing challenge facing our country today--
safeguarding a legacy of secure, well-paying jobs for U.S. workers. 
This Committee has done great work leading the charge toward restoring 
our nation to the land of job opportunity it once was.

We are Elaine Kamarck and James P. Pinkerton, the bipartisan co-chairs 
of the Reforming America's Taxes Equitably (RATE) Coalition. Our 
collective membership, comprised of thirty-three diverse businesses and 
trade associations aims foremost to achieve tax reform that secures a 
lower, internationally competitive tax rate for all businesses. We 
believe strongly that such a competitive tax rate will allow family-
owned companies, firms, and large corporations to continue to invest, 
grow and hire here in the U.S.

With the economy serving as the primary focus of this hearing, we 
readily cite data from an Ernst & Young study commissioned by RATE 
Coalition last year which quantified the alarming impact of our high 
corporate tax rate on U.S. fiscal health. The study found GDP was an 
estimated 1.2% to 2.0% lower--translating into a loss of roughly $235-
$345 billion each year. Similarly, workers' wages were found to be 
diminished by 1.0 to 1.2% due to our uncompetitive business tax code.

Each year we allow our outdated corporate tax code to run rampant, 
added financial pressure mounts on companies and business owners--most 
who must find ways to cut corners elsewhere--whether that's laying off 
workers, delaying investment or expansion, or spending less on research 
and development.

RATE Coalition's membership represents a diverse array of industry 
sectors--including retail, telecommunications, and defense, among 
others. Collectively, our members employ over thirty million Americans 
and operate in all fifty states. Our expansive company footprint also 
gives us a first-hand look into the international business marketplace 
where U.S. companies must operate and compete.

For example, Boeing, a leader in the aerospace industry, is a RATE 
member company that employs 165,000 workers across the U.S. Boeing's 
Chief Financial Officer Greg Smith attests to this Committee that the 
increasingly competitive global market, as well as burgeoning new 
technologies and the industries that bring these products to consumers 
all over the world, reinforce the need for the U.S. to lower its 
corporate rate to an internationally competitive level.

His statement for the record can be found below:

  ``The aerospace industry is facing increasing competition from 
    established and emerging players across the globe as nations see 
    the transformative power of innovation in delivering highly-skilled 
    and high-paying jobs. With a significant portion of our 165,000 
    employees, research and development activities and manufacturing 
    operations located across the United States, we support continuing 
    efforts to improve the country's competitiveness. That is critical 
    for the United States to build on its leadership in aerospace and 
    other sectors. We believe that reforming the tax code, which 
    includes a globally-competitive corporate tax rate, will make the 
    U.S. a more attractive place to do business and provide a strong 
    boost for continued innovation and growth.''

We are optimistic the 114th Congress will build on existing momentum 
for pro-growth policies to make great progress in the areas of tax 
reform that will strengthen our economy--especially the widely 
supported goal of business tax reform. And we note this momentum is 
bipartisan: Treasury Secretary Jack Lew recently highlighted areas of 
potential common ground during his speech on business tax reform to the 
Brookings Institution; indeed, he has made the pro-reform argument on 
many different occasions.

Specifically, we were encouraged to hear the Administration's 
acknowledgement of an existing bipartisan pathway to achieve 
comprehensive business tax reform that makes the tax code more 
competitive. Truly, the consensus for tax reform has resonated in 
Washington and sits high on a list of legislative priorities most ripe 
for action in the coming months.

In addition, we believe that the most effective tax reform should 
concentrate on the goals of simplifying the code and lowering rates. 
Efforts to direct revenues raised by tax reform to other purposes risk 
reducing the important economic effects of reform on growth.

Repatriation that is not part of comprehensive tax reform is only a 
band-aid solution to an ailing illness.

This point--that repatriation standing on its own is the opposite of 
true tax reform--cannot be reiterated enough. Comprehensive tax reform 
that applies to all businesses, simplifies the code, and lowers the 
rate will relieve American businesses of a stifling tax burden that has 
driven many in the business community to seek haven outside the U.S. in 
recent years, through corporate inversions and similar tax avoidance 
maneuvers.

Moreover, these short-term fixes will only give a false sense of 
accomplishment that some degree of tax reform has been achieved when--
in reality--no true progress has been made to update our wildly 
outdated and burdensome tax code. This can only lead to more economic 
harm than good in the long run--and will only be kicking the can down 
the road.

Toward this end, we believe the time for real reform has come, however, 
there is still work to be done to refine the most advantageous 
components of tax reform that will benefit all businesses. Most 
imperative will be a lower corporate tax rate that allows the U.S. to 
compete globally.

We are optimistic the Administration and Congress will come together to 
work alongside this Committee to bring forth favorable tax reform 
legislation that broadens the base, simplifies the code and makes the 
U.S. a better place for businesses to thrive. We appreciate this 
opportunity to present our Coalition's case for business tax reform to 
this esteemed Committee.

                                    [all]
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