[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:]
    
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    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:]
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
   

    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:]
    
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    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.
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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.
    [The information follows:]
    
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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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