    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

       INCREASING U.S. COMPETITIVENESS AND PREVENTING AMERICAN JOBS FROM
                                MOVING OVERSEAS

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

                                    HEARING

                                   before the

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 23, 2017

                                   __________

                              Serial No. 115-FC02

                                   __________

             Printed for the use of the Committee on Ways and Means

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     U.S. GOVERNMENT PUBLISHING OFFICE

     33-426                  WASHINGTON : 2019

                          COMMITTEE ON WAYS AND MEANS

                          KEVIN BRADY, Texas, Chairman

    SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
    DEVIN NUNES, California              SANDER M. LEVIN, Michigan
    PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
    DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
    ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
    LYNN JENKINS, Kansas                 RON KIND, Wisconsin
    ERIK PAULSEN, Minnesota              BILL PASCRELL, JR., New Jersey
    KENNY MARCHANT, Texas                JOSEPH CROWLEY, New York
    DIANE BLACK, Tennessee               DANNY DAVIS, Illinois
    TOM REED, New York                   LINDA SANCHEZ, California
    MIKE KELLY, Pennsylvania             BRIAN HIGGINS, New York
    JIM RENACCI, Ohio                    TERRI SEWELL, Alabama
    PAT MEEHAN, Pennsylvania             SUZAN DELBENE, Washington
    KRISTI NOEM, South Dakota            JUDY CHU, California
    GEORGE HOLDING, North Carolina
    JASON SMITH, Missouri
    TOM RICE, South Carolina
    DAVID SCHWEIKERT, Arizona
    JACKIE WALORSKI, Indiana
    CARLOS CURBELO, Florida
    MIKE BISHOP, Michigan

                         David Stewart, Staff Director

                     Brandon Casey, Minority Chief Counsel

                                C O N T E N T S

                                   __________
                                                                       Page

    Advisory of May 23, 2017 announcing the hearing..................     2

                                   WITNESSES

    Juan Luciano, President and Chief Executive Officer, Archer
      Daniels Midland Company........................................     8
        (Truth in Testimony).........................................    16
    Brian Cornell, Board Chairman and Chief Executive Officer, Target
      Corporation....................................................    17
        (Truth in Testimony).........................................    21
    William Simon, Former President and Chief Executive Officer,
      Walmart U.S....................................................    22
        (Truth in Testimony).........................................    31
    Lawrence B. Lindsey, President and CEO, The Lindsey Group........    32
        (Truth in Testimony).........................................    42
    Kimberly Clausing, Thormund A. Miller and Walter Mintz, Professor
      of Economics, Reed College.....................................    43
        (Truth in Testimony).........................................    57

                            MATERIALS FOR THE RECORD

    Tax Cuts For Whom? Heterogeneous Effects of Income Tax Changes on
      Growth and Employment, paper by Owen Zidar.....................    64
    Lack of Workers, Not Work, Weighs on the Nation's Economy,
      article by the New York Times..................................    95
    Report: Repatriation Tax Holiday a `Failed' Policy, article by
      the Wall Street Journal........................................   101
    US Daily: What Would the Transition to Destination-Based Taxation
      Look Like?, report by Goldman Sachs............................   105
    Columbia Sportswear Company, letter from Tim Boyle...............   116
    Hardlines/Broadlines Retailing, research by J.P. Morgan..........   127
    Mnuchin Cites Problems in Border Tax as House Panel Seeks Tweaks,
      article by Bloomberg...........................................   139
    2017 First Quarter Published Expatriates--A Total of 1,313,
      article by International Tax Blog..............................   144
    17-5 Effects of Consumption Taxes on Real Exchange Rates and
      Trade Balances, study by Freund and Gagnon.....................   159
    Assessing the House Republicans' ``A Better Way'' Tax Report,
      research paper by Alan Auerbach and Larry Kotlikoff............   189

                            QUESTIONS FOR THE RECORD

    Questions from The Honorable Sam Johnson, to Mr. Cornell and Dr.
      Lindsey........................................................   205
    Questions from The Honorable Carlos Curbelo, to Mr. Simon and Mr.
      Luciano........................................................   208
    Question from The Honorable Carlos Curbelo, to Dr. Lindsey.......   208

                       PUBLIC SUBMISSIONS FOR THE RECORD

    Accurate Signs and Engraving, Inc................................   212
    The African Ambassadors Group (AAG) in Washington, D.C., through
      the Economic Development Committee (EDC).......................   214
    African Coalition for Trade, Inc.................................   220
    African Cotton & Textile Industries Federation...................   222
    Alan J. Auerbach, Robert D. Burch, Professor of Economics and Law
      Director, Burch Center for Tax Policy and Public Finance.......   223
    American Apparel & Footwear Association..........................   229
    American International Automobile Dealers Association............   235
    Center for Automotive Research...................................   241
    ASR Group........................................................   250
    Americans for Tax Reform.........................................   252
    Association of Bermuda Insurers and Reinsurers...................   253
    Association of British Insurers..................................   260
    Association of Global Automakers, Inc............................   266
    Autocare Association.............................................   268
    Bermuda International Long Term Insurers and Reinsurers..........   270
    Black Mingo Outfitters...........................................   277
    Bradbury H. Anderson, Former Chief Executive Officer of Best Buy
      Co, Inc........................................................   279
    Mayer Brown LLP..................................................   281
    Andrew F. Quinlan, President Center for Freedom and Prosperity...   298
    Michael G. Bindner, Center for Fiscal Equity.....................   302
    Coalition for Competitive Insurance Rates........................   311
    Columbia Sportswear Company......................................   314
    Committee for Economic Development of the Conference Board.......   317
    Consumer Technology Association..................................   327
    Eric Blackledge, for the National Small Business Network.........   329
    European Union Delegation to the United States of America........   334
    BDI and DIHK.....................................................   338
    Filament Brands..................................................   345
    Food Marketing Institute.........................................   347
    Footwear Distributors & Retailers of America (FDRA)..............   352
    Fortune Fish & Gourmet...........................................   357
    Freedom Partners.................................................   358
    Games by James...................................................   359
    The Greenbrier Companies.........................................   362
    Honey-Can-Do International LLC...................................   365
    International Wood Products Association..........................   366
    J. B. Prince Company, Inc........................................   368
    Americans for Prosperity.........................................   370
    Richard Woldenberg, CEO of Learning Resources....................   371
    Levi Strauss & Co................................................   381
    The Like-Kind Exchange Stakeholder Coalition.....................   383
    Mercatus Center..................................................   387
    Motor & Equipment Manufacturers Association......................   395
    National Association of Chain Drug Stores........................   404
    National Retail Federation.......................................   410
    New England Fuel Institute.......................................   415
    Bill Parks, President NRS Inc....................................   417
    Partnership for Responsible Growth...............................   420
    Phillip Swagel, Professor, School of Public Policy...............   423
    Prodotto.........................................................   427
    Industriales Puerto Rico.........................................   428
    PVH Corporation..................................................   437
    QuadGraphics.....................................................   439
    Resolute Forest Products.........................................   442
    Retail Industry Leaders Association..............................   444
    SanMar...........................................................   451
    Slade Gorton & Co., Inc..........................................   453
    Southern California Local Bead Store Association.................   454
    Kyle Pomerleau, Director of Federal Project Tax Foundation.......   457
    Texas Auto 290...................................................   466
    NPES The Association for Suppliers of Printing, Publishing and
      Converting Technologies........................................   468
    United States Fashion Industry Association.......................   472

       INCREASING U.S. COMPETITIVENESS AND PREVENTING AMERICAN JOBS FROM
                                MOVING OVERSEAS

                                  ----------

                             TUESDAY, MAY 23, 2017

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                                Washington, DC.
        The committee met, pursuant to call, at 10:03 a.m., in Room
    1100, Longworth House Office Building, Hon. Kevin Brady
    [chairman of the committee] presiding.
        [The advisory announcing the hearing follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BRADY. The committee will come to order.
        Welcome to the Ways and Means Committee hearing on
    increasing U.S. competitiveness and preventing American jobs
    from moving overseas.
        Before we get started, I want to take a moment to speak
    about the evil terror attack that occurred last night in the
    United Kingdom. Our deepest condolences go out to the victims,
    to their families, and their loved ones. Please know that you
    are in our prayers.
        Today, we are continuing our work on pro-growth tax reform
    that will improve the lives of all Americans. This morning's
    hearing is focused on strengthening America's competitiveness
    and preventing American jobs from moving overseas.
        For years, Americans have watched as our manufacturing
    plants, middle class jobs, and longstanding U.S. companies have
    moved overseas, devastating communities and the families that
    depend upon them. Hundreds of thousands of good-paying American
    jobs have left and continue to leave to China, Mexico, Ireland,
    and other foreign countries. Some of our communities have never
    recovered, because when these plants and companies move
    overseas, the local businesses, housing values, and local tax
    revenue disappear with them.
        I have watched as 17 key Texas companies have relocated
    their headquarters to England, Canada, Bermuda, Ireland, the
    Cayman Islands, Switzerland, and the Netherlands. Americans are
    being hurt because our Nation is saddled with one of the most
    costly, unfair, and uncompetitive tax systems on the planet.
    According to the nonpartisan Tax Foundation, when it comes to
    competitive tax codes, America is ranked nearly last among our
    global competitors, 31 of 35.
        The good news is, we are edging out Greece. The bad news
    is, nearly everyone else is eating our lunch, along with our
    jobs, manufacturing plant, and research facilities. The urgency
    for bold, permanent pro-growth tax reform has never been
    greater.
        We gather today because, with our current Tax Code, the
    playing field for American workers is not level, not even
    close. Over three decades have passed since the last time we
    reformed America's Tax Code. While Washington has been on the
    sidelines, our foreign competitors have been improving their
    tax systems for their businesses and their workers.
        Today, it is clear our Tax Code is failing American
    workers, families and businesses in three crucial areas: First,
    our corporate tax rate, now the highest in the industrial world
    at 35 percent, is at least 10 to 15 points higher than our
    competitors. This makes it much harder for our businesses to
    compete globally and create jobs here at home.
        Second, our tax system discourages U.S. businesses from
    bringing home foreign profits to grow middle class jobs and
    middle class paychecks. Instead, our Tax Code encourages global
    U.S. businesses to keep profits abroad, to grow foreign jobs
    and foreign paychecks. At last check, more than two and a half
    trillion dollars of U.S. profits are stranded overseas, unable
    to be affordably reinvested back here in America.
        Addressing these two issues is important and would be good
    enough to move America back to average, somewhere in the middle
    of the pack. But tax reform only happens once in a generation.
    Is our vision merely to be average? Given all that is at stake
    for middle class families, our goal in tax reform should be to
    vault America from dead last among our global competitors back
    into the lead pack, back among the top three best places on the
    planet for that next new job, manufacturing plant, or research
    facility.
        To do this, we must take action on a third crucial
    competitive issue: Ending the Made in America tax. Today, the
    vast majority of our international competitors apply taxes on
    products that are sold in their country no matter where the
    product's made. And they remove taxes from products that are
    exported, including products that are sold into the United
    States. This is called border adjustment. Taxes are adjusted
    when products cross the border.
        Over 160 of our competitors border-adjust their taxes.
    These are all the blue countries on the map on the screens.
    America is one of the very few who don't, along with countries
    like Cuba, North Korea, and Somalia. In our country, we apply
    taxes only on products that are made in America and Washington
    imposes that Made in America tax on our products no matter
    where they are sold, including overseas. As a result, Made in
    America products are at a major tax disadvantage here at home
    and around the world.
        So why is Washington providing special tax breaks for
    foreign products over American-made products? Why should
    Chinese steel get a tax break over American steel? Mexican auto
    parts and agriculture over American auto parts and agriculture?
    Foreign oil over American made oil? This doesn't make sense,
    especially since this is a big reason our current Tax Code
    drives U.S. jobs and companies overseas.
        In the tax reform blueprint, we propose to end the Made in
    America tax and instead tax all products and services equally
    when they are sold in America at a low rate of 20 percent. No
    special tax breaks for foreign products, everyone treated the
    same, true competition for the first time.
        And we lift the tax on Made in America products and
    services when they are sold abroad, and for the first time
    leveling the playing field for American workers, businesses,
    and farmers. Our goal is not simply to eliminate any tax reason
    to move American jobs overseas, but to reestablish America as a
    21st century magnet for new jobs and investment. And for the
    first time, companies will no longer gain by moving their
    headquarters to Bermuda, their manufacturing plants to China,
    or their intellectual property to Ireland.
        As a result, for the first time in decades, companies and
    industries are coming forward to describe how, under the
    Republican blueprint, they can bring a large part of their
    supply chains back to America. These are the good-paying jobs,
    manufacturing plants, research labs, and technology centers
    that house cutting-edge intellectual property like patents. The
    current Tax Code told them to move these activities oversees.
    The House blueprint allows them to bring them back to the
    United States.
        We recognize this is a significant change from our current
    Tax Code. We know there are legitimate concerns, including from
    some of our witnesses here today and our colleagues on the
    other side of the aisle, about how it will affect American
    workers, businesses, and consumers; and we are committed to
    working with all of you to address these concerns. We have to
    get it right, and we will.
        It is time for a Tax Code that rewards Americans' hard work
    rather than pushing American jobs out of our communities. The
    Tax Foundation estimates the House blueprint as a whole will
    create 1.7 million jobs over the next decade and grow paychecks
    for middle class American families by roughly $5,000. Imagine
    how successful American consumers will be when they have a
    secure good-paying job and a Tax Code that allows them to keep
    more of their paycheck. It is time for Washington to get off
    the sidelines and back into the game, fighting for our
    businesses, workers, and consumers.
        I want to thank all of our witnesses for being here today.
    We have a stellar field, and we look forward to hearing your
    ideas on how we can level the playing field for American
    workers and unleash a new era of American prosperity.
        Before I recognize the ranking member, I want to announce
    that we are joined here today by Bill Thomas, who chaired this
    committee from 2001 through 2006.
        Mr. Chairman, welcome back.
        I now yield to the distinguished ranking member, Mr. Neal,
    for the purposes of an opening statement.
        Mr. NEAL. Thank you, Mr. Chairman. And we fully share the
    sentiments you expressed on the events that took place last
    night in Manchester, Great Britain.
        First, let me thank you, Mr. Chairman, for holding today's
    hearing on increasing U.S. competitiveness and preventing
    American jobs from moving overseas. It is an important topic
    and I look forward to a productive conversation.
        As we continue with this series of hearings on
    comprehensive tax reform, I want to reiterate my support for
    reforming the Tax Code. There is certainly strong bipartisan
    support for simplifying the tax system and making it more fair.
        We on the Democratic side are willing partners in those
    efforts. However, we will support tax reform on a comprehensive
    basis that will ease financial burdens on the middle class and
    working families. We will not support tax cuts for those at the
    top of the income scale at the expense of those of the middle
    class. Our primary focus and top priority in tax reform needs
    to be putting the middle class first.
        I also believe that a key component of tax reform is
    ensuring that American businesses remain competitive in the
    global economy and that we prevent American jobs from moving
    overseas. Achieving this includes providing incentives to
    companies to conduct research and development here in the
    United States. We also need to improve our Nation's
    infrastructure so that it is in line with other developed
    nations. That includes meaningful investments to repair and
    enhance our Nation's roads, rails, bridges, harbors, sea and
    water harbor opportunities as well. These reforms can be done
    through the Tax Code and would also jump start economic growth
    and create thousands of jobs.
        Another key component of international competitiveness is
    investment in well-trained and skilled workforce opportunities.
    A 2015 report by the Manufacturing Institute estimated that
    over the next decade 2 million manufacturing jobs in this
    country could go unfilled due to a skills gap.
        The New England Council recently estimated in a 2015 report
    that thousands of high-paying advanced manufacturing jobs, some
    with salaries well over $80,000 a year with full benefits, go
    unfilled because employers are struggling to find candidates to
    meet the needs of these open positions.
        At a time when families across the country are trying to
    reach and stay in the middle class, our Nation cannot afford to
    have factories and workers sit idle. To remain competitive, we
    need to invest in workforce development.
        Let me shift to another focus of today's hearing, the
    border adjustment tax. I think that the border adjustment tax
    proposal is certainly interesting. As my past support of an
    innovation box demonstrates, I am no stranger to innovative tax
    ideas and am willing to look outside the box for smart tax
    policy and certainly encourage others to do the same.
        Some argue that a border adjustment tax would create such
    an incentive for companies to make things in the U.S. that it
    would drive up demand for American-made goods. We certainly are
    supportive of American manufacturers. However, there are many
    unknowns about the border adjustment tax. Given the many
    significant economic uncertainties and risks associated with
    the border adjustment tax, the committee must evaluate its
    merits thoroughly and methodically.
        There are many very important questions that must be
    answered in order to evaluate the proposal. So I applaud the
    chairman for holding today's hearings to do just that. For
    example, what will the impact be on consumers? The retailers
    tell us that the cost of products, like food, clothing and
    medicine, will go up for consumers by more than $1,700 a year,
    gas prices could increase by 35 cents a gallon. Also, I have
    been told that a 20 percent BAT would increase the average home
    heating oil cost for a New England family by up to $400 per
    winter.
        Middle class families can't and shouldn't have to sustain
    these types of increases in consumer prices as a result of tax
    reform. Is that a risk with an adjustment border tax? Will the
    dollar strengthen to offset increases in consumer prices? If
    so, how long will it take and will it, indeed, be complete? And
    how much certainty is there with respect to currency
    fluctuations and other implications of an increased dollar?
        And the border adjustment tax, is it WTO compliant? Is
    there the risk of retaliation? What would the BAT's impact be
    on American jobs? Who will be the winners and losers as a
    result of a border adjustment tax?
        Another important question that I have is the impact on
    small businesses. Unfortunately, we don't have a small business
    witness with us today. But I think understanding the potential
    impact on small business is key. The owner of Dave's Soda and
    Pet Food City in my district, who is quite successful, tells me
    that his imported products would certainly provide the margin
    for him to operate the rest of his business as currently
    constructed. He says that if his costs go up, he can't rent out
    utilities, he can't rent out other places to cut the payroll;
    in fact, he has to absorb the cost.
        He also is very concerned that if consumers have to pay
    more for gas and other essentials, he will sell less of the pet
    accessories that keep his business afloat. I hope we can
    continue to examine the impact of the BAT on small businesses.
        Mr. Chairman, I hope you will consider holding a hearing in
    the near future on how to best use revenue from a deemed
    repatriation tax as we discuss tax reform. I support using
    repatriation dollars to pay for infrastructure and/or other
    productive purposes for the middle class.
        Mr. Chairman, thanks for your leadership in calling today's
    hearing, and I am hopeful that we can dive into this topic of
    the BAT and get our questions answered. I hope that this will
    continue to be a productive conversation, and thank the
    witnesses for their participation.
        Chairman BRADY. Thank you, Mr. Neal. Without objection,
    other members' opening statements will be made part of the
    record.
        Today's witness panel includes five experts: Juan Luciano
    is the president and chief executive officer of the Archer
    Daniels Midland Company; Brian Cornell is the board chairman
    and chief executive officer of the Target Corporation; William
    Simon is the former president and chief executive officer of
    Walmart U.S.; Lawrence B. Lindsey is the President and chief
    executive officer of The Lindsey Group; and Kimberly Clausing
    is the Thormund A. Miller and Walter Mintz professor of
    economics at Reed College.
        The committee has received your written statements. They
    will all be made part of the formal hearing record. You each
    have 5 minutes to deliver your oral remarks.
        We will begin with Mr. Luciano. Welcome, and you may begin
    when you are ready.

       STATEMENT OF JUAN LUCIANO, PRESIDENT AND CHIEF EXECUTIVE
                OFFICER, ARCHER DANIELS MIDLAND COMPANY

        Mr. LUCIANO. Thank you. Chairman Brady, Ranking Member
    Neal, members of the committee, thank you for the opportunity
    to testify about comprehensive tax reform. ADM began as a
    linseed-oil processor in Minneapolis 115 years ago. Today, we
    employ nearly 20,000 employees in the United States, serving
    customers in 160 countries. Our network allows us to source
    crops, to transport them to our facilities, to transform them
    into food, feed, renewable fuels and chemicals, and to deliver
    them to customers on six continents.
        We support U.S. farmers and businesses in significant ways.
    In 2016, we purchased $25.9 billion in goods and services from
    farmers or vendors in all 50 States. I am pleased to say we
    have employees in 25 of the 26 States represented on this
    committee. And, Congressman Neal, we hope to have the
    opportunity to invest in Massachusetts too.
        ADM's reach opened global markets for America's farmers who
    have run a trade surplus for 50 years. But U.S. companies like
    ADM now compete with well-capitalized non-U.S. companies, who
    often enjoy a tax system with lower rates and border
    adjustments that create a competitive advantage for them.
        ADM only thrives when America's farmers thrive. For us to
    serve America's farmer while creating jobs and contributing to
    growth, we must have a globally competitive U.S. Tax Code. We
    must encourage the return of capital to the U.S. and enable
    companies like ADM to create and maintain jobs here in the
    United States.
        The proposal we are discussing today will help accomplish
    those goals. First, reducing the corporate rate to 20 percent
    will allow companies like ADM to operate more competitively.
        Today, many competitors have a substantial tax advantage.
    Our effective tax rate is approximately 30 percent, and we must
    compete with firms with tax rates at 20 percent or in the
    teens.
        Second, the proposal will level the playing field by moving
    from worldwide taxation to territorial taxation. A territorial
    tax system will remove the burdens of high corporate tax rates
    and address the capital restrictions that hinder U.S.
    companies, but not global competitors. This will facilitate our
    ability to enable American crops to reach the world.
        Third, a destination-based cash flow tax will level the
    playing field for our exports when we must go toe-to-toe with
    competitors we enjoy significant BAT rebates or exemptions when
    they export. Unlike a BAT, the U.S. income tax system has no
    offset for exports. This systematically disadvantages our own
    producers. A destination-based cash flow tax corrects this
    imbalance.
        The U.S. market share of global exports has fallen
    precipitously in major commodities over the past five decades.
    The U.S. is no longer number one in soybeans and wheat. From
    1965 to today, U.S. world share of soybeans exports has fallen
    from 90 percent to 39 percent, with Brazil taking the lead.
    Over the same period, our world share of exports of wheat has
    fallen from 40 percent to 20 percent, with Russia taking the
    lead. The U.S. world share of corn has fallen from 65 percent
    to 34 percent.
        America's antiquated tax system may not be the only reason
    for this decline, but it clearly contributed. We need to
    modernize our Tax Code to allow us to keep up with the rest of
    the world. This proposal creates the climate which will support
    the reinvesting in America and will result in millions of
    American jobs.
        It will help stop the decline in our market share and
    enhance our ability to serve the world. Other countries have
    responded to our inaction. We have the opportunity, with tax
    reform, to give American farmers and workers the chance to
    fairly compete and provide American products to customers
    around the globe.
        [The prepared statement of Juan Luciano follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman BRADY. Mr. Luciano, thank you very much for your
    testimony.
        Mr. Cornell, welcome, and please proceed.

    STATEMENT OF BRIAN CORNELL, BOARD CHAIRMAN AND CHIEF EXECUTIVE
                      OFFICER, TARGET CORPORATION

        Mr. CORNELL. Good morning, Chairman Brady, Ranking Member
    Neal, and members of the committee. Thank you for the
    opportunity to be here today.
        Let me begin by saying that we strongly support tax reform.
    At Target, we have a very high effective tax rate, an average
    of 35 percent over the last decade. So we are as motivated as
    anyone to bring that rate down. We recognize our current Tax
    Code is broken. The status quo is unacceptable.
        Mr. Chairman, we will put every tax benefit we currently
    receive on the table, every single one, in order to pass tax
    reform, to lower that rate, to spur investment, to create jobs,
    and to grow the American economy. However, we have concluded
    that the new border adjustment tax would undermine the
    progrowth principles in the blueprint.
        And it is not just us; more than 500 companies and
    associations feel the same way. I am talking about Main Street
    coffee shops, car dealers, grocery stores, gas stations, and
    restaurants. From large companies like Target to small American
    businesses, we have all come to the same conclusion: Under the
    new border adjustment tax, American families, your
    constituents, would pay more so many multinational corporations
    can pay even less.
        Eighty-five percent of America shops at Target every year.
    We believe this new tax would hit families hard, raising prices
    on everyday essentials by up to 20 percent. We are not talking
    about luxury items here, but instead the basics American
    families need. Moms in Cincinnati would pay more for back-to-
    school clothes. Parents in Houston would pay more for their
    groceries. Seniors in Philadelphia would pay more for medicine.
    Every time your constituents fill up their gas tanks, they
    would pay more. The people who shop at Target are middle class,
    hardworking families whose budgets are already stretched. For
    them, this new tax would be a budget-breaker.
        Mr. Chairman, we are investing in America. We are hiring.
    We recently announced we are investing $7 billion in
    communities across this country, $7 billion to build new
    stores, to renovate hundreds more, and to transform our
    distribution network, all right here in the United States.
        These investments will create thousands of new jobs at
    Target and thousands more for engineers and electricians,
    plumbers and painters across the country, and we are doing that
    today. But under the new border adjustment tax, our rate would
    more than double, from 35 percent to 75 percent. And we, like
    many others, would be left with only bad options. It is pretty
    simple math. If the government takes nearly $4 out of every $5
    we make, 4 out of 5, there is no capital to invest and no
    prospects for growth, and that matters a lot, both to us and to
    the American economy. Instead of investing and creating jobs,
    we would be pushed in the other direction.
        Mr. Chairman, I have a responsibility to more than 320,000
    employees, 99 percent of whom are based right here in the
    United States. That is hundreds of thousands of American
    families who depend on me every day. I know there is an
    academic theory that says currency markets will adjust, that
    families won't be harmed under this plan. Well, that might work
    in a textbook, but I can't tell my employees that their
    paychecks and Congress shouldn't tell American families that
    their budgets are being wagered on an unproven and untested
    theory.
        So in closing, Mr. Chairman, members of the committee, we
    have a historic opportunity to simplify the Tax Code, to spur
    economic growth, and to create jobs. Many parts of the
    blueprint will do just that, but I can't sign up for a plan
    that would stick American families with that bill or a plan
    that would double our tax rate, a plan that would stifle our
    investment in America. Mr. Chairman, I want to thank you again
    for your leadership.
        I know this is challenging and I want to help. Let's move
    past the new border adjustment plan and get tax reform done. It
    is too important. That is why we are here today. So thank you.
        [The prepared statement of Brian Cornell follows:]

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        Chairman BRADY. Thank you.
        Mr. Simon, welcome today, and please proceed with your
    testimony.

        STATEMENT OF WILLIAM SIMON, FORMER PRESIDENT AND CHIEF
                    EXECUTIVE OFFICER, WALMART U.S.

        Mr. SIMON. Thank you, Chairman Brady, Ranking Member Neal,
    and members of the committee. It is really my pleasure to be
    here with you today and discuss the importance of U.S.
    manufacturing on middle class jobs. I am here representing
    myself as a private citizen. These are my views.
        I would like to begin by noting that I have long been a
    supporter of U.S. manufacturing. In fact, the National Retail
    Federation hosted me at their annual meeting in 2013, where we
    launched Walmart's U.S. manufacturing initiative, which I would
    add has been quite successful.
        Manufacturing jobs in this country and, really, around the
    world have always represented a pathway to the middle class.
    That is how it works. And we have seen it throughout our
    history. And there is a reason that the middle class has
    struggled in this country recently; and it is the same reason
    we have seen middle classes emerge in global markets, and that
    is, the manufacturing base has moved and, with it, the jobs
    have followed.
        There was a time in this country when a job in the local
    factory was a ticket to the middle class. I grew up in
    Congressman Larson's district around Hartford, Connecticut. And
    we made Pratt and Whitney engines and Colt firearms, and
    everybody in the community was proud of that fact and if you
    got a job there you were set.
        But in this country, it doesn't work that way anymore. You,
    the government, you lay out the rules like puzzle pieces, and
    then businesses like us take the tax, labor, and trade policies
    that you have given us and put them together and try to deliver
    the best results we can for shareholders. And over the past 30
    years, when you assemble those puzzle pieces, virtually every
    scenario run by every company has resulted in the same outcome:
    Offshore manufacturing and a hollowed-out middle class with
    limited job progression. Something needs to change on this,
    everybody agrees. And I join my colleague in commending you for
    taking on this difficult issue.
        Many ideas have been discussed in recent months, and of the
    most controversial, particularly for the retail industry, has
    been the border adjustment. And I have weighed the considerable
    challenges the proposal presents to retail--and they are
    considerable--with the significant benefits that it will
    deliver to the economy as a whole and have concluded that, if
    properly implemented, it is in the best interests of the
    country for this to be considered.
        However, such a system would have to be implemented with
    careful consideration to the transitional challenges retailers
    will face. It has to allow for adjustments that are necessary
    to address the concerns that you have heard from the industry.
    For example, most of the manufacturing capacity that exists in
    the world outside of food products no longer is based in the
    U.S., as we have heard, so simply applying a 20-percent tax
    across the board on day one would have serious impact to the
    industry and consumer, and I know that is not being proposed.
        I hope you see my point of view isn't completely at odds
    with the industry. I just look at it from a different
    perspective. That is, if we are to move forward, I believe it
    is important that retailers work with the committee and provide
    input on how to best transition. The industry, retail industry
    is already in flux. They are dealing with generational
    technology and trend changes, and I submit that it is all part
    of the same issue. The challenges that face the middle class
    today have put a damper on the power of the consumer and are
    now impacting retail broadly.
        Resurgence in American manufacturing would result in a
    stronger U.S. consumer and a stronger retail industry over the
    long run. But in manufacturing and in supply chains, the long
    run is a long time. And a migration of manufacturing out of the
    U.S. took 30 years, and so it is critical that any proposed
    legislation understands and accounts for this. If you move
    forward with the border adjustment, I would recommend
    considering a long implementation period with a phase-in of the
    tax impact. And to guard against the currency fluctuations that
    some believe are just a textbook thing, economists forecasting
    those impacts would offset the change. And I would suggest that
    you peg or use the value of the dollar maybe to trigger or
    signal the next phase-in of the tax, or some other method that
    provides some security to the retail industry.
        And there is also things that the retailers can do, the
    industry can to accelerate the transition. First and foremost
    is embrace U.S. manufacturers when they come online, and they
    will come online rapidly, because with the change American
    sourcing will become increasingly viable.
        Also, being closer to the point of consumption shortens
    lead times, lowers transportation costs, and increases
    manufacturing flexibility.
        Second, for some products, and apparel is a good example,
    competitively priced U.S. product won't be available for some
    time. In that case, they need to work with existing suppliers
    and look upstream as a way to drive down costs. For example,
    American cotton is readily available on the international
    markets and could be acquired by a retailer and then reimported
    to offset some of the impact of the adjustment.
        With increased competition, obviously, prices will come
    down. Our current system isn't serving anybody well at all. But
    until we substantially change the puzzle pieces, the puzzle
    will continue to be assembled in a way that inhibits the
    development of our manufacturing base. It will continue to
    restrict the development of the American middle class, and it
    will not deliver the economic security that we need.
        But, if we get the pieces right, we will see a rebirth of
    American manufacturing without the severe negative impacts on
    important sectors like retail. We will see more good middle
    class jobs, a robust U.S. economy, and an era of growth that
    will be led by a new industrial revolution.
        Thank you.
        [The prepared statement of William Simon follows:]

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        Chairman BRADY. Thank you, Mr. Simon.
        Mr. Lindsey, welcome to you as well and please proceed.

    STATEMENT OF LAWRENCE B. LINDSEY, PRESIDENT AND CHIEF EXECUTIVE
                       OFFICER, THE LINDSEY GROUP

        Mr. LINDSEY. Thank you, Mr. Chairman.
        Chairman BRADY. Hit that microphone.
        Mr. LINDSEY. I was told to do that. Can't teach old dogs
    new tricks, I guess.
        Mr. Chairman, Ranking Member Neal, and members of the
    committee, thanks very much for having me here today.
        I think we all have the same objective, and that objective
    is to grow this economy faster, improve our competitiveness,
    raise living standards, and, if possible, improve the
    distribution of income by making it more fair. I am here today
    because I believe that the basic blueprint that was outlined
    will accomplish all of these goals.
        Forty years ago, when I was a graduate student, the basic
    structure of what was laid out in the blueprint was considered
    across the political spectrum to be the best way we could
    design a tax system. I quote in my testimony a paper written by
    a colleague of mine, Larry Summers, that points this out. He
    said: The welfare cost of capital income taxation is seriously
    underestimated. For reasonable parameter values, the annual
    welfare gained from a shift to consumption taxation is
    conservatively estimated at 10 percent of GDP. It is unlikely
    that that basic conclusion of this analysis would be altered.
    Capital income taxes are likely to appear very undesirable in
    any sort of realistic lifecycle formulation.
        That is how broad the consensus was about how we should
    structure our Tax Code. There was a survey of 69 public finance
    economists by NBER that said that the 1986 bill, which was a
    pale imitation of what we are doing here, increased the long-
    run growth of the U.S. economy by a full point.
        My work on the House blueprint suggests that we will have a
    growth rate of about 3 and a half percent for the first 4 or 5
    years, and that will ultimately moderate to about 2 and three-
    quarters percent. If you work it out, this is almost identical
    to Summers' calculation of a 10 percent increase. The reason is
    that if you look at recent performance, our problem has been a
    lack of capital formation, which in the current recovery has
    fallen by almost 40 percent, and the collapse in productivity,
    which has fallen by two-thirds.
        And by this, I am not counting the recession; I am counting
    the years after the recession. This has been the worst period
    of recovery ever, and that is why. And this bill targets both
    capital formation and entrepreneurship.
        I think all of the extra growth that will show up will be
    in the form of increased labor compensation. It is not only
    because of the structure of the tax, which will give each
    worker more capital to work with, but because we are right now
    at roughly full employment. And so any expansion of the economy
    I think is likely to lead to higher real wage growth.
        The last time we did anything like this, i.e., a capital
    formation-oriented supply side tax cut at a time of full
    employment, were the Kennedy tax cuts in 1964. And the takeoff
    in the economy and the rapid rise in capital--excuse me, rapid
    rise in wage income and improvement in the distribution of
    income occurred, just like I think will happen today.
        Let me turn to the territorial system and the border
    adjustment tax. I think we need to move to a territorial
    destination-based system and away from our current global
    production-based system. Right now, our goods are taxed here
    when they are produced and are taxed there when they are
    imported.
        On the other hand, their goods have a big tax rebate given
    to them when they leave there and are not taxed here. So,
    essentially, a good portion of our goods are taxed twice, while
    a good portion of our goods going there aren't taxed at all.
        Let me turn to a few particular points. Border adjustment
    isn't complicated. It doesn't follow each good each time it
    crosses the border. It is a netting effect of exports minus
    imports.
        Second, border adjustment will lead to a currency
    adjustment. We can argue about how much. But basically, when
    you put something like this in, you increase the demand for
    dollars and you decrease the supply of dollars. And higher
    demand and lower supply means a higher value of the dollar, it
    is as simple as that this.
        One of my competitors, I guess, has estimated this. They
    actually have the lowest percentage of exchange rate adjustment
    that I know of, 65 percent, and they estimate that the effect
    of border adjustment on consumer prices will be a one-time
    probably over two years, a one-time increase of the total
    consumer price level of just 1 percent. That is what we are
    talking about here. Will there be transition costs to these
    changes? Absolutely.
        And I agree with the other witnesses that that, in fact, is
    where the focus of our conversation should be. But the most
    important thing you can do is pass this bill. Thank you.
        [The prepared statement of Lawrence B. Lindsey follows:]

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        Chairman BRADY. Thank you, Dr. Lindsey.
        Ms. Clausing, welcome to today's hearing. Please proceed.

     STATEMENT OF KIMBERLY CLAUSING, THORMUND A. MILLER AND WALTER
               MINTZ PROFESSOR OF ECONOMICS, REED COLLEGE

        Ms. CLAUSING. Chairman Brady, Ranking Member Neal, members
    of the committee, thank you so much for inviting me today. In
    my testimony, I will talk about competitiveness, the Ryan-Brady
    plan, and alternatives to the plan that can keep the advantages
    but without the downsides.
        First, competitiveness: In talking about competitiveness,
    many people emphasize tax. But competitiveness really has more
    to do with fundamentals, like worker education, like an
    economically secure middle class, like sound infrastructure.
    The investments that make the middle class prosperous will make
    our businesses successful.
        But by most measures, our businesses are quite successful.
    Corporate profits are a higher share of GDP than they have been
    at any time in recent history. Profits in the last 15 years are
    50 percent higher than they were in prior decades. Also, our
    companies dominate the Forbes list of the most important
    companies in the world. While our economy is about one-fifth
    the size of the world, our companies are one-third of the
    world's top companies.
        While our corporate tax system has problems, most
    multinational firms face comparable effective tax rates as
    firms in other countries. In fact, our corporate tax revenues
    are lower than the corporate tax revenues of peer nations by
    about 1 percent of GDP.
        Turning to the Ryan-Brady plan, there are good parts.
        First, it tackles offshore profit-shifting, and this has
    become a huge problem. My research suggests that profit-
    shifting to tax havens is currently costing the U.S. Government
    over $100 billion every year. In fact, our profits are often
    shifted to tax havens such as those shown on the chart:
    Bermuda, Switzerland, and the Caymans.
        However, there are some serious flaws with the Ryan-Brady
    plan. First, the plan is likely to generate large economic
    shocks, harming American workers and major parts of our
    economy. The plan taxes imported goods; and absent dollar
    appreciation, this will harm American businesses and harm
    American consumers.
        In Oregon, a Nike executive called this plan the single
    biggest threat to the company in its history. Many practical
    considerations may get in the way of dollar appreciation, and
    the evidence we have suggests that there are some serious risks
    here. Do we really want to bet large sectors of the economy on
    this idea? The retail sector alone accounts for one in ten
    American jobs.
        Second, legal experts argue that the plan is incompatible
    with the world trading system. Because of this, our trading
    partners will file suit; and when we inevitably lose, they will
    be authorized to retaliate with tariffs, reducing U.S. exports
    by hundreds of billions of dollars. Trade disputes of this
    magnitude generate uncertainty, an unstable investment
    environment, and a threat to a trading system that we spent 50
    years negotiating after World War II.
        Third, this plan loses revenue. The nonpartisan Tax Policy
    Center estimates that it loses $3 trillion over 10 years.
        Although the border adjustment feature raises revenue, that
    revenue is simply borrowed from future taxpayers since trade
    deficits eventually turn to surpluses. Also, there is no
    intellectually coherent rationale for a lower rate on business
    income under this plan. Instead, the lower rate will cause
    revenue loss, as wealthy individuals mask labor compensation as
    business income.
        Fourth, the plan is regressive at the proposed rates. The
    plan benefits the top 1 percent with a tax cut 1,000 times
    larger than the tax cut for the bottom 80 percent. Yet this
    plan follows several decades of increasing income inequality
    and middle-class wage stagnation. It used to be that income
    growth was higher for the middle class than for those at the
    top, but in the past 35 years, there has been very little
    income growth for the bottom 90 percent of the population.
    Because of these trends, tax policy should be moving in the
    opposite direction of the Ryan-Brady plan.
        Fortunately, there are good alternatives to the Ryan-Brady
    plan. Congress should focus on a revenue-neutral reform that
    reduces the rate, but also eliminates loopholes. Most helpful
    would be repealing deferral, taxing offshore earnings in full.
    This will solve our huge profit-shifting problem and end the
    repatriation problem, but without the negatives of the Ryan-
    Brady plan.
        Making our tax system compatible with the global economy is
    an important goal. We need a simpler corporate tax system that
    actually collects the tax that is due at a reasonable rate.
    Even more important, we need a tax system that reflects the
    real struggles of the middle class by giving tax cuts that are
    larger for the middle class than for the rich.
        We should also work to solidify the fundamentals that are
    crucial to competitiveness. This requires responsible tax
    legislation with enough revenue for the priorities and
    education and infrastructure that we need.
        Thank you for inviting me to testify today. I look forward
    to your questions.
        [The prepared statement of Kimberly Clausing follows:]

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        Chairman BRADY. Thank you. And thank you all for your
    excellent testimony. We will now proceed to the question-and-
    answer session, and I will lead off.
        So, Dr. Lindsey, based on your economic analysis, you see
    in the blueprint significant acceleration of growth, greater
    than even the Reagan reforms, which you know quite a bit about,
    but you see all this growth reflected in higher wages, which is
    exactly what we want to see with tax reform and why we need tax
    reform now.
        And you have heard Mr. Cornell eloquently express concern
    the border adjustment element could result in higher prices for
    consumers and increase costs for retailers like Target that
    import a lot of the products that they sell. We don't want to
    see that happen.
        Can you explain why you don't think that will be a result
    of the border adjustment provision and, more broadly, how
    increased wages can help grow the economy, including for
    importers, who are an important part of our economy?
        Mr. LINDSEY. Absolutely, Mr. Chairman. I learned that time.
        First of all, why will wages at this point increase? I
    think there are two elements, some of which are neglected in
    the long-run analysis, and that is the particular point of the
    business cycle that we are at right now. We are labor-
    constrained, but because of the free flow of goods into this
    country, effectively, we are not capital-constrained.
        Now, if you have growth at this point and you keep that in
    place, what you are probably going to have is higher wages, but
    the cause will be a less competitive situation. I think what
    you will end up with is either an inflationary push, or you
    will have a recession, or possibly both. This is a very, very
    difficult time for the Federal Reserve, and I think they will
    actually be making the decision.
        The only way you can extend this expansion, which, although
    anemic, has been going on for 8 years, the only way you can
    extend it once you get to full employment is to also increase
    the supply side of the economy. Because what you are basically
    doing right now is you are driving up and you are about to hit
    a brick wall. And I think what you have to do is you either hit
    the brick wall or you move the wall. And I think what this bill
    will do is move the wall. That will allow wages to rise as we
    continue to expand jobs at full employment.
        I think any measure of how much wages will go up absolutely
    swamps any other distributional considerations. I think we will
    actually see for the first time in 50 years, actually for the
    first time since the Kennedy tax cut, a reduction in the
    measures of inequality we have.
        Chairman BRADY. Thank you, Doctor.
        Mr. Simon, you are a strong advocate for the retail
    industry, because of your work experience. You also have a
    passion for bringing manufacturing back to the United States,
    which will revitalize our local communities. And, as you say,
    with supply chains that are local, that will shorten lead
    times, lower transportation and transaction cost, but it will
    grow a middle class that is sustainable.
        So your experience with global supply chains, can you share
    your thoughts on what kind of manufacturing capability and jobs
    can return to the United States; and, as part of that, how can
    manufacturing and retail work together, partner with us to make
    sure this tax reform works well for them?
        Mr. SIMON. Thank you for the question, Chairman.
        Based on experience, and we have had early successes with
    the Walmart program, and the early successes in repatriation
    were new lines at existing factory and reopening of old
    facilities that had closed. Investors in companies have been a
    little bit hesitant to spend major capex needed for a
    transformational change, and hopefully, this will bring that
    forward.
        In order for the transformational change, we need some of
    the things that have been talked about today. Access to all the
    capital that is stashed offshore invested in the U.S. would be
    a huge boon for manufacturing. The expense versus depreciation
    issue would help, although for some small businesses you should
    potentially consider an either/or option. And, as the ranking
    member said, workforce transformation is really, really
    critical, because that is a limiting factor today.
        Retailers need to do some things too. The way the P&Ls are
    structured and incentives are structured aren't aligned to
    think. We have been trained over 30 years to behave the way
    that we behave. An example of that would be imported goods. A
    retailer has to order a year ahead of time nearly and then take
    possession FOB at the foreign port, and they are on the water
    for up to 3 months. So a year lead time, 3 months you own the
    product where your cash is not doing anything for you.
        Domestic products, when you order and the lead times could
    be as short as 14 or 16 weeks and you take possession when it
    hits your distribution center. So the cash flow is different.
    But most companies in their model don't incent buyers on cash
    flow; that is a Treasury function. It isn't until you look at
    the whole picture holistically that you start to realize that
    this can and does make sense.
        And we can expect products to come back in this order, and
    we did this work: Large, heavy, big items, heavy cube items
    first, like furniture, lawn furniture can come back now once
    the plant's in place. With some of the changes you make, the
    line will go down. There are some products today that the
    economics don't suggest they could come back. Small items like
    microchips in some cases or heavy labor items like cut-and-sew
    apparel could be challenging.
        But if we do the work, it is worth it. And I have toured
    towel factories in Georgia and bicycle factories in South
    Carolina where you can see the difference that it makes in
    people's lives. And more so, you can see the excitement and the
    energy and the transformation that occurs in the communities
    when these plants open, and it is worth every bit of the
    sacrifice that it might take to get there.
        Chairman BRADY. Thank you, Mr. Chairman.
        I now recognize the distinguished member Mr. Neal for any
    questions he might have.
        Mr. NEAL. Thank you, Mr. Chairman.
        Professor Clausing, as I mentioned in my opening statement,
    my priority as well as the minority's position here is in
    support fully of middle class relief. Would you talk a little
    bit about your ideas for what we might do with the Tax Code
    that would help with the middle class growth and aspiration?
        Ms. CLAUSING. Absolutely. One of the key things we can do
    with the Tax Code to help the middle class is to expand tax
    relief to the middle class at a greater rate than for the rich.
    I also think expanding the earned income tax credit is a
    crucial policy tool. It rewards work for some of the people in
    our society who most need help with their wages. Those two
    would be great contributors.
        I also think it is important to avoid tax changes that
    raise the deficit, because that hurts future generations of
    taxpayers and the fundamentals of our economy.
        Mr. NEAL. Mr. Cornell, you seem to be a bit skeptical about
    the argument over dollar appreciation. Do you want to talk a
    little bit about that?
        Mr. CORNELL. You know, we have spent a lot of time looking
    at this issue, and I am certainly not an economist. I am not a
    currency expert, but we have been studying what some of the
    experts have been saying. And, as you might know, there are
    very different opinions.
        I have talked to many of our economists, economists at
    Goldman Sachs that support us. Their economists have been,
    there should be grave doubts that exchange rates will smoothly
    offset the effects of the border adjustment. We have been
    listening to Fed Chairman Yellen. Her quote was: The problem
    is, there is great uncertainty with how, in reality, markets
    will respond to these changes.
        We worked very closely with the lead economist and FX
    trader at Bank of America, David Woo. He talks about this being
    the most difficult thing to forecast, and to build an
    intergenerational tax reform plan based on these assumptions of
    what FX will do is somewhat of a laughable notion.
        So when I read comments and read reports like this, and
    think about the impact this can have on our business, on
    American families, I worry about the impact on those families,
    who for basic essential items, for clothing, for back-to-school
    essentials, for those basic family essentials, as we looked at
    it, would be paying prices that could be 20 percent higher.
        So we have certainly looked at the currency adjustment. As
    we run our models, we factored in some currency appreciation
    and capture rates. But every time we run the models, we come to
    the same conclusion: Americans will pay more for basic
    essential items that they need today. And we don't think that
    is the right thing for American families, and I have a sense
    that many of you would agree with that.
        Mr. NEAL. Professor Clausing, who might be the winners and
    losers as a result of the border adjustment tax?
        Ms. CLAUSING. I think the big losers would be import-
    intensive industries and the workers in those industries and
    the consumers of their products, mostly because of this
    uncertainty about the exchange rate.
        Many countries have fixed exchange rates. Much trade is
    priced in dollars. And, you know, as just mentioned, the
    exchange rate is very difficult to forecast. It is a $5-
    trillion-a-day market, 88 percent of which is in U.S. dollars.
    So we aren't sure the exchange rate is going to appreciate and,
    absent that, the import-intensive industries would be really
    hurt.
        The export firms could win, but they also face some risks
    here, in terms of possible retaliation from trading partners
    and the like. So I would be happy to elaborate on those if you
    like.
        Mr. NEAL. If you want, you have another minute.
        Ms. CLAUSING. So, for instance, if we lose in the WTO,
    which most trade law lawyers think that we would, that will
    cause retaliation by our trading partners, and they would be
    authorized to have historically very large tariffs, enough to
    reduce U.S. exports by hundreds of billions of dollars. This
    has given a lot of exporting firms pause in thinking about the
    benefits of this proposal.
        Another major downside for them is that they may not show
    tax liabilities under this proposal, but if the exchange rate
    adjusts, they would be due a credit back from the government.
    However, the plan doesn't include enough to fully offset these
    losses.
        So they will find that they aren't able to use the losses
    that they are showing, which might lead to some silly outcomes,
    like ADM merging with Target. And it is not entirely clear that
    we want the Tax Code to induce those types of mergers, just
    because ADM can't use their losses and Target can.
        Mr. NEAL. Thank you, Mr. Chairman.
        Chairman BRADY. So, for the record, I am assuming ADM is
    not merging with Target. We can pretty much go with that today?
        Mr. CORNELL. You can go with that today. Chairman BRADY.
    Thank you, Mr. Cornell. Mr. Nunes, you are recognized.
        Mr. NUNES. Thank you, Mr. Chairman.
        Dr. Lindsey, thanks a lot for being here. I just want to
    ask you, Chairman Brady talked about this in his opening
    statement, but it is interesting that the one thing that the
    United States, Mali, Libya, Syria, Iraq and Afghanistan and
    North Korea have in common is what?
        Mr. LINDSEY. That we don't have any border adjustment.
        Mr. NUNES. We don't do border adjustment. All the other
    major countries in the world do. I am going to come back to
    you, Dr. Lindsey, but, Mr. Simon, I know that you formerly
    worked with Walmart. You were a global company, so you operated
    in many of these places that weren't North Korea, Iraq, Syria,
    Mali. I think you have places--your big markets are where,
    Canada, Mexico?
        Mr. SIMON. Correct, U.K., China.
        Mr. NUNES. U.K., China. In any of those countries, because
    they border-adjust, did you pay anywhere close to a 70 or 80 or
    90 percent tax rate?
        Mr. SIMON. I don't have that information at my fingertips,
    but my inclination is no.
        Mr. NUNES. Dr. Lindsey, I will come back to you. In your
    opening statement, at the very end of your opening statement,
    you didn't get a lot of chance to expand on it, but the one
    economist who is your rival who disagrees with the exchange
    rate, could you go into that, how he only came up with a 1
    percent change in price?
        Mr. LINDSEY. Sure. Again, the consensus of the economics
    profession is that simply supply and demand is going to cause
    the dollar to appreciate. And their estimate, which is actually
    very much in the low end, was that the appreciation would only
    be 65 percent of what one would expect in terms of full
    appreciation. And if you plug that number into the model, what
    you are going to end up with is a total increase in consumer
    prices of just 1 percent, not 1 percent a year, 1 percent
    altogether.
        Now, I know there are some concerns that have been
    expressed about the pace of it. The first thing I would point
    out is that markets move ahead of reality. That is how they
    make profits is market makers move quickly. So I wouldn't worry
    about things being delayed.
        The second point I would make is, yes, some countries have
    administered exchange rates, notably China, but, if anything,
    an administered currency exchange rate is something that is
    quicker to move. And, in fact, the Chinese, as soon as November
    9th, when it appeared that something like this might actually
    have a good chance of moving, the Chinese began the
    depreciation process quickly. They speeded it up.
        Now that the market thinks that it is less likely, they
    have tended to slow it down. So I wouldn't worry about the
    administered exchange rate argument, because I think, actually,
    they will be the first to move their exchange rates.
        Mr. NUNES. And you have worked on this, obviously, for a
    long time. And can you talk about the WTO argument, which is
    one of the main objections to this? Can you walk us through
    that?
        Mr. LINDSEY. Congressman, when you say a long time, you
    mean it. I think you were seven when I first started working on
    it, so that is a long time. I have worked on it in every
    administration. I am going to be very candid. The WTO is
    dominated by Europeans. There is no question about it, most of
    the rulings are pro-European. And yes, it is an international
    body and we should respect the international body, but we
    should recognize that prejudice.
        That is why European-style tax systems, one reason why
    European-style tax systems all had border adjustability
    declared legal. Now, there are technical arguments, and I would
    acknowledge that there are both lawyers and economists on both
    sides of this issue. I suspect that not even the WTO would be
    so boldfaced as to say it is okay for Europeans to do this, but
    not for Americans to do it.
        It is such a transparent recognition of their bias that I
    don't even think they would do that. Now, if they were then I
    think maybe we should reconsider our situation with the WTO,
    but I don't think that is going to happen. I just don't think
    that is logical.
        Mr. NUNES. So with the 30 seconds I have left, Mr. Lindsey,
    can you walk us through kind of maybe a possible phase-in
    approach of the border adjustment?
        Mr. LINDSEY. Yes. I mean, I get that 20 percent is a big
    leap, and I can understand the issue of uncertainty very well.
        I think one way of addressing that is to just do a portion
    of it. The first thing I would make sure I did was in the short
    run, maybe a year or two, you might want to say all dollar-
    based contracts are deemed to be domestic.
        But secondly, I think--so phase it in, say, 30 percent.
    Have only 30 percent of exports and imports involved. I don't
    think anybody thinks that a 6 percent border adjustment is
    going to, you know, ruin the world. It is not going to cause
    the retail industry to go out of business. So sure, let's try
    it. Let's try something minor.
        Chairman BRADY. All time has expired. Mr. Levin, you are
    recognized.
        Mr. LEVIN. Thank you.
        Welcome. I don't want to focus on this, Mr. Lindsey, but as
    someone who worked here with the WTO on like cases, I think
    there is a deep distinction between a VAT and a border
    adjustment tax, and I think we lost cases before the WTO and we
    would likely lose this one, with some very serious
    implications.
        And I have worked on this; we lost the cases twice that had
    some similarities. We need tax reform, but I think we need to
    step away from some of the mythologies. By the way, one is that
    the vague benefit in terms of income growth will come from a
    further income tax break for the high-income.
        And I would like to have introduced into the record a paper
    by Owen Zidar, who says: Stimulative effects of income tax cuts
    are largely driven by cuts for the bottom 90 percent, and that
    the empirical link between employment growth and tax changes
    for the top 10 percent is weak to negligible over a business
    cycle frequency. I would like that to be entered.
        Chairman BRADY. Without objection.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. LEVIN. Okay. Now I want to talk about manufacturing.
    The chairman used a few examples. And no one cares more, I
    think, about resurgence of manufacturing than I do; but the
    examples that you used of steel, that happened because China
    rigged its currency, because of their State-owned enterprises.
    It was not related in any real way to our tax system or theirs.
        The same is true of your reference to the automotive
    industry and the movement of auto parts and vehicle assembly to
    Mexico. It wasn't because of our tax systems; it was because of
    the huge differential in the cost of labor. And in both case,
    the Republican majority, both as to steel and as to auto parts,
    refused to address trade-related issues that impacted on the
    loss of manufacturing jobs.
        Now, let me just try to get to one of the nubs. I want to
    ask Professor Clausing this: In Mr. Lindsey's testimony, he
    reiterates an argument made by proponents of a BAT, namely,
    that U.S. companies are now disadvantaged when other countries
    operate under VATs with rebates for their exports.
        Two conservative analysts from Cato and George Mason have
    suggested this claim is false, saying the real issue is whether
    the playing field is level in a given market. They point out
    that if a U.S. company and a German company sell a product in
    Germany, both firms pay a VAT and corporate tax. If they sell
    in the U.S., both pay just a corporate tax. In other words,
    companies selling in the same market are treated the same.
        What is your view of this issue?
        Ms. CLAUSING. I absolutely agree with that
    characterization. And the designers of this tax, who are
    economists, also agree with that characterization. The VAT
    doesn't create on unlevel playing field across countries. And
    so the Made in America tax concept is little bit misleading.
    Put simply, imagine an American firm selling a good in France.
    If the American firm sells it in France, they pay the French
    value added tax, but so the does the French firm. They pay the
    U.S. corporate tax, and the French firm pays the French
    corporate tax. So they are treated the same. If the two firms
    instead sell in America, neither of them pay a value added tax,
    but they both pay their corporate taxes at home. So we already
    have a level playing field with respect to those taxes. And
    that is why the Cato person that you cite agrees with that, but
    also Alan Auerbach and Mike Devereux, and others who designed
    this tax, would similarly agree with that.
        Mr. LEVIN. Okay. This is one of the gists of the argument.
    And I think as we talk about substance, both on manufacturing
    but also on the BAT, we need to really look at the realities.
    There may be a difference in the corporate tax structure in
    Europe and the United States, and, therefore, there may be some
    differential. It may not be entirely level. But in terms of
    each paying the same kind of taxes, it is the same. I yield
    back.
        Chairman BRADY. Thank you.
        Mr. Reichert, you are recognized.
        Mr. REICHERT. Thank you, Mr. Chairman. Welcome, and thank
    you for your testimony today.
        Like our witnesses last week, you have all made it very
    clear that we are behind in global competition, that the Tax
    Code is holding our businesses, farmers, and workers back. And
    we all know that given half a chance, our American workers will
    always exceed and win, from the apple grower in Eastern
    Washington, to the manufacturer on the west side of the
    mountains south of Seattle.
        We all agree that we need tax reform. The devil is in the
    details. And your testimony today has been very educational and
    helpful to me, I know for sure. But this is our chance to build
    a competitive Tax Code that leads to increased growth, higher
    paychecks, and greater opportunity, and I know Mr. Neal said
    ease the financial burden of the middle class. But we are more
    interested in not just easing the financial burden, but
    providing job opportunities and economic growth. I mean, we
    want to think big and move forward, look to the future.
        So I want, Mr. Luciano, please, if you could discuss
    further how the international tax system impacts your company's
    domestic/international operations, and with the modernized
    code, would you invest more in the United States?
        Mr. LUCIANO. Thank you for the question, Congressman.
        So a healthy agricultural industry is important for us to
    be able to feed the world. We will have to feed 9 billion
    people in 2050, and that is a challenge in itself. But it is
    also important because of the connection with the middle class
    and middle America. We are a company that have 32,000 people,
    but we have only in our headquarter--global headquarter in
    Chicago, we are less than 70 people. The rest of the people are
    in small communities, whether it is Decatur, Illinois; Cedar
    Rapids, Iowa; Alpharetta, Georgia, those are where the people
    are. And we see those communities. And in those communities
    inside the country, in small, rural America, there are very
    little competitive advantages left. And that is why it is so
    difficult to get jobs, and to get industries. One of the
    competitive advantages is agriculture.
        But the way we are operating today, when we compete in a
    global market, if I need to sell to Egypt, and I have the
    choice to bring the product from Kansas City, wheat, Kansas
    City, or from Ukraine, Ukraine has the opportunity to get the
    refund of the BAT. So the Ukraine does not have--they get the
    credit for that 20 percent, where the U.S. does not.
        So, to me, if you think about one thing to have a
    competitive playing field for the farmers in the U.S.--and you
    heard my oral testimony, we have lost market share. We used to
    be the breadbasket of the world. We have lost it in wheat to
    Russia. We have lost it in soybeans to Brazil. We are hanging
    to corn, but not for long. So what happened in this period is
    that acreage in the United States has been reduced 12 percent
    over the last 20 years. While in Russia, production of corn has
    improved 61 percent. The planted area of soybeans has increased
    by three times.
        So all these countries where they have the same competitive
    advantage that we have, whether it is, you know, a very good
    weather, good soil, and land available, have countered with
    policies that actually have been helping those farmers to take
    market share from the U.S. So we are not leading any more into
    that, and we are slowly declining. As you decline, those
    communities that are boosted by agriculture, continue to
    decline as well. Because when we go there, we just don't have
    an elevator or storage. We buy from the farmers, and the
    farmers--and we also have an ecosystem of other companies that
    basically supply security to us. They supply, you know, safety
    equipment, that they supply----
        Mr. REICHERT. Would you invest more money into the United
    States?
        Mr. LUCIANO. I am sorry?
        Mr. REICHERT. Would your company invest more money back
    into the United States?
        Mr. LUCIANO. Of course. If the farmer would be growing in
    the United States. At this point in time, again, we have lost
    50 million acres. So we are going to invest if there is going
    to be more production. So I think that with the plan like the
    blueprint we are considering today, we can see us leveling the
    playing field for the U.S. farmer to be competitive in the
    world. And that could become, as you guys said before, a magnet
    for investment in the U.S. and jobs. And I think that this
    blueprint achieves that.
        Mr. REICHERT. Thank you.
        Chairman BRADY. Thank you. Time has expired. Mr. Lewis, you
    are recognized.
        Mr. LEWIS. Thank you, very much, Mr. Chairman. Let me thank
    all of the witnesses for being here today.
        Dr. Clausing, you are the Democratic witness, right?
        Ms. CLAUSING. That is correct.
        Mr. LEWIS. And you are the only woman on this panel?
        Ms. CLAUSING. That is also correct.
        Mr. LEWIS. You see a lot of men here dressed in blue suits.
        [VOICE]. Not everybody.
        Mr. LEWIS. Well, one in gray.
        Don't you think it is sort of strange when we are talking
    about tax reform, and when women make up more than 50 percent
    of the population of America, and you see all of these men
    here?
        Ms. CLAUSING. Well, there is a lot of strange things about
    tax reform.
        Chairman BRADY. Thank you.
        Mr. LEWIS. Don't you think we should move into the 21st
    century as a Nation and as a people?
        Ms. CLAUSING. Absolutely.
        Mr. LEWIS. Comprehensive tax reform should help the middle
    class and working families. Do you think this proposal will
    help the middle class and working families.
        Ms. CLAUSING. I have several doubts about that. And mostly,
    if you rely on the nonpartisan Tax Policy Center estimates, my
    biggest concern is that the top one percent get a tax cut that
    is about $200,000, and the bottom four-fifths of the population
    get a tax cut that is about $200. Now, this $200 tax cut is
    nice, but it is not going to go very far if your imported goods
    are more expensive, or if you have lost your job because you
    are in the retail industry and the exchange rate didn't adjust
    as quickly as we thought. Waiting around for an exchange rate
    to adjust can take some time, and as Keynes once said, ``In the
    long run, we are all dead.'' So I worry a lot about the middle
    class given the way that this tax cut is structured.
        Mr. LEWIS. You stated in your testimony that business tax
    reform should be revenue neutral. Can you explain why this is
    so important?
        Ms. CLAUSING. Yes. The deficit is an important issue for
    several reasons. We have a lot of obligations to our senior
    citizens, many of whom are retiring now and will be older in
    the coming years. And this means that even on a normal
    trajectory, our deficits are going to be increasing due to our
    Social Security and Medicare obligations.
        So tax cuts, at this point, will make those deficits even
    larger, and those deficits can crowd out investment or increase
    the size of our trade deficit, both things that this committee
    might worry about.
        So I think it is important to raise adequate revenue,
    because we are going to need that revenue for priorities that
    also affect our competitiveness, like infrastructure,
    education, healthcare, and the like.
        Mr. LEWIS. Thank you.
        Mr. Chairman, I would like to yield the balance of my time
    to Mr. Doggett.
        Mr. DOGGETT. Thank you very much.
        So many of our colleagues believe that there is a giant tax
    cut rainbow, and at the end of that rainbow is a huge pot of
    tax cut gold, that if we can just find the right good tax cut
    fairy, everything will be blissful in our country. And because
    they believe that, there is no obstruction of justice, there is
    no breach of our national security, there is no tweet that is
    too outrageous to be ignored, because Donald Trump is viewed as
    the key way to find that good tax cut fairy.
        We find ourselves here today with more of the mythology and
    fantasy that has characterized this debate from the outset.
        Now, I agree 100 percent with the chairman that we should
    be supporting a pro-growth tax policy to grow jobs in this
    country.
        The problem is the so-called better way, as self-styled,
    does not do that, and it does not even come close. It is a
    better way to get more national debt. It is a better way to
    widen the income gap and disparities that are already out
    there. And without the border adjustment tax, which is already
    on life support, the remainder of the territorial system here
    will only grow jobs overseas as it advantages multinationals
    over small territories.
        And how amazing to hear that the policy we need to follow
    from the Tax Foundation is to achieve the type of system
    Estonia and Latvia have. Who knew that that was the approach to
    success here? Well, Estonia and Latvia, in the time that they
    have had that, over in the last 3 years, have never grown more
    than three percent. And we are told that under this magical tax
    fairy approach, we will achieve over 5 percent growth. It is
    mythology in action.
        Chairman BRADY. All time has expired. Mr. Roskam, you are
    recognized.
        Mr. ROSKAM. Thank you, Mr. Chairman.
        Three observations, and a question for you, Mr. Simon.
        Observation number one: Mr. Neal observed that there is no
    small business here, and yet on Thursday, it is no myth, there
    was a small business here; Mr. Mottl, from the Chicago area,
    who testified two or three times in a competitiveness hearing
    how in favor he was of border adjustment. It was very powerful
    testimony. You can look at the record. Point number two: It is
    interesting, we are an hour and 20 minutes into this hearing
    and no witness, no member of this body, has mentioned the myth
    of $1700 negative impact on average, middle Americans that has
    been running on television ads, criticizing the border
    adjustment tax. Really interesting. And I commend the critics
    of border adjustment today not using what factcheck.org called
    baloney.
        Third point: Professor Clausing was pretty dismissive--I
    mean, listen, we are all in the advocacy business--but was
    pretty dismissive of this WTO question. And I just think we
    have got to be sort of measured and sobered, because she made a
    claim that this will inevitably lose before the WTO, and then
    quickly, in the testimony, was, like, tripping us down into the
    valley of retaliation. And I thought it is important to
    recognize that the Director General, Alberto Acevedo, of the
    WTO, has noted that there is lots of gray areas in the WTO
    rules. And he has declined to speculate. And we are working
    through these details. And we are mindful of the criticism.
    But, surely, we don't need to be just coming to the conclusion
    that this is not compliant.
        Mr. Simon, I think you are the most interesting person here
    today. You are the most interesting person here today because
    you have got the value of actual perspective. And you have made
    some very strong claims. You said this in the best interest of
    our country, if properly implemented. That is an incredibly
    strong claim.
        You said: If we do the work, it is worth it. The change in
    American sourcing becomes increasingly viable. I mean, there is
    an aspiration there.
        Look, one point--and then I am really interested in your
    viewpoint as somebody who has run, arguably, one of the biggest
    retail operations on the globe, why doesn't this create fear
    and loathing in you in the way that it does Mr. Cornell and
    others? Why do you say, no, no, no, this is a good thing. I
    know this system. This is a good thing.
        Here is one point: We haven't discussed the nature of the
    companies that are leaving today. So in Chicago, for example,
    when Aon left, where did they go? They went to the U.K. They
    are going to our best friends. When Burger King left, they went
    to Canada. They are not going to some tax haven.
        Walgreens tried to make a jail break not long ago. They
    weren't successful based on the politics.
        But it seems to me, like our Tax Code is an island that is
    dissolving underneath us. Dissolving underneath us. And we have
    got an opportunity for a transformational moment. What is the
    transformational moment, Mr. Simon, that we should seize? Why
    is your insight so helpful? And what assurance do you have for
    people who have no interest in having an adverse impact on
    middle class families? Why is this a boon?
        Mr. SIMON. My view is not too dramatically different from
    what Mr. Cornell just described, or the retail industry. The
    concerns that they have are real. And if we can address those
    with an implementation mechanism or a safety net of sorts or
    a----
        Mr. ROSKAM. A transition.
        Mr. SIMON [continuing]. A transitional plan for them, on
    the other side of this, it will be very, very good for the
    country. That is the point I came here to say today. I don't
    want to ignore, nor bulldoze their concerns. Because improperly
    implemented, it will be very, very hurtful for the industry and
    the consumer.
        But if we take the time and do the work, and sit down in a
    group and iron out, lay out, what it will look like, I think it
    will be very, very successful for U.S. manufacturing. Once the
    middle class jobs start to return to the country, and the wage
    increases that would come with that, retail will start to see a
    new sort of resurgence and a period of growth.
        Right now, the wind is coming out of retail sales because
    the wind is coming out of the middle class. And the points
    about the bifurcation of income have been well-documented.
    There just aren't enough people on the high-end to keep all the
    retail locations that we have going, and that is why they are
    struggling.
        But if we can rebuild a middle class through a
    manufacturing base, retail, in the long run--and I know
    everybody is dead--but in the long run will be better.
        The question is, how do we get to the long run? And that is
    what I would like to get to discuss.
        Mr. ROSKAM. And I think a smooth transition is key. Thank
    you, Mr. Simon.
        Mr. CHAIRMAN. Thank you. Time has expired. Mr. Doggett, you
    are recognized.
        Mr. DOGGETT. Well, thank you, very much.
        I guess we do just have a basic disagreement. In referring
    to America as a prison break, America is not a prison for
    American business. We have some of the most competitive
    businesses in the entire world.
        And to refer to it as a prison break, is also wrong in that
    the reason these companies have suddenly renounced their
    American citizenship and gone abroad, in many cases is because
    of the consistent refusal of our Republican colleagues to
    support measures to put a stop to it. They won't close the door
    to those who want to do their business here in America and head
    off to Ireland, or the Bahamas, or the Cayman Islands. And Dr.
    Clausing has some impressive data about that that I would like
    to explore.
        Additionally, we have already seen the path, the rainbow,
    to the pot of gold followed once in this committee already,
    with the results that will be achieved if we do it a second
    time. And that is on the so-called ObamaCare repeal, which was
    really nothing but a $1 trillion tax cut that rewarded certain
    special interests like pharmaceutical manufacturers, and
    dramatically, again, widened the income gap by giving the
    benefits to those at the top rather than to the middle class.
        Of course, we don't know exactly how much it did that,
    because it was rushed through this committee almost overnight.
    And we still don't have a score from the Congressional Budget
    Office for that ill-advised proposal. Even though they rushed
    it through, it is still sitting on the Speaker's desk. They
    weren't in such a rush they sent it over to the Senate for
    action.
        Let's focus on the propaganda and mythology associated with
    today's proposal, the so-called Better Way.
        And one of the big aspects of the pot of gold that is out
    there waiting for us is $2.6 trillion that is just dying to
    come back to America if we will treat it right.
        Dr. Clausing, I would like to ask you about this $2.6
    trillion in so-called stranded offshore earnings that could
    allegedly do so much good in creating jobs here in America. Is
    it true that much of that money can already be invested in the
    U.S. economy without those multinationals paying a dime of tax
    on it unless they earn money from their investments here?
    Indeed, aren't a substantial portion of that $2.6 trillion,
    isn't it already being held in Wall Street institutions right
    here, onshore, within the United States?
        Ms. CLAUSING. Agreed. Yes. Much of that money is booked
    offshore for tax purposes, but it is still invested in U.S.
    assets through U.S. financial institutions.
        There are limits on what firms can do with that money. They
    can't give it back to their shareholders as dividends or as
    share repurchases. And this is why they are very anxious to get
    that money back. But they can still borrow against those funds,
    and the firms that have those funds abroad are some of the most
    creditworthy firms, you know, on the planet, and they have no
    trouble financing new investments.
        Mr. DOGGETT. And your paper shows that they, in fact, earn
    millions, if not billions, of dollars in interest and dividends
    right here in the United States on their offshore earnings
    today.
        Ms. CLAUSING. That is correct.
        Mr. DOGGETT. Now, you mentioned the fact that they would
    like to have this money back not to create jobs but to give
    higher earning executives even more high earnings and to give
    their shareholders dividends and stock buybacks. We have had a
    little experience with that before. And it is just really
    appropriate that former Chairman Thomas was here. Because he
    was the author pushing through this committee what was called
    the American Jobs Creation Act of 2004.
        How many jobs did that bill that this committee heard much
    of the same rhetoric that we are hearing in support of this
    measure, how many jobs did that bill create?
        Ms. CLAUSING. My understanding is that all economists who
    have looked at that bill found that it didn't create a single
    job or cause a single investment, and this includes some people
    who advised George W. Bush, who also looked into this. That
    money was used for dividends and share repurchases and some of
    the firms that repatriated the most money actually laid off
    workers. It is possible it did have a small job creation affect
    for lawyers and accountants because there was a lot of
    complexity in the bill as well.
        Mr. DOGGETT. We were told by the chairman, follow the
    example of the Tax Foundation, follow Estonia and Latvia and
    their tax policies. Do you think our companies will be more
    competitive if we adopt the Estonian and Latvian approach to
    international taxation? Are they competitive today in the
    international market?
        Ms. CLAUSING. As the slides I showed earlier indicate, they
    are quite competitive. We have profits these days that are 50
    percent higher than they were in prior decades.
        Mr. DOGGETT. Thank you.
        Mr. CHAIRMAN. Thank you. Time has expired. Mr. Buchanan,
    you are recognized.
        Mr. BUCHANAN. Thank you, Mr. Chairman. I also want to thank
    all of our witnesses for being here today.
        Dr. Lindsey, let me ask you: I think you have had as much
    to do with the blueprint as anybody. The economy is growing an
    anemic 1 percent, on average 1\1/2\ percent the last 10 years.
    I guess you have got to go back in the 1950s where it is only
    grown at that percentage. But what is your thoughts, when you
    talk about growing the economy and this plan from 3, 3\1/2\, 4
    percent, I don't want your number, but I heard 3\1/2\. On what
    basis, and what are the drivers that is going to drive it up
    from 1, 1\1/2\ percent, to 3\1/2\?
        Mr. LINDSEY. Sure.
        There are two steps here. The first is what I would call
    long-run capacity. Auerbach and Kotlikoff, for example, have
    the same long-run number that I do, which is 2.7, 2\3/4\
    percent.
        However, to get to that capacity, we are likely to have a
    short-term increase in business-fixed investment. That is
    actually the demand side of the proposal. That is going to
    stimulate the economy in the short run. I think this is a very
    high multiplier tax cut in that regard. And that is how I got
    to the numbers that I got to. There is both a long run and a
    short run component.
        Mr. BUCHANAN. Let me ask you another question. One of my
    concerns--and I have heard other people express it--is the idea
    of budget deficits. When we came here almost 10 years ago, it
    was $8 trillion and change; today it is $20 trillion. At some
    point, it ends badly. That is why I am a believer, like 49 out
    of 50 Governors, have a constitutional balanced budget
    amendment. But what does this do to our deficit long-term? I
    mean, ideally, with the growth, it should be somewhat revenue
    neutrality, ideally. What are your thoughts on that?
        Mr. LINDSEY. Yeah. Though I scored out the long-term debt
    situation, I think on an annual basis, the blueprint breaks
    even about in year 6, and I think that by year 12, the total
    cost of the deficit--excuse me, deficit cost of the bill will
    be covered.
        So long run, very long run, I think it is a positive. And I
    think that it is essentially a revenue-neutral bill over 12
    years.
        Mr. BUCHANAN. And my last question is on inversions. We do
    have a lot of great companies leaving America. I would like to
    think that as a part of our tax planning, this could be the
    best place on the planet to do business in terms of a pro-
    growth tax policy where they are not moving their tax havens;
    they are moving to our friends in Canada and Great Britain
    where they have cut their rates. In fact, I read--someone said
    The New York Times--that the inversions in Great Britain have
    come down dramatically, or pretty much quit. What is your
    thoughts in terms of that?
        Mr. LINDSEY. I think it is important that we differentiate
    between the inversion piece and the offshore money piece.
        I listened to Mr. Doggett's comments carefully, and there
    is actually one component in which I think he is correct, and
    that is, that the money so-called kept overseas is in
    international markets. And I know a lot of people have said,
    Oh, let's use that for infrastructure, things like that. I
    think it is in international markets already.
        However, the tax revenue associated with that has not come
    to the U.S. Treasury.
        My colleague here estimates that the annual cost of that is
    $100 billion that is being lost to the U.S. Treasury. This bill
    fixes that. In addition, if you have a one-time deemed
    repatriation, depending on the rates you select, you are liable
    to get perhaps as much as $200 billion. I don't know what the
    actual number is, depends on your rate. So, yes, the money is
    in international markets. But the taxes on that money is not in
    the U.S. Treasury. It should be, and the bill under
    consideration will do that.
        Mr. BUCHANAN. The other thing I have watched--I have been
    in business for 30 years before I got here--is that people will
    move to different States; Florida, no State income tax; Texas;
    Nevada. You can name the States. They will move and move their
    businesses to other States, and it is the same thing in terms
    of moving--in terms of inversions and other things. Not
    everybody, but some. It is a major consideration and major
    driver. Don't you agree?
        Mr. LINDSEY. Absolutely. The best thing we can do, long
    run, for workers, for everyone, is to make America the best
    place in the world in which to invest, and start a business,
    and hire people. And I think this bill does that.
        Mr. BUCHANAN. Thank you.
        Mr. CHAIRMAN. Thank you.
        Mr. Thompson, you are recognized.
        Mr. THOMPSON. Thank you, Mr. Chairman. And thanks to all
    the witnesses for being here.
        Mr. Chairman, I have two articles that I would like
    unanimous consent to place into the record. One is out of The
    New York Times that points out that after eight years of steady
    growth, the main economic concern in Utah, and a growing number
    of other States, is no longer the lack of jobs, but a lack of
    workers. And it goes on to explain this shortage. I would like
    to have that----
        Mr. CHAIRMAN. Without objection.
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        Mr. THOMPSON. And then the second one is a Wall Street
    Journal article that explains, I think beautifully, the point
    that Mr. Doggett was making as to what companies who
    repatriated moneys from overseas spent that money on. And I
    think it hits those points exactly. And I think Mr. Doggett was
    correct. I would like to have that put into the record.
        Mr. CHAIRMAN. Without objection.
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        Mr. THOMPSON. Thank you.
        Ms. Clausing, you mentioned in your written testimony that
    the border adjustment tax would raise revenue, but that that
    revenue was ultimately borrowed from future taxpayers. I want
    to make sure that people at home fully understand what this
    means, and how it is going to impact their pocketbook. Can you
    elaborate on that a little bit, please?
        Ms. CLAUSING. Sure. At present, we run a trade deficit. And
    because of the size of that deficit, that means that when you
    tax imports and exempt exports from taxation, on net, the
    border tax will raise revenue, and the Tax Policy Center
    estimates it is about $1 trillion over 10 years. But no country
    can run a trade deficit forever. Trade deficits entail a flip
    side, which is borrowing from foreigners. It is equal and
    opposite to the size of the trade deficit.
        So, eventually, when we repay that money, we will also be
    running a trade surplus. In those years, the import tax will
    raise less revenue than the export exemption costs the
    Treasury. So in the future, our taxpayers will actually lose
    money from the border adjustment. So that means that,
    basically, what we are getting from that is revenue that we are
    borrowing from future generations.
        Mr. THOMPSON. I had someone come in and talk to me the
    other day about the effect that the border adjustment tax would
    have on their business. They are a company located in
    Washington.
        They make $30 million a year, employ 4,000 employees. What
    they sell, they buy from 31 other countries. They are items
    that wouldn't be made in this country no matter what we do.
    There is a very low markup on this stuff.
        And they told me if the BAT comes about, that they will go
    from making $30 million a year to losing $130 million a year.
    In other words, this Washington State company would close the
    doors, five-generations-long company, would close the doors.
    And I think that is something that we need to be concerned
    about. But the other side of that--and it has really become--
    made clear today is our constituents, those consumers that buy
    those products--and there is a couple of companies represented
    on the dais today that represent companies that those consumers
    that buy those products, they are going to be hurt. And that is
    exactly, I think, what it is that Ms. Clausing is talking
    about. So your consumers, our constituents, are going to see
    their prices go up.
        There was also--Ms. Clausing made the point about the WTO
    impact.
        How would this play out? When would we see this happen? I
    represent a district that imports a lot of products overseas. I
    represent wine country in California. And whenever there is a
    discussion about anybody retaliating, it doesn't take long
    before that conversation comes back to U.S.-exported wine.
        So can you tell me what our constituent companies are going
    to experience if retaliation becomes a reality?
        Ms. CLAUSING. Yeah. So our trading partners are already
    preparing suits to be filed with the disputes settlement
    mechanism of the WTO. This dispute settlement mechanism, by the
    way, is something the U.S. helped negotiate, and it is
    something that serves our interests very well because often the
    WTO will rule in our favor about disputes that we have too. The
    WTO has over 160 member countries, and it supervises a well-
    functioning trading system. But once they authorize that our
    tax is a direct tax, which it is, and thus it violates the WTO
    obligations, that then gives the green light to trading
    partners to retaliate in an equal and opposite fashion. And
    because of the size of this, that will entail large tariff
    burdens.
        Mr. THOMPSON. Thank you very much.
        Chairman BRADY. Thank you.
        And without objection, I would seek to place in the record
    the Goldman Sachs report that estimates that with no
    appreciation of the dollar, 85 percent of industries have
    actually cut their prices, still maintain their current profit
    margins, and with the dollar even partially adjusted, likely no
    industry would need to raise prices. Without objection.
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        Chairman BRADY. Mr. Smith, you are recognized.
        Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman. And thank
    you to our witnesses here today for sharing your perspective
    and insights. I think this is an overdue conversation that we
    need to have, and I think a constructive moment here as we do
    sift through the facts. And I just think that the status quo
    with our Tax Code shows that we have great opportunity to
    change it, to be bold, and to truly pursue growth-oriented
    policies.
        Representing agriculture, the number one agriculture
    district in the Nation, certainly we are pretty good at
    exporting things already. I don't want to jeopardize that. But
    I also am concerned that there actually are still significant
    barriers.
        And, Mr. Luciano, you stated that there are some barriers
    that are still out there that you feel that the tax proposals
    that are being made would be helpful in overcoming some of
    those obstacles.
        I am also concerned when I hear Professor Clausing say that
    U.S. multinationals are not paying very much tax, and that the
    tax rates proposed in the tax reform plan are too low, and that
    a better reform would be to expand the U.S. worldwide tax
    system by eliminating deferral. And now imposing immediate
    taxes on U.S. companies' worldwide income, I believe, would
    move our country in the exact opposite direction as our trading
    partners, and I think a lot of the facts would point to that.
        But, Mr. Luciano, can you talk about your perspective?
        Obviously, it is a pretty broad perspective. I know you
    depend on ag producers, one at a time, being successful,
    hopefully, on their productivity, their efficiency. Can you,
    perhaps, expound on how you think that this plan might help and
    that also perhaps some of the notions that imposing immediate
    taxes on U.S. companies' worldwide income moving our country in
    a negative direction?
        Mr. LUCIANO. Yeah. Thank you for the question.
        This is all about balancing the playing field. When we
    compete with the other companies, other global grain companies
    that are as well capitalized, or they have the same technology
    as we have, and experience that we have, as I said before, we
    pay about 30 percent. I have two of them that pay in the low
    20s, the rest in the mid teens. So that is the kind of
    difference. And in agriculture and the business we are in,
    business models are very similar. So it is very similar to
    compare these. So there are no major differences in our margins
    because the trade of commodities are very thin. So these
    differences in income tax are astronomical in putting ADM, at
    this point, at a disadvantage to other competitors around the
    world. And then they have the flexibility to move their
    earnings and invest wherever they want, which, you know, we are
    partially restricted to.
        And the third point is that a lot of their exports are
    coming from countries that they refund the BAT. If you look at
    Ukraine provides 20 percent refund of BAT. Argentina, 10
    percent. Germany, 19 percent. And then you have places that
    compete with us, whether it is Australia, Canada, or Brazil,
    that basically have internal consumption taxes that they are
    not assessed for exports. So there is no wonder that our market
    share of global commodities from the U.S., exported to the
    world, is declining, and it is going to continue to do so
    because we are at a disadvantage.
        So, to me, this proposal addresses those three issues,
    where they are going to get jobs back to middle America, and to
    the middle class of America, through agriculture, which is, I
    think, one of the true competitive advantages of the U.S.,
    inside the U.S., the middle of the U.S., still have.
        Mr. SMITH OF NEBRASKA. Thank you. I know that there are
    many challenges facing agriculture, and I would hope that we
    would not complicate matters and that hopefully a growing
    economy will also help agriculture.
        Ms. Clausing, I think you suggested--but correct me if I am
    wrong--that perhaps the corporate Tax Code that we currently
    have is really not that bad.
        Now, I thought that perhaps some lower hanging fruit in
    terms of agreement on changing our Tax Code would fall in that
    corporate category. But am I wrong in----
        Ms. CLAUSING. You are wrong. I mean, I think that most
    economists across the political spectrum think that there is
    ample room for a fair improvement to the corporate tax system,
    and I suggested some alternates in my testimony.
        Mr. SMITH OF NEBRASKA. What would that look like?
        Ms. CLAUSING. But I believe it would include, potentially,
    a lower rate, but combine that with closing the loopholes that
    we have presently. Right now, some of the domestic firms pay,
    you know, much higher rates than these mobile multinationals.
        Mr. SMITH OF NEBRASKA. Thank you.
        Chairman BRADY. Thank you.
        Mr. Larson, you are recognized.
        Mr. LARSON. Thank you, Mr. Chairman. And I want to thank
    all the panelists. We always like to think that Congress is
    about the vitality of ideas openly exchanged. And today, Mr.
    Chairman, you are to be commended, because I think we are
    witnessing that here. I also want to thank my colleague, Mr.
    Roskam, for pointing out, and I share his sentiments about Mr.
    Simon, and I must confess a prejudice because of representing
    the city of Hartford, and also would note the strong feeling we
    share, I know on this side of the aisle, and I daresay my
    colleagues on the other side, as well, with the key to
    manufacturing.
        You mentioned, too, in Hartford, both Colt Manufacturing,
    and, of course, Pratt & Whitney, which is a part of United
    Technologies. United Technologies does exemplary in terms of
    what they do for their employees. And I would hope all
    manufacturers would take heed in terms of offering free
    education to further their training in any field, paying for
    that, and giving them time off. That is a little plug for
    United Technologies and for the city of Hartford. And thank you
    for being here. Thank all the panelists.
        To get back to your point about manufacturing. If we are
    going to revive the middle class, and I think the disparities,
    as everyone on this committee has pointed out, are pretty well-
    known to everybody. The concern, on this side, is that what we
    see is this shift that is going to take place again.
        Mr. Doggett pointed out that we saw that in healthcare, and
    now it seems in the tax proposal that we are going to see this
    again.
        Ms. Clausing, you pointed out that that shift is very
    dramatic, and what would result in this would be almost 1,000
    percent difference in terms of what would be the share for the
    middle class versus the Nation's top one percent.
        Could you explain that?
        Ms. CLAUSING. Those come from the Tax Policy Center
    estimates of the bill. And that is a nonpartisan center. And
    those are their estimates, that the top 1 percent would get a
    $200,000 tax cut, and the bottom 80 percent would get a $200
    tax cut. So that is a thousand fold difference.
        What Mr. Lindsey's testimony suggests is that if you had
    enough growth, that could maybe counter some of those effects.
    If you had enough investment, that could raise wages. But I
    have some concerns about that as well. In particular, it seems
    odd to suggest that what we need is more after-tax corporate
    profits to generate investment and wages when we are at a
    period of historically very high corporate profits.
        And sometimes, these growth forecasts can be a little too
    optimistic. When they surveyed economists very recently about
    whether the Trump growth forecast that went with his tax plan
    were, you know, accurate, 35 of 37 economists concluded that
    those growth forecasts were way too optimistic. And when they
    asked the other two, well, why do you think it is going to grow
    so quickly, it turns out they misread the question. So all 37
    really disagreed with those optimistic growth estimates.
        So I think it is important that our budgets and our tax
    plans raise the revenue that is needed now without making
    valiant assumptions about growth and----
        Mr. LARSON. I think a number of our manufacturers and
    exporters--and Mr. Simon pointed out how this could work. And I
    appreciate a lot of the optimism and concern that have been
    stressed. He mentioned caution as we go forward to make sure
    that we get this right.
        Being from a strong manufacturing State, what would be some
    of the risks for major manufacturers? And is it clear that this
    is a clear winner or do we have to exhibit that caution? And
    what would be your concerns, Ms. Clausing?
        Ms. CLAUSING. I think the exchange rate risk is a serious
    one. I went back and looked at all of the countries that have
    adopted VATs, which should see a similar exchange rate
    adjustment under a floating exchange rate. And there are only a
    handful of rich countries that have adopted VATs under floating
    exchange rates to look at. But if you look at that set of
    countries, in three quarters of the cases, the exchange rate
    actually moved in the wrong direction. So I guess my point is
    exchange rates are very volatile. It is a very large market. We
    can't be sure it is going to move in the right direction or by
    the right amount, and that gives us a big risk for the import-
    intensive industries. If you look at the data, it appears that
    countries with VATs also trade somewhat less than other
    countries. And I think trade is an important part of a healthy
    manufacturing sector, and many of our products are made with
    global supply chains throughout the world.
        Mr. LARSON. Thank you. And, again, I thank the panelists.
        And in many cases, many people who have commented on this
    bill oftentimes feel like they are trapped between this
    proposal, and the White House, and the Senate. But I want to
    assure people and thank them for being here today. And the
    exchange of these ideas has been beneficial to the committee.
        Chairman BRADY. Thank you. Ms. Jenkins, you are recognized.
        Ms. JENKINS. Thank you, Mr. Chairman, for holding the
    hearing. And we thank the panel for your time this morning.
        Mr. Luciano, I have a question for you, coming from Kansas,
    just to follow up on the ag inquiry of my seatmate, Mr. Smith.
    In your testimony, you talk about growing global demand for
    food. If we can get this international tax reform right, how
    does that pair with increased global demand to put more money
    in the pockets of Kansas farmers? And how does the border
    adjustment help U.S. farmers see a bigger and better market for
    their goods?
        Mr. LUCIANO. Thank you for the question.
        So the world is growing the population, and the population,
    as I said before, will reach 9 billion people in 2050. But the
    production is in only three parts of the world. The production
    is concentrated in North America, South America, and Eastern
    Europe. So you have--China has 22 percent of the world
    population, only 6 percent of the water, 8 percent of the land.
    So they are always going to be importing.
        So you have this global middle class that needs the product
    that we produce. The issue is this race between Eastern Europe,
    South America, and the U.S. And both places, Brazil, or
    Argentina, or Ukraine, or Romania, or Russia, they have BATs
    that basically they discount what we export. So the U.S. farmer
    in Kansas is actually at a disadvantage. Because when you form
    the price, everybody else discount that tax, and we add it to
    the tax.
        So we are all just waiting for a level playing field. There
    is no technological difference between the farmer in Kansas and
    the farmer in Russia. There is actually a competitive advantage
    we have in logistics. Even if our infrastructure is
    deteriorating, we still have a competitive advantage. We still
    can ship something 1,500 miles cheaper than what Argentina can
    ship it 300 kilometers.
        But the issue is of all the things that the farmer and
    companies like us can control, we are more competitive than the
    other countries. Only tax that makes the difference.
        So I don't think it is the only factor. But I think that
    the proposal, the blueprint, addresses a lot of that----
        Ms. JENKINS. Thank you. Mr. Chairman, I yield back.
        Chairman BRADY. Thank you.
        Mr. Blumenauer, you are recognized.
        Mr. BLUMENAUER. Thank you, Mr. Chairman. I would like to
    welcome Dr. Clausing, a constituent from Reed College, really
    appreciate your joining us.
        But first, Mr. Chairman, I would like to enter into the
    record a letter to you and Mr. Roskam from Tim Boyle, the
    chairman and CEO of Columbia Manufacturing in Portland, where
    he outlines the deep concerns his company has with the approach
    to a Border Adjustment Tax. He also points out that they
    transact with their foreign partners and contractors
    exclusively in U.S. dollars, and so the adjustment in terms of
    the currency----
        Chairman BRADY. Without objection.
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        Mr. BLUMENAUER [continuing]. Have problems for them, and
    that most of the products that they are involved with are no
    longer manufactured in the United States and haven't been for
    some time, leaving them without choice. So I appreciate your
    courtesy on that.
        I do appreciate the notion, Mr. Simon, about doing it
    right, trying to get the balance, your concern about having
    hollowed out the middle class, and not being available to
    purchase, and collapsing retail. Would it not be possible to
    stimulate demand here at home by putting people to work on
    infrastructure projects that can't be outsourced? If we were to
    do something radical like raise the gas tax, like dozens of
    Republican States have done to improve infrastructure? Wouldn't
    we be able to strengthen the middle class in purchasing power
    by taking a step like that?
        Mr. SIMON. Well, you are clearly out of my area of
    expertise when you start talking about infrastructure. But
    anything that would provide----
        Mr. BLUMENAUER. Haven't your enterprises relied heavily on
    well-functioning American infrastructure----
        Mr. SIMON. Absolutely.
        Mr. BLUMENAUER [continuing]. Problems with congestion or
    lack of reliability----
        Mr. SIMON. Anything that builds good, solid, strong, long-
    term middle class jobs would be good for the industry.
        Mr. BLUMENAUER. But, Mr. Cornell, doesn't your business
    rely upon a well-functioning American infrastructure?
        Mr. CORNELL. We certainly do. And we would certainly love
    to see infrastructure improvements.
        Mr. BLUMENAUER. I would like to turn back to Dr. Clausing,
    a point that you made that I think is important, in your
    testimony I really appreciate that you are making a distinction
    that is not often made before this committee. Yes, there are
    some companies that are wildly disadvantaged and pay close to
    the statutory rate because they don't have as many
    opportunities to engineer the Tax Code. But you make a point
    that American international corporations have been very
    successful. They have higher profit rates than their
    competitors. That they have an effective tax rate that is very
    similar to what their competitors are because they take
    advantage of this stupid jerry-rigged Tax Code, and they spend
    time and energy engineering it. But, at the end, aren't they
    basically at status quo ante? You say it better than I in your
    testimony.
        Ms. CLAUSING. Yes. There is a big difference between label
    and reality in our tax system. So our label is a statutory tax
    rate of 35 percent. But our reality treats different firms very
    differently from each other. Some domestics pay an amount that
    is close to the statutory rate. But many multinational firms,
    including some of the more aggressive profit shifters, can get
    their rate down into the single digits. And so you have a big
    discrepancy there.
        There is another label mismatch with the worldwide and
    territorial. Our worldwide system, some describe as just a
    stupid territorial system. And I think that is pretty accurate.
    Many multinational firms, most of them, don't pay a single cent
    on their foreign profits. They leave them offshore, and they
    wait for the hopes that one of you guys will give them a
    holiday. You know?
        So where some of our trading partners who have purportedly
    territorial systems, they tax immediately some of the foreign
    income that is earned because of their base erosion protections
    through things that look a lot like a minimum tax. So we have
    to be careful about how we characterize the system.
        Mr. BLUMENAUER. I think it is important to look at the big
    picture the way that you do. There are opportunities for us to
    move forward. Investing in infrastructure is one of them. But
    to have a broad brush, so-called reform that puts us at risk
    for companies like Columbia Sportswear, and sets us up in the
    future because we are not going to run huge trade deficits in
    perpetuity, for significant revenue loss. And your point about
    tax changes like this could incent people to have unnatural
    mergers simply because of the Tax Code, like the aforementioned
    Archer Daniels Midland and Wal-Mart. We can do better than
    that, and I think the committee can do better with that if we
    listen carefully to the information like you presented.
        Thank you.
        Chairman BRADY. All time has expired. Mr. Paulsen, you are
    recognized.
        Mr. PAULSEN. Thank you, Mr. Chairman. And, first of all,
    thank you all for providing very constructive testimony here
    today. I especially appreciate the opportunity to have a great
    Minnesota company be a part of this tax reform conversation,
    which I think provides a good component to this discussion.
        You know, the primary justification for the advocates of
    border adjustability is end the special tax breaks for foreign
    products over American products, and to keep American
    businesses and jobs from moving overseas. Certainly, given that
    the pace of American companies moving their headquarters to
    other countries, inversions, which we talked about earlier in
    recent years, it has happened both in Minnesota and across the
    country. You don't need to convince Minnesotans that something
    needs to be done.
        We need to make sure that America is a destination to not
    only invest, but to build or be able to create a business. But
    this has to be done in a very thoughtful way, a way that
    addresses the very real and valid concerns that, Mr. Cornell,
    you raised today, and I heard from others, certainly, that have
    been raised. I cannot support the border adjustability
    provisions as introduced last year in the blueprint. I really
    want to urge this committee to listen, to be educated, and then
    to address these concerns that we heard as we move forward with
    reform.
        Now, last week we had a really good hearing, a hearing that
    talked about the need for the comprehensive reform efforts, for
    fundamental reform. It is very important. We heard a lot about
    the positive effects it would have in the form of more jobs,
    higher wages, and greater economic growth. We also heard about
    the effects it would have on companies, both large and small,
    up and down the supply chain at every level. So we know the tax
    policy impacts different businesses in different ways. And we
    know the reform proposals will affect different businesses in
    different ways. But we got to focus on making sure that we are
    lifting everyone up. And economic growth is a key component.
    Because I think of the four key principles as focusing on
    growth, on simplicity, dealing with base erosion, and then
    dealing with permanency so you can count--as you are budgeting,
    count on, with predictability and certainty, as you are
    budgeting, allocating capital for 5 years, investing in your
    people and your companies, we are giving you that certainty,
    that confidence.
        So, Mr. Cornell, you shared your views about border
    adjustability. And you also mention we can't keep the status
    quo. You said we should have every tax provision out there, tax
    benefits, should be on the table. I agree.
        So keeping that in mind, what might be some--knowing that
    we are working on fiscally responsible tax reform in revenue
    neutrality, et cetera, what might be some policy
    recommendations that you would offer that should be key
    components of this reform effort as part of a comprehensive
    effort? Because that is really--it is not just about cutting
    rates. It is about the comprehensive effort that----
        Mr. CORNELL. Well, again, I am certainly not a tax expert.
    I run a retail business and deal with real consumers, and real
    families, and real employees every day.
        To your point, we certainly would like to see tax reform.
    As a company that pays one of the highest effective rates
    anywhere in America, at 35 percent, we would certainly like to
    see that rate lowered so that we can continue to invest in our
    business and see our business grow. We would certainly like to
    see simplification.
        But as I listen this morning to the discussion, there is
    one word I continue to hear repeated again and again. And that
    is ``if.'' If currency depreciates, and if the GDP grows, and
    if manufacturing comes back, and if we can avoid trade wars. We
    certainly need to be sitting here working on something that is
    going to provide greater certainty to certainly the families we
    serve at Target, my 320,000 employees, those small businesses
    in the back of the room. It is really hard for me to sit here
    today and craft a business plan, one that is focused on
    investing in America, and strengthening my company, and
    creating more jobs, when I keep hearing these provisions that
    say if this happens and if these triggers are in place.
        I think we have to be focused on a plan that creates growth
    in America but simplifies the Tax Code, gives us greater
    certainty, so that we have greater certainty as I talk to
    families across America or interface with my team each and
    every day. I can't ask American families to sit back and say,
    if these things happen, you will be okay. I can't sit with
    320,000 employees, Mr. Paulsen, and let them know if all these
    things come to pass, our company will still be here. And I know
    for small business in America, they can't sit here today
    saying, If all of these different factors come together, they
    will be okay.
        So I would be happy to work with you. I think we have shown
    and demonstrated that to the chairman. We are willing to roll
    up our sleeves. But I think we need greater simplicity, much
    greater clarity, and much more certainty going forward.
        Mr. PAULSEN. And I would just urge you to keep your seat at
    the table for that discussion. Because that is what, really, we
    are counting on as a part of that education effort.
        So I yield back, Mr. Chairman.
        Chairman BRADY. Thank you. Mr. Pascrell, you are
    recognized.
        Mr. PASCRELL. Thank you, Mr. Chairman. Great, great
    committee before us today, the panel, and thank you for all of
    your testimony.
        Mr. Simon, there is a reason, you say, in your testimony
    that the middle class in the United States has struggled
    recently. It is the same reason the middle class in the other
    global markets has emerged. The manufacturing base has moved
    and jobs followed, unquote.
        Look, the manufacturing base, that is an inanimate object.
    You, your companies, and before even this panel, in the past 25
    years, you moved manufacturing. You moved it. You moved it
    offshore, because it was cheaper labor and very few
    regulations. You are entitled to your opinions. As some would
    say, you are not entitled to your own set of facts.
        Now, I look at this hearing today as part of act two, scene
    two. Act one was what happened in 2001 and 2003, with promises
    attached as to what it would do to not only increase and help
    the economy to grow its domestic product, but also have it
    sustained, question number one. And question number two is, it
    was obviously not sustained.
        Act two began last week in our hearing. We had a search for
    anything in tax reform that even referred to the people in the
    other cars and the caboose, everything about the top 1 percent.
    Everyone else was left offstage.
        Now, we have heard a lot today that businesses in this
    country cannot compete globally because our taxes are too high.
    I would like to see real bipartisan revenue-neutral tax reform
    that would benefit all Americans, while bringing down the top
    corporate rate to be more in line with our competitors around
    the world. I have no problem doing that. The number we can
    debate.
        I introduced legislation a few years back, the Bring Jobs
    Home Act. I tried to get bipartisan support, like I do all my
    legislation.
        My Republican colleagues are clinging to a debunked idea, a
    debunked theory that a bill would end the tax break companies
    get for shipping jobs offshore. No, they believe in the idea
    that if they cut taxes at the top, all that will trickle down
    and serve everyone. But firms in the United States already have
    checked this out. The highest, higher after-tax profits than at
    any time since the 1960s, that is a fact of life. But they are
    not investing those profits towards increased productivity;
    they are just paying it out to wealthy shareholders.
        Corporations that are sitting on record profits today do
    not need to be showered with deficit-financed tax cuts at a
    time when middle class wages are stagnant, as some of you
    brought up in your own presentations, and broad gross domestic
    product is sluggish. It is, quite simply, a misallocation of
    our resources.
        Further, U.S. firms are extremely competitive, Mr.
    Chairman, by any metric. The Forbes Global 2000 list of the
    largest public companies in the United States is
    disproportionately represented. The World Economic Forum ranks
    the United States third in global competitiveness out of 138
    countries. And lastly, with all the deductions and loopholes
    corporations employ, effective tax rates paid by profitable
    organizations and companies are closer to 25 percent, similar
    to or lower than the averages around the world.
        Manufacturing jobs aren't moving abroad because, really,
    primarily the Tax Code, but because they seek low labor costs.
    So as long as factory workers in Vietnam make 20 cents an hour,
    textile factories will continue to move there, regardless of
    what tax we employ on what is coming across the border. We know
    what boosts productivity. We can invest in infrastructure and
    developing our workforce and raising wages for middle class
    families and the working poor.
        And, Mr. Chairman, is my time up?
        Chairman BRADY. Yes, sir, all time has expired.
        Mr. PASCRELL. I have a lot more to say about it.
        Chairman BRADY. I know, Mr. Pascrell. So we will begin two-
    to-one questioning so we can balance out the questions here.
        Mr. Marchant, you are recognized.
        Mr. MARCHANT. Thank you, Mr. Chairman.
        We all have the same goals here today. We want a simpler,
    fairer Tax Code that significantly lowers personal pass-through
    corporate rates and makes our companies competitive on the
    world stage. I think we can all agree on that.
        Mr. Cornell, what percentage of product that you sell in
    your store is brought in from overseas?
        Mr. CORNELL. Half of all the products we sell today are
    made right here in the United States. The other half,
    obviously, would be brought in from other countries. So you
    take a look at the composition of our business today, eight of
    our top ten vendors are companies right here in the United
    States. They are companies like Procter & Gamble in Ohio or
    Frito-Lay in Plano, Texas, companies like KitchenAid in Ohio,
    Johnson & Johnson in New York. So it is a balance. So many of
    the products----
        Mr. MARCHANT. But the answer is about 50 percent?
        Mr. CORNELL. About 50/50.
        Mr. MARCHANT. Mr. Simon, when you were affiliated with
    another major retailer, what figure did you use? What was the
    common----
        Mr. SIMON. Because of the heavy concentration of food at
    Walmart, about two-thirds of what they sell in the U.S. is
    either grown or made in the U.S.
        Mr. MARCHANT. So about a third?
        Mr. SIMON. Two-thirds.
        Mr. MARCHANT. Two-thirds, okay.
        One of the big objections that I have heard today about the
    border adjustability tax is the uncertainty of how the currency
    would adjust and whether the currency would adjust, and how
    would you deal with a currency that adjusted?
        Chairman BRADY. So, Mr. Marchant, while we are adjusting
    the microphones, you might want to speak a little closer to the
    microphone.
        Mr. MARCHANT. I would like to ask Mr. Lindsey, how has
    retail across the world adjusted in the last 3 months? While we
    have seen the dollar-euro, the dollar has lost about 8 percent
    against the euro in the last 3 or 4 weeks, 3 months, while we
    have been talking about this discussion, and the pound has
    gained about 8 cents, from 122 to 130. And then when we had the
    Brexit, we had a drop in one day from 160 down to 120.
        So after all that has happened, what have the companies
    that are adjusting the currency--Mr. Simon and Mr. Cornell, how
    has your company dealt with those currency swings?
        Mr. CORNELL. We have currency experts that look at this all
    the time. There are a number of other factors that you have to
    consider as we think about changes in costs. Currency is one of
    them. Commodity prices tend to change; and those are impacted
    by a number of different variables, starting with weather,
    extreme freezes, extreme heat, floods and droughts.
        Transportation costs can be impacted by----
        Mr. MARCHANT. But in this case, we are talking about
    currency. So, Mr. Lindsey, how are companies dealing with these
    kind of currency swings?
        Mr. LINDSEY. Well, first of all, let's just take an example
    of border adjustability. All the countries, the 160 countries
    that have border adjustability, amazingly still have retail
    sectors that haven't been wiped out by the imposition of border
    adjustability.
        So I think the claims of the damage that will be done to
    those companies is exaggerated. What companies do, first of
    all, is there are currency hedgers. They take up positions in
    various currencies.
        The other thing that happens is one of the reasons the
    currencies adjust is these folks have market power. To imagine
    that Walmart or Target doesn't have market power with regards
    to Chinese sweatshops I find kind of silly. And, in fact, what
    will happen, the Chinese politburo understands that perfectly
    well and they will adjust their currency. There is no doubt in
    my mind that they will do it, and then that is why there is not
    really an issue here.
        Mr. CORNELL. If I could, I think one of the other important
    factors we all need to recognize is, for a company like
    Target--and I can speak for many others in the retail industry
    today--our contracts are dollar-denominated. They are today;
    they will be tomorrow. And the vendors that we work with, their
    raw materials are largely dollar-denominated. So I think we
    have to recognize as we go forward, the U.S. dollar is the
    global currency.
        Mr. MARCHANT. Thank you.
        Chairman BRADY. Thank you. Mr. Kelly, you are recognized.
        Mr. KELLY. Thank you, Chairman.
        Thank you all for being here. Please don't take this as
    disrespect. Mr. Lindsey, Ms. Clausing, I appreciate your being
    here, but I wanted to talk to the people that are actually in
    the retail business. I am an automobile dealer. I am not
    somebody that grew up on a laptop; I grew up on blacktop.
        Who I talk to are moms and dads who are trying to make sure
    that their budgets are workable. And whenever I sit down with
    people to see if we can get to some type of solution for their
    transportation problem, it is always the wife who makes the
    final determination of whether they can afford or not afford to
    buy a new car or new truck. And sometimes, the difference is $5
    a month. Now, in Washington, DC, people say, oh, that can't be
    possible. Please come home with me and see what blue-collar
    people go through every single day of their life.
        So that is why I wanted to ask you, because you are in the
    retail business. My concern is the final price on the shelf for
    those folks that pick up the tab on every single thing this
    wonderful government does in their name.
        So if you could just tell me, now, Mr. Luciano, you talked
    about things that were happening in ag. Mr. Cornell, you talked
    about what was happening at Target, which my wife is addicted
    to being in every Sunday right after mass. And Walmart I go to
    quite a bit, because they are all in my town.
        The effect, the actual effect on everyday Americans,
    because the global supply chain has changed. I also have in my
    pocket, by the way, Monroney labels, which I would love to
    share with people, that show parts content, because that is
    truly the complication of how do you tax different pieces.
        So if you can tell us--and there is not enough time to do
    it, 5 minutes is not nearly enough time to talk about this huge
    proposal--how does this affect the price on the shelf and how
    will it affect consumers as we go down this road, both plus and
    minus? I know we have to pay for these tax cuts, but I don't
    want it to be on the back of everyday hardworking American
    taxpayers.
        Mr. CORNELL. I would be happy to start.
        Mr. Chairman, for the record, I think I will stay with Mr.
    Cornell for today.
        But we talk to consumers all the time. I have 30 million
    shoppers in our stores every single week. I spend time with
    them in our stores and in their omes. And, to your point, these
    are families, middle class families on a budget. And for those
    families, as we look at the implications, I think the
    unintended implications of the new border adjustability tax, we
    know that their prices will go up on essential items.
        They will pay 20 percent more for apparel--I am going to
    spend a few minutes explaining why--on back-to-school items.
    They are also going to spend more on essential items, like
    produce, that in the winter we don't grow in the United States.
    They come from Mexico and Chile. We are not going to be growing
    bananas anytime soon in Ohio or coffee beans in Michigan. So
    that basic American family, they are going to pay higher
    prices.
        We have talked about manufacturing coming back to the U.S.,
    and I would certainly love to see that happen, but I also
    know--and Mr. Simon has talked about this--for many of the
    supply chains, they don't exist here in the U.S. right now.
        Ninety-seven percent, 97 percent of all the apparel we buy
    in the U.S. is made outside the U.S. Those supply chains don't
    exist here.
        So I know under the new border adjustability tax, the
    prices we pay, that those moms pay to buy apparel and clothing
    for their kids, they go up. And right now, I can tell you when
    I sit with them, they are on a budget. At the start of the
    month, when they get a paycheck in their family, they are
    loading up their pantry, they are buying a few unique things
    for their family.
        By the end of the month, they are counting their final
    dollars. So we have got to make sure we understand the impact
    on American consumers. All of the electronic devices we all
    love, all of our phones and tablets, those supply chains are
    not here in the U.S.
        Mr. KELLY. I am just going to stop you for one second,
    because I am running out of time.
        How many employees do you have?
        Mr. CORNELL. I have 320,000 employees, 99 percent of which
    are right here in the U.S.
        Mr. KELLY. Mr. Simon.
        Mr. SIMON. Well, I am retired now. I have one.
        Mr. KELLY. But when you weren't retired?
        Mr. SIMON. One point three million.
        Mr. KELLY. One point three million. Mr. Luciano?
        Mr. LUCIANO. Thirty-two thousand globally, 20,000 in the
    U.S.
        Mr. KELLY. Okay. But I want to get really clear as I hear
    this thing, we go into political talking points rather than
    good policy here. How can we attack the other side? I would
    just like to remind everybody that is sitting in this panel, in
    addition to paying taxes on your profits, there is a huge item
    there called wage taxes, there are business privilege taxes,
    there are real estate taxes that actually propel all the
    wonderful programs this Nation supplies for its people. And I
    think sometimes we miss the bigger part of this.
        It is you that is responsible or makes up all the revenue
    for social security, for Medicare. All these wonderful programs
    that we have come out of wage taxes. And I think that we better
    take a look at are we going to eliminate people who are
    working. They are the ones that pick up the tab on all these
    wonderful things.
        I thank you so much for being here, we share your concerns,
    and we are on board. We are going to do this the right way.
        Thank you, and I yield back.
        Chairman BRADY. Thank you.
        And, without objection, I will submit for the record
    research by J.P. Morgan that shows that if the dollar didn't
    adjust at all, which no one believes, retailers would need to
    raise prices by only 5 percent, on average, to offset it, and
    it would be just 2 percent final parts retailers. Without
    objection.
        [The information follows:]

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        Chairman BRADY. Dr. Davis, you are recognized.
        Mr. DAVIS. Thank you very much, Mr. Chairman.
        And I too want to thank our witnesses. It is a very
    interesting hearing, and I think in order to understand how
    these tax proposals will affect our constituents, we must
    examine them in light of the cruel Republican budget priorities
    released to date: This budget, which cuts hundreds of billions
    of dollars from the most vulnerable Americans; this budget,
    which makes draconian cuts in food stamps, Meals on Wheels,
    heating assistance, and support for the extremely poor, elderly
    and disabled people, particularly targeting families with
    disabled children; it eliminates the Social Services Block
    Grant that funds critical child welfare and youth services, and
    eviscerates our health education and job training supports.
        The Trump Republican tax plan amplifies the harm from these
    mean-spirited policies by taking even more from these families
    to give an average tax cut of at least $15 million a year to
    the wealthiest 400 families and the most profitable
    corporations, in sharp contrast to the minimal $250 relief for
    middle class families.
        In addition, these untested tax policies promises to shock
    our vulnerable economic system. In a time of stagnant wages,
    heightened economic insecurity, appalling wealth gaps, and
    shocks to the workforce from trade agreements and technological
    advances, the Republican plan could send prices at stores
    skyrocketing by 20 percent and force huge job losses in the
    retail sector, which would certainly undermine my city, my
    State, and our Nation.
        Professor Clausing, given the Republican policies to
    dramatically cut Federal support to middle and working class
    families on the spending side, I am deeply concerned about the
    possible harm to these same families from these tax policies.
        Could you expand on your concerns about the potential shock
    to our economic system and how it could affect jobs, income,
    and cost to families?
        Ms. CLAUSING. Sure. This tax system, while border
    adjustment is similar in some respects to a VAT, really has no
    precedent. There isn't another country that does a border-
    adjusted corporate tax. And so that makes it fundamentally
    different. I think the biggest risk to households really do
    come from the possible absence of adequate exchange rate
    appreciation, but this is an untested plan, and there are other
    types of risk too.
        Let's say the dollar does appreciate by the amount they
    said it would, to 25 percent immediately. That could create an
    emerging market crisis. There are $9 trillion worth of dollar-
    denominated debt in the world economy. And Mr. Cornell is
    exactly right, the dollar is a unique currency in the world
    system. And so when the dollar appreciates, that can harm the
    entire world economy, which, again, can hurt the middle class,
    because the middle class is dependent on international trade,
    whether they have export jobs or whether they have jobs that
    are import industries.
        So between the fears of higher costs and the fears of job
    loss in trade-intensive sectors, those would be my big
    concerns.
        Chairman BRADY. Thank you. All time is expired. Mr.
    Renacci, you are recognized.
        Mr. RENACCI. Thank you, Mr. Chairman.
        I want to thank the witnesses for being here.
        Look, I believe getting tax legislation signed into law is
    absolutely critical to getting our economy growing. I must
    admit, though, I have been skeptical of the border adjustment
    as a central element of the blueprint, but I am trying not to
    be. It is not because I oppose border adjustment in all
    contexts. As many of you know, I am a strong supporter of a
    more conventional border adjustment consumption tax.
        My concern is really rooted in three questions: Does border
    adjustment, adjustability in the blueprint pick winners and
    losers; who will the tax burden ultimately shift to; and is it
    compliant with our international treaty obligations? There are
    just three simple questions.
        From what I have heard today, the answer to the first two
    questions hinges on economic theory, that currency will adjust
    to offset the tax. Market analysts and currency experts have
    been skeptical. Wall Street firms believe there is a large
    potential for disruption and could cause volatility in the
    market.
        With respect to question three, it really seems, at best,
    border adjustment is in a case of first impression, or at
    worst, it is a flagrant violation of our international
    obligations.
        I am also hearing very real concerns from Main Street Ohio,
    where I represent. One major employer in my district sells
    coffee. But coffee beans generally come from high-altitude
    mountains in Africa and Latin America. You just can't buy much
    U.S.-grown coffee here in America. Border adjustment would
    increase the price of coffee.
        I am very concerned for the low-margin companies in my
    district that rely on imported goods not primarily produced in
    the United States, whether that be coffee or any other good
    that can only be imported.
        So, look, I am a business guy like Mr. Kelly, a CPA, a tax
    practitioner. I understand taxes and I understand business. I
    have been in the business world for 30 years. I have made all
    of my decisions on factual background, normally not on economic
    theory. In fact, economic theory in many cases in the business
    world can be troubling if you do it the wrong way, as you all
    know.
        So, to each witnesses, can any of you assure me that the
    currency will adjust so that there will be no effect to the
    cost to our consumers, yes or no, to each one of you?
        Mr. CORNELL. No, I can't.
        Chairman BRADY. Anybody?
        Mr. LINDSEY. No.
        Mr. RENACCI. There is going to be an effect to our
    consumer. Currency will adjust----
        Mr. LINDSEY. Nothing has no effect. I think it will be
    extremely minimal.
        Mr. RENACCI. Okay, but there is an effect.
        Mr. Lindsey, you gave an answer on my third concern, which
    is WTO. To each of the other witnesses, do you have any
    experience to know whether this will pass WTO, yes or no?
        Mr. LINDSEY. No one will know whether it can pass WTO until
    it is brought there. No one could possibly know the answer to
    that question.
        Mr. RENACCI. Anybody else? Do you think, yes or no, will it
    pass WTO?
        Ms. CLAUSING. I don't think it will, based on discussions
    with lots of trade lawyers.
        Mr. RENACCI. Any other individuals, yes or no, will it pass
    WTO?
        Mr. LUCIANO. Difficult to know. It is pretty similar to VAT
    that is being enforced today.
        Mr. RENACCI. Mr. Lindsey, I am going to come back to you,
    because I was listening to you. You said WTO is a European-
    based organization. Okay for Europeans to do it, but not
    Americans. Isn't it true that European-based border adjustments
    do not allow for deduction of labor; and if it did, the same
    thing with our BAT, if we eliminated labor in our BAT concept,
    it would become a VAT and, therefore, it would be WTO-
    compliant, yes or no?
        Mr. LINDSEY. No. Let me describe exactly what the Europeans
    did. What they did was they put on a VAT, and then they cut
    other taxes with the revenue they got.
        Mr. RENACCI. I understand.
        Mr. LINDSEY. So essentially, essentially what they did was
    exactly what the BAT do, exactly.
        Mr. RENACCI. I know. But if labor was eliminated, we would
    have the same thing.
        Mr. LINDSEY. If they eliminated. What they did was to
    reduce other taxes on labor with it.
        Mr. RENACCI. I understand.
        Mr. LINDSEY. So that is why I think it will pass WTO
    muster, because essentially the Europeans did exactly what this
    tax----
        Mr. RENACCI. I have got a couple other questions. I
    appreciate.
        Mr. Simon, you indicate in your testimony, a long
    implementation period for this to work. In the 1950s, 90
    American companies made TVs. Today, there is not a single
    American company making TVs, and there hasn't been in over 20
    years an American company has made a TV. How long, on average,
    do you think it would take to get American companies back in
    the business of making TVs? Because you said a long
    implementation period; I would like to know what that means?
        Mr. SIMON. TVs are being assembled in the U.S. for the
    first time since the seventies today, with a progression
    towards making them in the U.S. I can tell you the same thing
    about bicycles. They started in South Carolina in assembly, and
    they are moving into paint and powder and rolled steel. It
    takes time, and the process for bicycle has taken 4 years.
        Mr. RENACCI. Mr. Lindsey, I am going to come back to you.
    You said this bill is the best way to make America the most
    competitive place in the business world. Is this the only way
    to get this accomplished, this bill? Is it the only way?
        Mr. LINDSEY. This is the best way that I have seen to get
    it done.
        Mr. RENACCI. So far?
        Mr. LINDSEY. That is correct. And I am, by the way, very
    supportive of what was called for here, which is careful
    implementation, phasing in and things like that. I am a big
    supporter of it. And what I hear from the chairman and others
    is that they are too. So I think that will happen.
        Mr. RENACCI. I thank you all. My time has expired.
        Chairman BRADY. Thank you, Ms. Noem, you are recognized.
        Mrs. NOEM. Thank you, Mr. Chairman.
        My name is Kristi Noem. I represent the entire State of
    South Dakota. And I go to Walmart to get a lot of things that I
    need, but I go to Target for fun. So I don't know. Our family
    appreciates both of you being in towns in South Dakota, because
    a lot of times we don't have a lot of options.
        I am very concerned about small retailers. I am very
    concerned about small businesses. That is the lifeblood of
    South Dakota. But our number one industry is agriculture, which
    supports all of the small businesses in our State and our
    families.
        Mr. Luciano, I wanted to talk to you about that, because we
    read over and over again about large companies being bought out
    by companies not from the United States, especially in the
    agriculture industry. We are seeing concentration happening, in
    Chinese companies specifically, coming in and purchasing large
    chemical companies and other within the agriculture industry.
        Do you believe that our Tax Code and policies have
    perpetuated this problem that we see, this consolidation
    happening in the industry? But also we see it, the ownership
    changing to other countries, and how that is impacting the
    United States. And what in this proposal could be beneficial in
    stopping that type of change that we don't believe is
    necessarily--I don't believe necessarily is in the Nation's
    best interests? And I have a follow up question when you are
    done with that one too.
        Mr. LUCIANO. First of all, Congresswoman Noem, let me thank
    you on behalf of ADM and the biodiesel industry for your
    personal leadership for both biofuels overall and for biodiesel
    in particular. That was very helpful to the industry.
        I think this proposal, as we are analyzing it today and it
    is presented to us, helps improve the competitiveness of the
    industry. The fight for grabbing sources of food, as you
    describe, is very important, very strategic, whether you are in
    the Middle East, whether you are in China, whether you are in
    all those places where you have multiple nations in production,
    actually. And we have that and South America has that, as I
    said before, and the Black Sea has that.
        So whether we can stop that, I mean, I am not sure any
    proposal can stop if China determines that strategically they
    need to own resources, but I think it can make us more
    competitive. I think it can allow us, for the U.S. farmer to
    continue to invest and for us to have the ability to help the
    farmer to become more competitive, by investing in
    infrastructure, by investing in support for the farmer.
        And I think that that is what it limits. I worry very much
    about losing competitiveness and losing share, what I said in
    my oral testimony. Because once you lose a customer, once you
    present to that customer that you are not a reliable supplier,
    because you are retrenching, things change.
        And when somebody in Egypt that has been using our wheat
    for years to make bread starts to use some wheat from Romania,
    things change, and they adapt recipes and all that and then you
    become a secondary supplier, a supplier of last resort instead
    of the primary supplier.
        And we are slowly going into that direction. So, to me,
    this blueprint address helps to restore the profitability and
    the competitiveness of the farmer in the U.S.
        Mrs. NOEM. I am a lifelong farmer and rancher, and when I
    talk about the BAT at home to other farmers and ranchers, I
    talk about it how when our beef leaves the United States, it is
    taxed. Then it hits the border of Japan, they add another
    tariff to it, which makes it virtually unaffordable to be
    purchased in that country. And the BAT could potentially shift
    that to making it more affordable if we didn't do that.
        But a lot of the farmers and the ranchers are worried. They
    are concerned that with the BAT that potentially they sell
    their commodity to ADM, ADM then sells to another country,
    keeps more of a profit margin and doesn't necessarily let it
    flow down to those guys producing the actual crops, the actual
    commodities.
        How would you answer that concern? Because I face that
    quite often, that yeah, sure, maybe the big companies that
    actually market the grain overseas get a bigger profit, but how
    is that going to help my pocketbook?
        Mr. LUCIANO. It is a very good question. In the U.S., the
    product is commingled. We have the system. But you have to
    understand ADM does not thrive unless there is a thriving
    farmer. We don't own land. We don't farm.
        So we cannot export, I mean, individually. The farmer
    cannot export, we cannot export the production that doesn't
    exist. So we work with the farmer. Our farmers are our partners
    for 115 years, and we spend a lot of time in this community
    supporting the farmer.
        If you go and see what we do every day in an elevator, you
    go into an elevator, it might have six commercial people from
    our side--I mean a storage unit or origination unit--and then
    you are going to have six or seven farmers sitting out there,
    you know, reading the newspaper, but they are also evaluating
    what they should do and getting from ADM what they should plan,
    when they should sell.
        So it is a very symbiotic relationship. ADM does not exist
    without the farmer.
        Mrs. NOEM. Thank you, appreciate that. I yield back.
        Chairman BRADY. Thank you.
        Ms. Sanchez, you are recognized.
        Ms. SANCHEZ. Thank you, Mr. Chairman, and to our witnesses
    for here being here today. Mr. Chairman, I would like to ask
    unanimous consent to enter into the record a Bloomberg news
    article in which Treasury Secretary Mnuchin states that one of
    the problems with the border adjustment tax is that it doesn't
    create a level playing field, it has very different impacts on
    different companies, it has the potential to pass on
    significant cost to the consumer, and it has the potential of
    moving those currencies.
        Chairman BRADY. Without objection.
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        Ms. SANCHEZ. Thank you.
        Today's hearing has definitely provided an interesting mix
    of perspectives on what most consider to be the centerpiece of
    the Republican tax reform plan, and I think it is high time
    that we began to dig into this brand new proposal that sort of
    blind-sided everybody last year.
        I happen to believe that a proposal of this size deserves
    some thoughtful consideration, and I am pleased that we are
    finally starting that process today. But I can't help but note
    that I wish we were here discussing a bipartisan idea that came
    together through substantive committee process rather than a
    few pages of talking points.
        I want to share some of the concerns that my colleagues
    have highlighted. Number one is an ill-advised gamble on the
    value of the U.S. dollar to not tank world economic markets,
    should the rate not adjust immediately to the very
    optimistically projected level.
        Second, the fear that adopting the Republican plan would
    set the United States up for a huge loss at the WTO, which
    could have lasting implications on domestic producers and
    consumers for many years to come.
        And thirdly, a system that could incentivize some of the
    largest corporate exporters to merge with large importers,
    creating even bigger behemoth multinational corporations to
    game the new tax system.
        Those are just three of my concerns.
        Ms. Clausing, I would like to spend my time focusing on the
    issue of distribution that you raised in the slides that you
    provided. I find those numbers to be truly staggering. So can
    you provide a little more insight into how the proposed
    Republican plan not only exacerbates the divide between the
    rich and the poor in this country, but how the middle class
    households specifically will be squeezed by this policy?
        Ms. CLAUSING. Sure. You are exactly right to focus on
    income distribution. It has been a big issue for the last 35
    years. If you look at the last 35 years of data, you will see
    that the middle class wages have been growing very slowly and
    that the vast majority of GDP growth has gone to those at the
    top of the income distribution. So this is an important thing
    to consider.
        The problem with this tax plan is that the tax cut is much
    higher for those at the very top of the distribution who have
    already been benefitting a lot from the global economy and from
    technological change and from other forces that have been
    hitting our economy. So it seems in a way the opposite of what
    you would want to do.
        When you have shocks to an economy, like trade disruption,
    technological change and other things, you want the tax system
    to sort of insulate people from shock so that everybody's
    after-tax income can go up. You know, a rising tide should lift
    all boats. But if your response to those shocks is to give a
    huge tax cut to the top, at the top 1 percent, and then give
    $200 to the bottom 80 percent, then that is going to be the
    opposite of what would be helpful in the current context.
        Ms. SANCHEZ. Following up on that, right now middle class
    families in my district are forced to make what I call
    unwinnable choices, such as using the majority of one-parent
    salary to pay for childcare or having a parent leave the
    workforce entirely because the cost of childcare means that
    what they effectively take home at the end of the year is not
    going to--is not worth it.
        And I think we should be highlighting those issues that we
    force our constituents to try to figure out, you know, for
    themselves when we have a Tax Code that can help blunt those
    effects and hopefully make those working families not have to
    make those difficult choices.
        So with the time I have left, I would like you to address
    alternative ways that we could address international tax reform
    in a way that would actually help working families?
        Ms. CLAUSING. Absolutely. There are a lot of good ways that
    we could do better to protect our corporate tax base from
    erosion. One option is to simply end deferral and combine that
    with a lower rate, but a minimum tax, done on a per-country
    basis, could also be very effective. Ninety-eight percent of
    all the profit-shifting is done with countries that have
    effective tax rates below 15 percent, and 80 percent of it is
    done with just a few havens.
        So expanding the corporate tax base would help buttress
    revenues, and that is important because a lot of our
    priorities, including infrastructure, education, healthcare,
    require government revenue. So having an adequate revenue base
    is very important.
        Ms. SANCHEZ. Great. Thank you so much for your testimony.
    And I yield back.
        Chairman BRADY. Thank you.
        Mr. Holding, you are recognized.
        Mr. HOLDING. Thank you, Mr. Chairman.
        I think we all agree we have got a Tax Code that is 30
    years old, despite having an economy that is vastly different
    than it was 30 years ago. And I think we can all probably agree
    that we need to undertake a permanent comprehensive tax reform.
        My concern, like I know the concern of a lot of us here,
    for 8 years we have had ballooning debt, well over $20
    trillion. We need to ensure that we put in place a Tax Code
    that spurs the economy in a fiscally responsible way, promotes
    growth, and puts us in a position to be able to reduce the
    debt.
        So I am worried when I hear from Ms. Clausing's testimony,
    when she states that when trade deficits turn into surpluses,
    the border adjustment will lose revenue. So, Mr. Lindsey, do
    you agree with this statement, and could you walk us through
    the impact that the border adjustment will have, perhaps, on
    the deficit long and short term?
        Mr. LINDSEY. Certainly, Mr. Holding. I would also take just
    30 seconds to say, to comment on something Congresswoman
    Sanchez just said, that this was a new idea that was just
    sprung out of some talking points.
        This was a tax system, a tax structure that was discussed
    when I was in graduate school and was considered one of the
    best systems we could have. And I assure you I was not in
    graduate school yesterday.
        As to your particular question, I am sorry.
        Mr. HOLDING. The particular question has to do with the
    border adjustment.
        Mr. LINDSEY. Right, being permanent. Thank you. See, I
    wasn't in school yesterday; I can forget things.
        First of all, we have had a trade deficit now for 50 years.
    So saying that trade deficits will turn into surpluses gives
    new meaning to the word ``theoretical.'' However, I think that
    the right thing to focus on is how we finance that trade
    deficit. And what we do now is we basically put it on our
    credit card. We sell our debt overseas. That is the main way we
    finance it. This is called the capital account.
        What this bill will do instead is it will finance it by
    encouraging foreign direct investment into America. And I think
    that is a much better way of financing a trade deficit than
    simply selling Treasury bonds.
        Mr. HOLDING. Another function that we are trying to get, a
    goal we are trying to reach is protecting our national tax base
    from base erosion, whether it be from the erosion of the
    corporate tax base, and I also think we need to be worried
    about the erosion of our human capital base here. It is a
    stunning fact that the number of expatriations from the United
    States has been rising just at a tremendous rate.
        In 2016, we had 5,400 people expatriate from the United
    States; compared to 2008, when you had 231 people expatriate.
        Mr. Chairman, I would like to introduce into the record a
    recent article from the international tax blog regarding
    expatriation rates.
        Chairman BRADY. Without objection.
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        Mr. HOLDING. Back to the tax base on a corporate level. So
    is there any other plan that achieves, other than the border
    adjustment, what we are trying to achieve with protecting the
    national tax base?
        Mr. LINDSEY. Yes, there is. A lot has been discussed, and
    some of the comments have come out today. And this committee
    considered a number of options a few years ago to try and crack
    down on the ability of firms to go overseas. You know, there is
    an old saying that the beatings will stop once morale improves,
    which I think kind of has it backward.
        And what I think we need to focus on is that all of those
    other plans punish American companies by putting more rules on
    American companies, but do not touch foreign companies. And I
    just think that is simply the wrong way to go about it. We need
    to start thinking about why it should be attractive to be
    headquartered in America, and why it should be attractive to
    move our production facilities here.
        Mr. HOLDING. Thank you. Mr. Chairman, I yield back.
    Chairman BRADY. Thank you.
        Mr. Higgins, you are recognized.
        Mr. HIGGINS. Thank you, Mr. Chairman.
        The border assessment adjustment tax is a poorly-conceived
    tax, because it will be adjusted a second time domestically,
    internally, in higher consumer prices for every American.
        Target and Walmart don't make things; they sell to
    Americans what other countries make, particularly China.
        America is 5 percent of the world's population and 23
    percent of the world's economy. The United States is the
    world's largest economy and 70 percent consumption. We consume
    much more than we make. China is 20 percent of the world's
    population and 90 percent of the world's economy.
        America's largest goods trading partner is China. Last
    year, we sold to China $115 billion worth of goods, and they
    sold to us $462 billion. We had a good trade deficit with China
    last year of $347 billion. So the border adjustment tax will
    hit China mostly, which I would be okay with, but we know that
    the border adjustment tax will really result in higher consumer
    prices and hurt American retailers.
        There is lots of tough talk in Washington about challenging
    China's ambitions to become the world's economic leader, but
    that tough talk lacks guts or backbone. What do I mean by this?
        Washington whines about China's currency manipulation,
    about China's poor quality of their air and their water and
    their land, about how poorly they treat their own people, but
    you know what China just did?
        China announced a $1 trillion investment to open up China,
    to connect to 47 other Asian countries, to sell the stuff that
    they make to 47 brand new markets much more efficiently.
        The United States, under this administration, is looking
    inward. The United States wants to build a $38 billion wall
    along its southern border; and the United States has responded
    to $2 trillion in infrastructure needs with a pathetically weak
    $200 billion investment in American infrastructure, maybe.
        Look, I think you get the point. China is making an
    aggressive challenge to the United States' leadership in the
    world. China knows that infrastructure is how you dominate.
    China's peaceful rise is driven by economic growth rather than
    military force. The United States, under this administration,
    wants to spend another $50 billion on war. It wants to take
    healthcare from those who need it most, and it has a tax scheme
    to take away money from those who need it to give it to people
    who don't.
        I am not quite sure what I am missing here, but a tax
    policy that doesn't put money into the hands of people that
    will spend it in the world's largest economy that is 70 percent
    consumption is a policy that can't work.
        I often hear here that these tax cuts will pay for
    themselves. There is not a tax cut in human history that has
    paid for itself. The most conservative economic estimates are
    that maybe a third of tax cuts would be paid for by ensuing
    economic growth.
        What you have to do to grow your economy is to invest in
    it. People to bring them to and beyond the current technology.
    Your infrastructure, which, based on any objective analysis,
    puts the quality of our infrastructure at a very, very poor
    rate as it relates to the rest of the world.
        So you can talk about tax policy all we want here, but
    unless we are going to back it up with serious investments to
    compete on a global scale with places like China, the
    platitudes about where we want our tax policy to take us will
    never take us there. I have pretty much used all the time, and
    I apologize for that, but I think it is a statement that needed
    to be made and I think it is very important relative to this
    debate.
        And I yield back.
        Chairman BRADY. Thank you.
        Mr. Schweikert, you are recognized.
        Mr. SCHWEIKERT. Thank you, Mr. Chairman.
        This is going to be one of those hearings when we all go
    back and actually read the transcript. It is going to be
    absolutely fascinating trying to follow some of the
    intellectual consistency on the lines. But at least we now have
    heard that many of our brothers on the left, our brothers and
    sisters on the left now are supporting much more trade and a
    lot of these other things. I cannot wait to grab my highlighter
    and go over this.
        Mr. Simon, you actually have one of the most unique work
    experiences in history, and that was a massive company trying
    to restructure parts of your supply chain. Can you put a little
    more detail on that experience, because I just a moment ago--
    which your company I absolutely love, it is in my neighborhood.
    But we actually grow vegetables in Arizona in the winter. We
    supply the Nation's lettuce crop, and we can do a lot more
    except right now the rest of the world has a financial
    arbitrage on us south of the border.
        Tell us about rebuilding supply chains that became domestic
    from products that were foreign before?
        Mr. SIMON. Well, Mr. Cornell is right, 97 percent of
    apparel is made outside of the U.S. today. A good percentage of
    it is made with American cotton. So imagine the irony: Cotton
    grown in the U.S., 12 million bales a year exported, much of it
    to Asia, where it is made into apparel, then reimported into
    the U.S. It makes no sense. The labor component isn't the
    driver of that. You have transportation in two directions and
    all the other things that go with it.
        But my mother-in-law in North Carolina used to make blue
    jeans at a factory there. And that product migrated. It
    migrated because initially labor, but eventually tax and
    infrastructure eroded. In order for it to come back, we need to
    rejigger the puzzle pieces. We need incentives like some of the
    things that have been discussed today that will allow that to
    happen. It won't happen on its own. We can't survive as a
    service economy.
        The gentleman mentioned 70 percent of our economy is
    consumption. It is. But I can't go to the movies and you can't
    go to a restaurant every day and have the economy be buoyant.
    We have to make things.
        Mr. SCHWEIKERT. But did you have that experience where a
    product that, as Walmart had been an international supply
    chain, and the skepticism, and then a couple years later you
    had found a way to domestically source?
        Mr. SIMON. Every product that Walmart has been able to
    repatriate--and the list is quite long now--has taken an
    incredible amount of effort from both the supplier and the
    company. They sit down and they analyze the cost components of
    every single leg along the way. And we are overcoming 30 years
    of muscle memory, where the way that we have done things, the
    way that we have accounted for costs that are in the system,
    costs like currency.
        And we had that discussion earlier. Currency in most
    companies is a footnote on their earnings statement, and they
    say, our earnings were $3 a share, that is up or down versus
    last year because of currency. And then Wall Street usually
    doesn't reward or penalize a currency adjustment. So our whole
    thinking isn't around currency adjustments. Our whole thinking
    is about how much earnings per share can you deliver.
        We found out that the transportation costs and the time
    value of money from paying FOB in Shanghai versus delivery at
    your dock in Delaware is 3 months, and that 3 months on, you
    know, a billion dollars of imports is a significant amount of
    money. So as you restructure your supply chains, you also have
    to restructure your practices and the way that you look at your
    business.
        Mr. SCHWEIKERT. And look, it has everything from currency
    exposures to environmental costs to moving things of those
    dimensions.
        Look, hopefully we have a universal agreement of all the
    Members on the right and the left here. We actually have a
    wealth gap issue. We actually have an income-worker mobility
    issue. And yet I keep hearing, because we are, you know, taking
    little shots at each other, almost defense of the status quo,
    which is absurd. And as we sort of walk through this, look, I
    am fixated on some of the technologies.
        We have been talking about apparel. And the articles that
    are now coming out that last year we finally now know how to
    laser-cut cloth, where before that was always the excuse of why
    it had to be done with labor. Now we actually have a technology
    that can change that predictive capacity. There are
    technological solutions that actually will make repatriation of
    some of these supply chains possible. And I know there are so
    many things.
        Ms. Clausing, can you help me, just because you have
    actually said a couple of things that I found absolutely
    fascinating. And I must give you a compliment. I have been
    actually reading some of the things you have done. Thank you
    for being a person of the left, but also caring about what is
    happening debt-wise and the destruction that does for our next
    generation and why we must actually step up and deal with it.
        With that, I yield back.
        Chairman BRADY. Thank you.
        Ms. DelBene, you are recognized.
        Ms. DELBENE. Thank you, Mr. Chair.
        And thanks to all of you for being here today and,
    Professor Clausing, for being here from my alma mater.
        Actually, I want to start with a question for you. I have
    heard from small brewers in my district. They are very
    concerned about the border adjustment proposal, because they
    rely on imported ingredients in barrels to produce specialty
    beers, and often they only sell domestically.
        So, despite the fact that they are supporting jobs and
    economic activity right here at home, they would be hit by
    border adjustment with no offset. And so I wondered, do you
    agree with that and how would you respond to their concerns?
        Ms. CLAUSING. Yes, I agree that there are substantial risks
    here to import-intensive industries, because of the possibility
    that the exchange rate won't adjust perfectly.
        And one thing that this testimony has reminded me of is the
    fact that we can't really do everything in one country. Like we
    have international and trade for a reason. We don't want
    absolutely everything to be done in the United States. It might
    make more sense to do the apparel abroad.
        But that doesn't mean, you know, that we can't be sensitive
    in terms of thinking about how trade has affected American
    workers. And one way that you can help the workers who have
    been hurt by the downsides of international trade is by a tax
    system that favors, for instance, the earned income tax credit
    at the low end, or middle incomes as well.
        But there are many industries, including brewing and the
    wine makers of Oregon and others, that are worried about this,
    because of the possible lack of an exchange rate offset.
        Ms. DELBENE. Our tax system, when we talk about things, we
    generally talk about physical goods, the movement of something
    or nexus where something is located. But I wonder if you can
    comment on digital goods and intangible goods, how they would
    be treated right now under this proposal, or do we even have
    enough information to have a sense of how they would be
    treated?
        Ms. CLAUSING. One of the difficult things with digital
    goods is that they are more difficult to observe. And so this
    has actually raised a huge issue with countries that have VATs,
    for instance, because they need to observe the passage of a
    good across a border; and with a digital good, that is often
    difficult to observe, and so that generates possible avoidance
    opportunities.
        In general, the economic literature in taxation suggests
    that the more physical or real something is, the less
    responsive it is to taxes. So if you look, for instance, at
    U.S. multinational firms, where they have jobs abroad is often
    other countries that have high tax rates and high regulations,
    but where they have their profits are in these low-tax havens.
    And so you get this big difference in how responsive things are
    to tax, based on how easy they are to move. And digital goods
    are one example of things that are very, very easy to move.
        Ms. DELBENE. Do we have enough information right now in
    terms of how border adjustment in particular might impact
    digital goods, specifically this plan?
        Ms. CLAUSING. I think it would raise enforcement concerns,
    but this is one of several things that haven't been fully
    worked out in the plan. Another big issue is finance, because
    the financial sector would have to be treated differently under
    this plan, and this creates huge headaches in terms of thinking
    about how to administer this tax with respect to the financial
    sector.
        Ms. DELBENE. One other issue that was alluded to earlier is
    that manufacturing is moving to more automation, using
    technology, artificial intelligence, robots, and so may not use
    as many people for that work. And if we look going forward, do
    economists look at this as we estimate kind of future impact
    and impacts on families and workers? Is that part of the
    modeling, because I haven't heard people talking about that as
    much.
        Ms. CLAUSING. I think technological change is a huge issue.
    And one thing to think about, when we think about what it means
    to bring something back to the United States, if we bring it
    back and use robots to make it, it is not clear that that is
    generating any more American jobs than if we had left it
    somewhere else.
        Adapting to technological change requires both tax policy
    that is sensitive to the needs of the middle class, but also
    spending policy. We want workers who can use technology to
    their advantage, not be replaced by it. So if you have an
    engineering degree or you write software, technology is your
    friend; but if you are a low-skilled worker, technology hurts
    you.
        So the answer to that seems to be upgrading the skill
    levels of our population, and that is going to require
    investments in education, investments in infrastructure, not
    just hard infrastructure like roads, but other types of
    infrastructure, like internet access and computing access and
    the like. So I think our spending priorities need to reflect
    that.
        Ms. DELBENE. Thank you very much. And, Mr. Chair, I yield
    back.
        Chairman BRADY. Thank you. Mr. Rice, you are recognized.
        Mr. RICE. Mr. Lindsey, I have a question for you. If you
    have an American company and an Irish company, and they both
    make the exact same product, and they both compete worldwide
    for the materials to make that product, and they both compete
    worldwide for customers to sell that product to, and the
    American company pays a 35 percent income tax, and the Irish
    company pays a 13 percent income tax, at a VAT, can you tell me
    the outcome of that story?
        Mr. LINDSEY. It is very simple. Obviously, the Irish
    company is well advantaged.
        Mr. RICE. So either the American company is going to end up
    bankrupt, right, or bought by the Irish company, correct?
        Mr. LINDSEY. Well, it is certainly going to be less
    competitive. There is no question.
        Mr. RICE. Do you disagree with that, Ms. Clausing?
        Ms. CLAUSING. I think that some of the competitiveness
    issues here are misunderstood. In particular, any company that
    is serving a particular market----
        Mr. RICE. You disagree with that is what you are saying?
        You disagree with that?
        Ms. CLAUSING. Yeah. I disagree.
        Mr. RICE. You know, I ask that theoretical question all the
    time. You are the first person I have actually heard disagree
    with that. But you know, that point, I ask it as a theoretical
    question. But we have a real live instance of it right here.
    Mr. Luciano has made a much better case for that point than I
    ever could when he says that our American manufacturers are
    facing competition from Ukraine and from Brazil on grain
    exports, correct?
        Mr. LUCIANO. Right.
        Mr. RICE. And they have for what period of time, Mr.
    Luciano?
        Mr. LUCIANO. Sir?
        Mr. RICE. What period of time have we faced this
    competition?
        Mr. LUCIANO. Well, we have faced it for the last 50 years,
    but I would say in the last five years it has accelerated.
        Mr. RICE. And Brazil and Ukraine have these consumption
    taxes that we are talking about here, the border adjustment. Is
    that correct?
        Mr. LUCIANO. That is correct.
        Mr. RICE. So the effect of that, as you said earlier, is
    that to sell to worldwide markets, the price they charge for
    their product is less.
        Mr. LUCIANO. [Nonverbal response.]
        Mr. RICE. By how much?
        Mr. LUCIANO. Enough to make the U.S. uncompetitive for long
    periods of time.
        Mr. RICE. So if China is one of the big markets for our
    agricultural exports, the question is, I suppose, if our tax
    system, our income tax system, creates a 15 percent higher cost
    on American farmers, are the Chinese going to pay 15 percent
    more for American corn than they are for Ukrainian corn or for
    Brazilian corn? Is that right?
        Mr. LUCIANO. I think what end up happening is that the
    actual price that the U.S. farmer will get for the product, in
    order to compete with those markets, will be lower than the
    price that the Brazilian farmer or the Ukrainian farmer----
        Mr. RICE. But we have seen the effects of it already over
    the last decade, right? And what has been the effect? I mean,
    what has happened to our market share?
        Mr. LUCIANO. We have been declining. We lost it by half.
        Mr. RICE. Mr. Lindsey, does that line of reasoning just
    apply to agricultural products or any other products made in
    America with this higher tax bracket?
        Mr. LINDSEY. All right. Obviously, it applies to all
    products. I would also point out the number of companies, how
    many companies have switched and moved intellectual property
    from here to Ireland versus the number of Irish companies that
    have moved back. I think I would point out to the ranking
    member how smart the Irish are in this regard.
        Mr. RICE. Well, you know, and they are. And they have
    designed a tax system that has a low income tax and a higher
    VAT. Correct? Why would they do such a thing?
        Mr. LINDSEY. Why would the Irish do such a thing?
        Mr. RICE. Yeah. Yeah.
        Mr. LINDSEY. Because they are very clever people.
        Mr. RICE. Because they want to be competitive, correct?
        Mr. LINDSEY. They want to be competitive.
        Mr. RICE. And it has worked, hasn't it?
        Mr. LINDSEY. It has worked beautifully. Ireland 30 years
    ago was not a particularly prosperous place, and now it is. And
    they have done a very good job.
        Mr. RICE. I think that if the playing field is leveled, the
    American worker can compete with anybody. But since 1986
    Washington has stood by and let the rest of the world tilt the
    playing field against the American worker.
        My friends on the left spend their time arguing about the
    distribution of the tax reductions. And I sure want to work and
    make that fair. But, in my opinion, that is small potatoes.
        Median household income in the United States is just about
    equal today to what it was in 1990. The American middle class
    has not had a raise in 27 years. The American middle class was
    50 percent of the population in 1990. Today, it is 43 percent.
    So our middle class is shrinking, and its income is stagnant.
        We have to do better. We can't stay where we are. In my
    opinion, the growth and GDP from this plan will dwarf any
    reduction in taxes. In my opinion, we will see a resurgence in
    American manufacturing. In my opinion, we will see a resurgence
    in the American middle class. In my opinion, we will see a
    reduction in income disparity.
        I yield back, Mr. Chairman.
        Chairman BRADY. Thank you.
        Mr. Curbelo, you are recognized.
        Mr. CURBELO. Mr. Chairman, thank you for hosting yet
    another important hearing on a comprehensive tax reform. And I
    thank the witnesses for their participation today.
        I want to build on my comments from last week and reiterate
    my support for permanent, revenue-neutral and comprehensive tax
    reform. That is the surest way to bring the U.S. economy into
    the 21st Century.
        And, again, I am pleased to hear that there is so much
    bipartisan consensus in favor of permanent, revenue-neutral tax
    reform. I think that is absolutely critical, as it is important
    that individuals, and families, as well as business of all
    sizes, have confidence in knowing their tax system is
    permanent, fair, and that it strives to achieve the lowest
    rates and the most simplicity for all taxpayers.
        I want to ask Mr. Simon, I would like you to take into
    account the region I represent, Miami, oftentimes mentioned the
    gateway to the Americas, many export opportunities in South
    Florida. We have access to many markets all over the world.
    But, also, the Port of Miami sees a lot of imports.
        So looking at our blueprint more broadly and then honing in
    specifically on today's topic, border adjustability, how do you
    think an area like Miami, like South Florida, where there is
    this great entrepreneurial spirit, where we have immigrants who
    are thirsty to contribute to our country, to start new
    businesses, who bring new ideas, how does an area like ours
    fair under the house blueprint? And specifically with regards
    to the policy that we are considering today?
        Mr. SIMON. Well, I mean, by all accounts, American
    exporters will be more competitive because they will have a
    substantially different tax situation than they do today.
        So the port and all the activity around the Port of Miami
    and all of our ports will remain vital.
        By most accounts, at least in the short and medium term, we
    will still be very, very heavily importing because the supply
    chain, supply lines, won't be there.
        I think the risk--and we have talked about it quite a bit--
    is that if we can't figure out a transition plan and prices go
    up, consumer prices go up, which I think everybody in the room
    doesn't want to have happen, if we can't figure that out, we
    could see a slowdown in some of the imports.
        But, fundamentally, what will happen in most of the economy
    in the U.S. is that because of the revitalization of our export
    base and our manufacturing base, we will start to see rising
    consumer household incomes, and increased participation of
    consumers in the market, and retail industry will begin to
    become more vital, both large and small retailers, because of
    the spending power of the middle class, which, as we heard
    eloquently just a moment ago, has been eroded over the last 20
    years. And once that is rebuilt, a lot of really, really
    exciting things happen.
        Mr. CURBELO. And, Mr. Simon, what is your message for
    businesses who rely on textile imports? Of course, South
    Florida has been a great beneficiary of many wonderful trade
    deals like DR-CAFTA and other bilateral deals throughout the
    region.
        And we do receive a lot of imports through our South
    Florida ports. And, of course, there are American businesses
    that rely on these imports who employ many people in my
    community. They have very serious concerns that they have
    conveyed to me. How would you address those concerns?
        Mr. SIMON. I really commend my friend, Mr. Cornell here,
    for being here and being at the table. Because that is the way
    we are going to get this done, particularly in some of these
    more challenging industries. We need to sit down together, and
    understand the impact, and then try to find ways, the best
    ways, to mitigate them, and not with theory, and not with hope,
    and not with plan. And build in bridges and safety nets so
    these industries that may be impacted--and, to be quite honest
    with you, we are all, you know, have our own opinions.
        But let's not have our opinions determine the outcome of
    his company or his industry. Let's figure out ways to bridge
    the gap, and build a transition so that we can get to the other
    side of this, and get rid of that 30 years of muscle memory
    that is having us doing things this way and has no other option
    besides offshore for apparel and many other industries. Once we
    do that, we will be able to move forward.
        Mr. CURBELO. Mr. Cornell, briefly, I will give you the
    balance of my time.
        Mr. CORNELL. I think Mr. Simon has talked about some of the
    issues. But I think you have hit a really important topic.
    Short-term, all the products that are imported into your
    district today will be impacted in a very negative way. And
    knowing your district pretty well, you have hundreds and
    hundreds of small businesses. And I know that they depend on
    import products.
        So the short-term implications are significant. They could
    be devastating.
        Mr. CURBELO. Thank you, Mr. Cornell. Thank you, Mr.
    Chairman.
        Chairman BRADY. Thank you. Ms. Chu, you are recognized.
        Ms. CHU. Ms. Clausing, I represent a district in Los
    Angeles county that relies on its cars. In fact, our survival
    in that area depends on owning a vehicle and navigating the
    freeways. For many middle class and working families,
    purchasing a vehicle is often one of the largest household
    expenditures of their lives, and I am concerned about the
    effect of a border adjustment tax on vehicle prices for these
    families.
        Now, the automakers that have come in to see me tell me
    that automakers in the U.S. are part of a highly globally
    integrated industry, and because of the integrated supply
    chain, no vehicle made in the U.S. contains exclusively
    domestic content. Also, there are studies such as from the
    Center for Auto motive Research which estimates that the
    average auto price will increase by $2,000, and the Roland
    Berger study estimates that the average price increase would be
    about $3,300. That sounds to me pretty prohibitive.
        So I would like to know how you think this plan will effect
    the American consumers of automobiles and the auto industry as
    a whole. And there are others on this panel who are saying that
    the rise in wages will mitigate price increases. Is that true?
        Ms. CLAUSING. Yes. Thank you for your question.
        I think the auto industry is one that is highly globally
    integrated as you point out. Whether you buy a Ford or whether
    you buy a Toyota, if you look at that sticker, you will see
    that both of those cars come from many, many different
    countries. And so any globally integrated industry like the
    auto industry is going to have some risk associated with it.
        On the import side, if the exchange rate doesn't
    appreciate, that is going to drive up the auto prices of
    imported cars, which will, of course, increase the price of
    domestic cars as well, because they compete with each other in
    the economy as a whole. And so that would be one risk for the
    auto consumer.
        For exporters of cars, there are also risks associated with
    the potential for WTO problems and trade and tariff
    retaliation. The auto sector would be an obvious one to target
    in retaliatory tariffs. So that would be one worry that I would
    have there.
        And I would also point out that our auto exporters in
    general are competing on a level playing field with other
    countries with respect to a sales tax. If a country like
    Ukraine has a sales tax, or a VAT, you know, that is, of
    course, rebated when they export to another country. We could
    add a sales tax here and rebate it, but that is not going to
    make our companies more competitive. We already have a level
    playing field with respect to sales tax.
        Ms. CHU. Well, I was shocked to see that this proposal
    could have very different effects for the top 1 percent versus
    the bottom 80 percent. In fact, you point out that the top 1
    percent would get a tax cut averaging $213,000, the bottom 80
    percent will get a tax cut averaging $210. That means that the
    upper 1 percent benefit by a thousand times more than the
    bottom 80 percent.
        And we see also that the cost of everyday products that
    average consumers purchase would rise, like food. And the USDA
    says that certain food products are very import heavy, like
    fish, fruit and nuts, and that almost all bananas, mangoes,
    coffee, cocoa, tea, spices, tomatoes, melons, and grapes are
    imported.
        So I have families in my district that live on a limited
    income, seniors that live on a fixed income. Thinking about all
    these families and seniors, does this tax plan and the BAT
    result in a regressive tax on consumers and especially those on
    a fixed income?
        Ms. CLAUSING. Yes. And there are three ways in which I
    would worry about this. One, as you point out, if the exchange
    rate doesn't adjust, people would pay more for all of their
    imported products. And we know that the poorer you are, the
    higher the share in your consumption bundle is imported goods.
    And so that is my first concern.
        Second, if you just look at the estimates, even ignoring
    the exchange rate effects, the tax cuts are just much larger at
    the top, as you point out, a thousand times larger than they
    are for the bottom 80 percent.
        And, third, returning to this wage issue that you mentioned
    in your last question, we really have to ask, what is going to
    drive American wages higher? I think this plan is premised on
    the idea that it will unleash a new wave of investments and
    increase the supply side of the economy to drive up wages. But
    if you look again at corporate profits after tax, they are
    higher than they have ever been in all of our lifetimes.
        So if they really need more after-tax profits in order to
    generate more investments, you kind of wonder, well, where is
    the investment paradise over the last 15 years? Because we have
    had really high profits, but without big investments. So I
    think a strong middle class is the answer to big investments.
        Chairman BRADY. Thank you. Time has expired. Mr. Reed, you
    are recognized.
        Mr. REED. Well, thank you, Mr. Chairman. And I know I went
    down to three minutes, so I will be quick. That is the penalty
    of coming late, you have to go a little shorter, which I
    appreciate.
        To the panel, I want to just--one, I think there is broad
    agreement. We cannot maintain the status quo. The status quo of
    the American Tax Code is just fundamentally flawed and puts us
    at such a competitive disadvantage that we have to do
    something. Would everybody agree with that at least?
        Okay. So we got common agreement there, heads shaking. I
    want to focus on repatriation, because it is important to a lot
    of folks back in my district and some interests that we have in
    the district.
        The holiday of 2004 was just that, a holiday. And when that
    occurred, there was a lot of concern about that going to
    corporate shareholders and others. Obviously, I believe, there
    is a reason for that. Don't you have a fiduciary obligation to
    your shareholders in America? And if you got a holiday, and you
    get a one-time injection of cash, is there the fiduciary
    obligation that has to be satisfied to give that to your
    shareholders?
        So is that a concern if we do another holiday going
    forward, Mr. Lindsey?
        Mr. LINDSEY. I would not do another holiday. That is one
    reason I like this bill. Not only is it not a holiday, it takes
    care of the problem permanently. And I----
        Mr. REED. And Ms. Clausing----
        Mr. LINDSEY [continuing]. Estimate was a hundred billion a
    year by ending profit sharing.
        Mr. REED. Reclaiming my time.
        So for the democratic witness, you would agree with that
    too correct?
        Ms. CLAUSING. Correct.
        Mr. REED. So doing it permanent is the way to go? That is
    the general consensus of the panel?
        Ms. CLAUSING. I am sure we disagree on the rate, but I
    agree that it should be permanent, and the holidays are a bad
    idea.
        Mr. REED. I totally appreciate that.
        The other source of agreement that I want to get to is when
    you look at the overseas trapped earnings. My understanding of
    it is you got, essentially, two types of overseas trapped
    earnings that are there. You have cash or cash equivalents, and
    you have investment oversea earnings that are sitting in brick
    and mortar and other type of investments overseas. Does that
    not encourage us to make sure that we have a bifurcated rate as
    opposed to one rate?
        And, Mr. Lindsey, could you offer some comment?
        Mr. LINDSEY. My instinct--and, obviously, it just my
    instinct--is no, because the way that money was repatriated
    over there, retained over there, was due to the combination of
    the foreign tax credit and the delay in repatriation.
        What they chose to do with that money, given that it was
    over there, that issue should be irrelevant to how we have
    deemed repatriation.
        Mr. REED. So you are advocating for a single rate, as
    opposed----
        Mr. LINDSEY. Single rate.
        Mr. REED [continuing]. To bifurcated?
        Anyone disagree with that assessment? Any of you have
    overseas trapped earnings? I know you are retail. ADM, doesn't
    matter either way?
        Okay. Well, I am very concerned because I do know Uncle
    Sam, and Uncle Sam does not take payments in regards to brick
    and mortar. He wants cash. And if you don't have the cash on
    your books to pay, I am very concerned that an impact of a
    single rate could have on those companies is that they would be
    significantly hit from a cash flow perspective and a cash
    balance sheet.
        So, with that, I yield back.
        Chairman BRADY. Thank you. Mr. Bishop, you are recognized.
        Mr. BISHOP. Thank you, Mr. Chairman.
        Sitting here, I know that I have a thousand questions for
    all of you. Thank you for the time you have taken. And I am
    sorry I only have three minutes to ask the question.
        I am from the Detroit area, home of the Motor City, autos,
    component parts, manufacturing, big deal for us.
        Mr. Simon, your comment that we have to make things is very
    important to me. I do believe that. We are not a service-
    centered economy. In my area, that is very important. And I
    would like to, if I could, drill down on the manufacturing
    issue a little bit more.
        Tool and dye in our country is on the verge of extinction.
    We are the Arsenal of Democracy. We are the home of the Big
    Three, home of Henry Ford, home of the greatest auto industry
    in the world. Yet, in the blink of an eye, we have lost 70
    percent of the tool and dye industry and a full 80 percent of
    its skilled workforce.
        In a magazine article that I have here dated May 15, Mark
    Schmidt, who is the president of Atlas Tool in Roseville,
    Michigan, made some alarming statements and a very dire
    prediction. And in his article he said that China is under a
    deliberate and predatory economic attack right now. He talks
    about how they are undercutting all the prices in the United
    States and making it impossible for American folks to compete.
    And he also says that soon we will not have the sufficient
    capacity because we will be pushed out of the industry
    entirely. China will completely take over, and, as a result,
    will become the dominant automotive manufacturer and supplier
    in the world.
        This represents a huge threat to the United States, not
    just in the area of the economy and jobs, but also all the way
    into the realm of national security. What are we doing? This is
    the craziest thing I have ever heard. If we are not doing
    something today, or in this process, that will address this
    concern, I would like to know from all of you what we can do to
    try to address this. But this is insanity to me if we can't do
    something about this. And I don't know if border adjustment is
    the solution.
        But, Mr. Lindsey, can you comment on that? I am sorry to
    have taken so much time.
        Mr. LINDSEY. I think that there are a number of things.
    Again, it comes back to, How do you make America the best place
    in the world to invest and produce things? And I think we are
    targeting that in this bill, particularly with the expensing
    component. Because we are going to be accelerating the
    incentives to, you know, have a new plant and new equipment
    here. I think that that is number one.
        I also think the general reduction in rates is probably
    helpful. But I would go back to the most important answer I
    think is the expensing component.
        Mr. BISHOP. Thank you. And one quick question for all of
    you. How important is it for us to get this done before 2018.
        Mr. LINDSEY. Oh, vital, vital, vital, vital.
        Mr. BISHOP. Mr. Simon.
        Mr. SIMON. Every day is important. We are eroding. We are
    running out of energy.
        Mr. BISHOP. I would ask you all, but I----
        Chairman BRADY. Thank you. All time has expired. Mrs.
    Walorski for the last question.
        Mrs. WALORSKI. The last question. Thanks again for being
    here. I represent Northern Indiana, and I come from the medical
    device and pharmaceutical industries. So inversions have been
    extremely detrimental to our State and could potentially be as
    well.
        Another issue, Zimmer Biomet is a global leader in
    orthopedic medical devices, is headquartered in Indiana. I met
    with their head of global tax a few months ago, and he put this
    in stark terms. This is why I bring this up.
        He said: Indiana is a consistent leader in quality
    infrastructure, high skilled labor, reliable and low energy
    costs. A few years ago, they were considering expanding their
    manufacturing footprint, and excluding the Tax Code, Indiana
    was the clear leader. But when you factored in the U.S. Tax
    Code, Indiana dropped to dead last. And that is jarring.
        Mr. Luciano, is there a solution to make the U.S.
    competitive and attract investment other than tax reform? Is my
    one question. I got to do this quick.
        How important for ADM, and others in your industry, is
    moving away from a worldwide tax system and ending the lockout
    effect? And then, what ripple effects do you see when companies
    are acquired by foreign competitors or inverters?
        Mr. LUCIANO. Yeah, I think I said this before. I think that
    what we see in this proposal, to us, addresses that competitive
    issue that you are describing, and I think allows us to move
    freely investments to whatever we need to make those
    investments that makes sense.
        And our intention is always to make it here, to improve the
    competitiveness of the U.S. It is a very competitive market out
    there, and if we are not allowed to help, in my case a farmer,
    or any other manufacturers, we are going to be falling behind
    to other countries that are challenging the U.S. supremacy in
    all of this.
        Mrs. WALORSKI. I appreciate it.
        Mr. Chairman, I yield back just one minute.
        Chairman BRADY. So noted.
        So, a couple of things. One, I would, for the record, like
    to introduce the Freund and Gagnon study for the Peterson
    Institute that shows in review of 34 countries that adopted or
    adjusted their border adjusted taxes since 1970, all but one, a
    full depreciation of the currency to balance trade effects.
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        Chairman BRADY. Another research paper by Alan Auerbach and
    Larry Kotlikoff remarks to show destination-based consumption
    tax more progressive than corporate taxes.
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        Chairman BRADY. I would like to thank our witnesses today.
        You have brought incredible insight to this well-watched
    hearing. You can tell, some have already given up on U.S.
    manufacturing in agriculture. You have heard it: We don't make
    that anymore, it is not coming back.
        I am heartened, though, by discussions we have heard here
    today, that that is not necessarily the case. And I know with
    Mr. Simon, you have told me before about when you bring back
    manufacturing capability for lawn furniture, you bring it back
    to manufacturing hair dryers--not that I use those anymore--and
    on, and on, and on down that supply chain.
        I am heartened by Rich Noll, who is the Chairman of Hanes
    company. They have got the Hanes, Champion, Playtex, apparel,
    you know, very import sensitive, who makes the case that if we
    had this Tax Code in place today, these supply chains would be
    back here in America.
        And I also am heartened by the fact that we all recognize
    that moving forward with this type of bold change requires
    thoughtful transition, deliberate transitions, addressing
    successfully the valid concerns we have heard today.
        So we are going to continue on that track. And please be
    advised that Members of Congress on the committee have two
    weeks to submit written questions to you, to be answered later
    in writing, so those questions and your answers will be made
    part of the formal hearing record.
        Again, on behalf of Mr. Neal and myself, thank you for
    being here today. The meeting stands adjourned.
        [Whereupon, at 1:24 p.m., the committee was adjourned.]
        [Member Questions for the Record follows:]

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