[Senate Hearing 112-758]
[From the U.S. Government Publishing Office]
S. Hrg. 112-758
TAX REFORM: WHAT IT MEANS FOR STATE AND LOCAL TAX AND FISCAL POLICY
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
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APRIL 25, 2012
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
S. Hrg. 112-758
TAX REFORM: WHAT IT MEANS FOR STATE AND LOCAL TAX AND FISCAL POLICY
=======================================================================
HEARING
before the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
APRIL 25, 2012
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
_____
U.S. GOVERNMENT PRINTING OFFICE
80-344 PDF WASHINGTON : 2012
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20402-0001
COMMITTEE ON FINANCE
MAX BAUCUS, Montana, Chairman
JOHN D. ROCKEFELLER IV, West ORRIN G. HATCH, Utah
Virginia CHUCK GRASSLEY, Iowa
KENT CONRAD, North Dakota OLYMPIA J. SNOWE, Maine
JEFF BINGAMAN, New Mexico JON KYL, Arizona
JOHN F. KERRY, Massachusetts MIKE CRAPO, Idaho
RON WYDEN, Oregon PAT ROBERTS, Kansas
CHARLES E. SCHUMER, New York MICHAEL B. ENZI, Wyoming
DEBBIE STABENOW, Michigan JOHN CORNYN, Texas
MARIA CANTWELL, Washington TOM COBURN, Oklahoma
BILL NELSON, Florida JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware
BENJAMIN L. CARDIN, Maryland
Russell Sullivan, Staff Director
Chris Campbell, Republican Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Baucus, Hon. Max, a U.S. Senator from Montana, chairman,
Committee on Finance........................................... 1
Hatch, Hon. Orrin G., a U.S. Senator from Utah................... 3
WITNESSES
Sammartino, Frank, Assistant Director for Tax Analysis,
Congressional Budget Office, Washington, DC.................... 5
Rueben, Dr. Kim, senior fellow, Urban-Brookings Tax Policy
Center, Washington, DC......................................... 7
Hellerstein, Walter, Francis Shackelford professor of taxation,
University of Georgia School of Law, Athens, GA................ 8
Henchman, Joseph, vice president of legal and state projects, Tax
Foundation, Washington, DC..................................... 10
Zinman, Sanford, owner, Zinman Accounting, White Plains, NY...... 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Baucus, Hon. Max:
Opening statement............................................ 1
Prepared statement........................................... 29
Cantwell, Hon. Maria:
Prepared statement........................................... 31
Enzi, Hon. Michael B.:
Prepared statement with attachments.......................... 33
Hatch, Hon. Orrin G.:
Opening statement............................................ 3
Prepared statement........................................... 44
Hellerstein, Walter:
Testimony.................................................... 8
Prepared statement........................................... 46
Henchman, Joseph:
Testimony.................................................... 10
Prepared statement........................................... 79
Rueben, Dr. Kim:
Testimony.................................................... 7
Prepared statement........................................... 93
Sammartino, Frank:
Testimony.................................................... 5
Prepared statement........................................... 98
Responses to questions from committee members................ 116
Zinman, Sanford:
Testimony.................................................... 12
Prepared statement........................................... 122
Responses to questions from committee members................ 131
Communications
Airgas, Inc...................................................... 137
Amazon.com....................................................... 139
American Bankers Association..................................... 143
American Booksellers Association................................. 147
American Federation of State, County, and Municipal Employees
(AFSCME)....................................................... 149
American Public Power Association (APPA)......................... 155
American Trucking Associations................................... 157
Beall's Inc. and Subsidiaries.................................... 168
Bond Dealers of America.......................................... 170
Cardozo School of Law, Yeshiva University........................ 174
Center for Fiscal Equity......................................... 184
Coalition for Rational and Fair Taxation......................... 187
The Computing Technology Industry Association (CompTIA).......... 197
Consumer Electronics Association (CEA)........................... 204
Copeland, Dale................................................... 205
Cornett, Hon. Mick............................................... 207
Council of Development Finance Agencies (CDFA)................... 212
Council On State Taxation (COST)................................. 214
The Cristol Group................................................ 219
Direct Marketing Association, Inc. (DMA)......................... 220
The Dow Chemical Company......................................... 225
Download Fairness Coalition...................................... 227
eBay Inc......................................................... 232
Economists Incorporated.......................................... 238
FASTSIGNS International, Inc..................................... 243
The Federal Tax Authority, LLC (FedTax).......................... 245
Federation of Tax Administrators................................. 250
Fischer and Wieser Specialty Foods, Inc.......................... 255
Fuhrman, Hon. Stephen............................................ 263
Institute on Taxation and Economic Policy (ITEP)................. 265
International Association of Fire Fighters....................... 275
International City/County Management Association, et al.......... 282
International Franchise Association (IFA)........................ 285
Large Public Power Council (LPPC)................................ 287
LORD Corporation................................................. 295
Macy's, Inc...................................................... 298
Motion Picture Association of America, Inc....................... 299
Multistate Tax Commission........................................ 303
National Association for the Specialty Food Trade, Inc. (NASFT).. 315
National Association of Counties, et al.......................... 318
National Conference of State Legislatures........................ 325
National Education Association (NEA)............................. 338
National Foreign Trade Council, Inc. (NFTC)...................... 340
National Governors Association................................... 341
National Marine Manufacturers Association........................ 348
National Retail Federation....................................... 351
National Taxpayers Union (NTU)................................... 356
Nesset, Hon. Jeff and Hon. Leon Smith............................ 359
NetChoice........................................................ 361
Neutral Posture.................................................. 373
New Jersey Bankers Association................................... 375
New York Bankers Association..................................... 377
North American Association of Food Equipment Manufacturers
(NAFEM)........................................................ 380
Oklahoma Municipal League........................................ 383
OppenheimerFunds, Inc............................................ 386
Organization for International Investment (OFII)................. 394
Outdoor Living Brands, Inc....................................... 400
Partnership for New York City.................................... 409
Performance Marketing Association, Inc........................... 411
ProHelp Systems, Inc............................................. 414
PulteGroup, Inc.................................................. 420
Retail Industry Leaders Association (RILA)....................... 422
Sears Holdings Corporation....................................... 426
Securities Industry and Financial Markets Association (SIFMA).... 428
Smithfield Foods, Inc............................................ 430
The Soccer Dealers Association................................... 433
Software Finance and Tax Executives Council (SOFTEC)............. 435
Specialty Equipment Market Association (SEMA).................... 442
Stonewall Kitchen LLC............................................ 445
Third Way Progressives........................................... 448
Twin Falls Area Chamber of Commerce.............................. 458
Washington Retail Association.................................... 460
Watermark Books and Cafe......................................... 462
TAX REFORM: WHAT IT MEANS FOR STATE AND LOCAL TAX AND FISCAL POLICY
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WEDNESDAY, APRIL 25, 2012
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:11
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max
Baucus (chairman of the committee) presiding.
Present: Senators Wyden, Cantwell, Nelson, Cardin, Hatch,
Snowe, and Thune.
Also present: Democratic Staff: Lily Batchelder, Chief Tax
Counsel; Holly Porter, Tax Counsel; Tiffany Smith, Tax Counsel;
and Ryan Abraham, Tax Counsel. Republican Staff: Chris
Campbell, Staff Director; Mark Prater, Deputy Chief of Staff
and Chief Tax Counsel; Nick Wyatt, Tax and Nomination
Professional Staff Member; and Jim Lyons, Tax Counsel.
OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM
MONTANA, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The hearing will come to order.
In Federalist Paper No. 41, James Madison wrote that one of
the powers conferred on the Federal Government is the
``maintenance of harmony and proper intercourse among the
States.''
When Madison and our founders crafted the Constitution,
they debated the proper division of power between the Federal
and State governments. Today we examine that question when it
comes to the tax code.
Most State governments are in tough financial shape. In
2010, 48 States had budget shortfalls. All States except one
are required by State law to balance their budgets. That has
forced States to make tough decisions, such as raising taxes or
cutting spending.
Since the financial crisis, 46 States have cut services; 30
have raised taxes. To help States and local governments balance
their budgets, the Federal Government provides direct support
through programs like Medicaid. Thirty-six percent of all State
revenues come from Federal grant programs.
The Federal Government has also long played an indirect
role boosting State and local governments through the tax code.
Since the first income tax law, Congress has exempted interest
on State and local bonds. This exemption helps cover part of
the borrowing cost of projects by State and local governments.
The interest exemption on bonds totals about $50 billion a
year.
The same is true for State and local taxes; that is, the
tax deductions. Since 1913, Congress has allowed some or all of
the State and local income, general sales, excise, and real
property and personal property taxes to be deducted from income
for Federal income tax purposes. That totals about $66 billion
a year.
These tax exemptions and deductions total more than twice
what the Federal Government provides to States in highway
funding. Combined, they cost more than $105 billion per year
or, if you add in the private activity bonds, close to about
$115 or $116 billion a year.
During hard economic times, this Federal support helps
cushion the blow on State and local finances. It also ensures
that State and local governments play a role in deciding how
some Federal dollars are spent. For example, making the
interest on bonds tax-exempt reduces the interest rate State
and local governments pay to finance roads, schools, hospitals,
and other construction projects. Just this February, voters in
Manhattan, MT approved new bonds so the community can afford to
repair the Manhattan Elementary School's roof.
Likewise, the deduction for State and local taxes reduces
the burden that a State or local government places on its own
residents in raising revenue. As we reform the tax code to
encourage growth and make our country more competitive, we need
to ask whether the current exemptions and deductions make
sense.
State and local taxes could potentially be allowed as
above-the-line deductions, allowing all taxpayers to benefit.
We could also consider providing a uniform subsidy for
bondholders. Tax-exempt bonds subsidize interest paid on such
bonds by exempting the interest from the tax, and, currently,
the value of this subsidy varies based on taxpayers' marginal
income tax rates.
For every dollar we spend on infrastructure through a tax-
exempt bond, $0.20 goes to tax breaks for higher-income
taxpayers. A uniform subsidy would mean each taxpayer receives
the same subsidy regardless of tax bracket. The Build America
Bonds Program achieved success using just this approach.
In Montana, the Barrett Hospital in Dillon was outdated and
in need of constant repair. Dillon issued $30 million of
insured Build America Bonds at a 3.67-percent interest rate,
reducing the borrowing cost to Dillon residents by a full
percentage point, saving them more than $800,000. The project
created 33 full-time jobs. Dillon now has a new, state-of-the-
art critical access hospital.
Beyond these provisions in current law, we should also ask
what else we can be doing to efficiently help State and local
governments maintain sustainable budgets. We need to make sure
our Federal, State, and local tax systems are working together.
As part of tax reform, we should ask how we can help States
collect taxes owed and how we can encourage standard rules to
protect taxpayers from multiple taxes and needless complexity.
We have worked together with the States to simplify rules
in the past. Originally driven by the States, the international
fuel tax agreement provides a uniform system for the
administration and reporting of fuel taxes paid by commercial
trucks and buses operating in multiple States. States agreed to
simplified administration burdens in exchange for ability to
enforce fuel use taxes.
More recently, Congress enacted the Mobile
Telecommunications Sourcing Act to establish uniform rules
under which the States can tax mobile calls.
We should consider how we can learn from these examples. So
we must work to reform the code. Let us remember the lessons
from Madison and our Founders. Let us bear in mind the
relationship between our Federal tax code and State and local
tax systems and improve the code to create growth and make the
U.S. more competitive. And let us do this in a way that
improves Federal, State, and local budgets.
[The prepared statement of Chairman Baucus appears in the
appendix.]
The Chairman. Senator Hatch?
OPENING STATEMENT OF HON. ORRIN G. HATCH,
A U.S. SENATOR FROM UTAH
Senator Hatch. Thank you, Mr. Chairman. In reading the
written testimony of our guests today, I was particularly
struck by Mr. Hellerstein's recitation of the Hippocratic Oath:
``First, do no harm.''
Too often, Congress forgets this sensible advice. My hope
is that this hearing, drawing on the wisdom of our five
witnesses, will help Congress observe and honor Mr.
Hellerstein's admonition. The rush for new tax dollars that too
often characterizes the Federal legislative process oftentimes
leaves issues involving Federal-State tax coordination by the
wayside. But we cannot forget that the policies being discussed
today touch on fundamental constitutional principles--
principles of federalism and separation of powers. And, if we
are to do no harm, it is important to hold hearings such as
this one.
Though I do not have all the answers to the specific policy
questions this particular hearing will wrestle with, I do have
a series of bedrock principles that I believe will serve as a
useful guide.
The 10th amendment to our Constitution serves as the
lodestar for today's hearing. As the testimony of our witnesses
at least implicitly reminds us, under our Constitution of
enumerated and limited Federal powers, the powers not delegated
to the United States by the Constitution or prohibited by it to
the States are reserved to the States, respectively, or to the
people.
Now, issues involving the Federal impact on State and local
revenues impact both the Constitution's separation of powers
between the Federal and State Governments and the separate
identity of the sovereign States.
Too often, some view the Constitution and its limits on
Federal power as a hindrance to important objectives. I cannot
subscribe to this approach. We all take an oath to protect and
defend the Constitution. That Constitution, with its limits on
Federal power, is our greatest strength, not weakness. And in
walking the fine line between Federal and State powers, we need
to be especially mindful of our oath.
Federal discussions about State finances frequently
highlight budgetary pressures that have required cuts in
spending. These are no doubt difficult issues for States, but
it simply is not the responsibility of the Federal Government
to address State budget shortfalls.
Some argue that the recent recession has uniquely harmed
State revenues, somehow justifying the use of the Federal
Government as a backstop. Yet, as the Census Bureau noted in an
April 12, 2012 report, State government tax collections in
fiscal year 2011 were actually up nearly 8 percent from the
revenue collected in fiscal year 2010.
Something else is driving State budget shortfalls, and I
think, in many instances, the principal issue for States is
their own unsustainable spending. Also, it is important to
recall that the States are already receiving significant
support from Federal taxpayers. According to the Joint
Committee on Taxation, Federal deductions for State and local
taxes will diminish Federal taxes by about $347 billion from
2011 to 2015.* These deductions are generally regarded as
helping States to leverage spending by minimizing the true cost
of State and local government. And, as someone dedicated to
States' rights, I believe that a State should be free to set
its own tax and spending policies.
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* For more information, see also, ``Present Law and Background
Information Related to State and Local Government Finance,'' Joint
Committee on Taxation staff report, April 23, 2012 (JCX-36-12), https:/
/www.jct.gov/publications.html?func=startdown&id=4422.
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But with rights come responsibilities, and State officials
need to take responsibility for their own spending decisions.
In closing, I want to show my appreciation to the members
of this committee who have a strong interest in these issues
involving Federal and State interaction. I know Senator Enzi
has worked very hard for many years on what is now the
Marketplace Fairness Act. Senator Thune and Senator Wyden have
proposed the Digital Goods and Services Tax Fairness Act.
Senators Snowe, Wyden, Menendez, and Nelson are cosponsors of
the Wireless Tax Fairness Act. Now, your work on these issues
is a resource for all of us, and I look forward to continuing
to work with all of you.
And thank you, again, Mr. Chairman. The work already done
in this area, which is substantial, and the opportunities
facilitated by this hearing, will help us ensure that when we
go down the road of comprehensive tax reform, we do no harm and
possibly even accomplish some good. So I am grateful for this
hearing.
Thanks so much.
[The prepared statement of Senator Hatch appears in the
appendix.]
The Chairman. Thank you, Senator.
I would now like to introduce our witnesses. First is Mr.
Frank Sammartino. Mr. Sammartino is the Assistant Director for
Tax Analysis at the Congressional Budget Office. Thank you very
much, Mr. Sammartino. We depend on you a lot. Thank you for all
your work.
Next is Dr. Kim Rueben. Dr. Rueben is a senior fellow at
the Urban-Brookings Tax Policy Center. Thank you for being
here, Dr. Rueben.
The third witness is Mr. Walter Hellerstein. Mr.
Hellerstein is the Francis Shackelford professor of taxation at
the University of Georgia School of Law.
Fourth is Mr. Joseph Henchman, vice president of legal and
state projects at the Tax Foundation.
Finally, Mr. Sanford Zinman, owner of Zinman Accounting in
White Plains, NY.
Thank you all for coming.
Our practice here is for your statements automatically to
be included and for each of you to speak about 5 minutes.
It is also my practice--all of you probably have prepared
written statements. You can read them if you want, but just
tell it like it is. Do not pull your punches. Be candid.
Mr. Sammartino?
STATEMENT OF FRANK SAMMARTINO, ASSISTANT DIRECTOR FOR TAX
ANALYSIS, CONGRESSIONAL BUDGET OFFICE, WASHINGTON, DC
Mr. Sammartino. Chairman Baucus, Senator Hatch, members of
the committee, thank you for the invitation to testify on
Federal support for State and local governments provided
through the tax code and on some ways in which tax reform might
affect that support. My testimony focuses on two particular
aspects of current policy--the use of tax-preferred bonds by
State and local governments and the deductibility of State and
local taxes.
The Federal Government provides preferential tax treatment
for bonds issued to finance activities of State and local
governments. As a result, those governments are able to borrow
more cheaply than they otherwise could. At the end of 2011,
State and local governments owed roughly $3 trillion in the
form of tax-preferred bonds.
The most common type of tax-preferred bond is one for which
interest income is exempt from Federal taxes. Another type of
tax preference for a State and local bond, which until recently
has not been much used, is to offer a Federal tax credit in
lieu of some or all of the interest income from the bond.
Although a large majority of tax-preferred bonds are
traditional tax-exempt bonds, such bonds are relatively
inefficient mechanisms for the Federal Government to transfer
funds to State and local governments. Specifically, with tax-
exempt bonds, the Federal Government forgoes more in tax
revenues than State and local governments receive. Estimates
suggest that the difference is about $6 billion per year or
about one-fifth of the approximately $30 billion in Federal
revenues lost through that tax preference. That sum accrues to
investors who pay high marginal tax rates.
In contrast, for tax credit bonds, the revenues foregone by
the Federal Government are captured entirely by State and local
governments. However, tax credit bonds have not been especially
well received in financial markets until a few years ago.
Investors' lack of enthusiasm for such bonds probably stemmed
from the limited size and temporary nature of most tax credit
bond programs and an absence of rules for separating tax
credits from the associated bonds and reselling them.
In contrast, direct-pay tax credit bonds, for which the
value of the tax credit takes the form of a payment from the
Treasury to the State or local government issuing the bond,
became a significant source of State and local financing in the
years during which they were authorized, namely, 2009 and 2010.
The deductibility of State and local taxes provides another
means of Federal support for State and local governments.
Taxpayers who itemize their deductions may claim a deduction
from most State and local taxes. That taxes-paid deduction
provides an indirect Federal subsidy to State and local
governments because it decreases the net cost to taxpayers of
paying such deductible taxes.
By lowering the net cost of those State and local taxes,
the taxes-paid deduction encourages State and local governments
to impose higher taxes and provide more services than they
otherwise would and to use deductible taxes in place of other
taxes.
According to an estimate by the staff of the Joint
Committee on Taxation, the tax subsidy provided through this
deduction was $67 billion in 2011.
How much a given State or local government benefits from
this deduction depends on the structure of its tax system and
the characteristics of the taxpayers who provide revenues to
it. For example, a State or local government that finances its
spending by using a larger share of deductible taxes receives a
larger benefit through the deductibility provision, as does the
State or local government whose taxpayers are more likely to
itemize deductions.
In 2009, slightly fewer than one-third of all tax filers
claimed the deduction for State and local taxes paid. The
amount of those taxes paid, the tax savings from the deduction,
and the likelihood that a taxpayer would claim the deduction
all generally increase with increasing taxpayer incomes.
Over the next several years, scheduled changes to tax
provisions and the interaction of the regular income tax and
the alternative minimum tax will change the number of taxpayers
who claim the deduction and the associated loss of Federal
revenues, because the AMT does not allow people to claim the
taxes-paid deduction.
Without further changes to tax law, tax provisions that
were originally enacted in 2001 and 2003 will expire at the end
of 2012, increasing regular income tax rates for many
taxpayers. Those increases will raise the value of the taxes-
paid deduction for those who claim it and increase the
associated revenue loss for the Federal Government.
In addition, with the higher tax rates, many taxpayers will
shift from being subject to the AMT to being subject to only
the regular income tax and will, therefore, be able to claim
the deduction for State and local taxes paid.
If certain tax policies that have recently been in effect
were extended rather than allowed to expire, as under current
law, the revenue effects of the taxes-paid deduction would be
different.
Specifically, if all tax provisions expiring after 2012,
including the lower regular income tax rates originally enacted
in 2001 and 2003, were extended and the AMT exemption levels
were increased for years after 2011, there would be two
opposing effects on the taxes-paid deduction. First, the lower
regular income tax rates would reduce the tax savings and the
associated revenue loss for the Federal Government for
taxpayers claiming the deduction, but, second, the higher AMT
exemption levels would reduce the number of taxpayers subject
to the AMT, thereby increasing the number of taxpayers who
would claim the deduction.
That concludes my opening testimony. I will be happy to
answer questions.
[The prepared statement of Mr. Sammartino appears in the
appendix.]
The Chairman. Thank you very much, sir.
Dr. Rueben, you are next.
STATEMENT OF DR. KIM RUEBEN, SENIOR FELLOW,
URBAN-BROOKINGS TAX POLICY CENTER, WASHINGTON, DC
Dr. Rueben. Thank you. Chairman Baucus, Senator Hatch, and
members of the committee, thank you for inviting me to be here
today. I am thrilled that you are having this hearing about how
Federal reform will affect State and local governments.
With increasing concerns about the Federal deficit,
fairness, and the complexity and inefficiency of our tax
system, the need for fundamental Federal tax reform is
critical. Often overlooked, however, is the fact that any such
reforms will also affect the tax and fiscal policies of State
and local governments.
As mentioned by you, Mr. Chairman, before, although this
country's economic condition is improving, State and local
governments are still struggling to balance their budgets. They
also play an important role in our economy, running about half
of all domestic public programs, and with State and local
spending making up about 15 percent of GDP.
Decisions about changing Federal policy should take into
account the potential effects on State and local government
budgets in both the short and the long run.
I make four points today. First, Federal tax policy and
reform can help or hurt States. Second, unstable Federal tax
policy trickles down to the States, and uncertainty is
especially problematic for States' budgeting. Third, if
fundamental tax reform is undertaken, transition relief might
be important for State and local governments. And, finally,
Congress can play a role in helping to coordinate or protect
the existing State and local tax base.
Returning to the first point, Federal tax policy and reform
can help or hurt States. Federal policy affects how attractive
specific taxes are for State and local governments and,
therefore, how those governments organize their tax and revenue
system.
State revenue sources, especially income taxes, often
piggyback on Federal rules. More specifically, statutory
changes in Federal law can result in significant increases or
decreases in State revenue. For example, State income tax
revenues increased after the 1986 tax reform expanded the
Federal income tax base and also allowed States to reduce their
rates as well. In contrast, the elimination of the State and
local tax deduction could increase the cost to State and local
governments of providing services.
Second, unstable Federal tax policy trickles down to the
States, and uncertainty is especially problematic for State and
local governments. As mentioned before, State and local
governments are required to pass balanced budgets every year.
This requires being able to accurately forecast revenues.
Problems with State tax systems are often exacerbated by
uncertainty in Federal tax rules. Temporary extensions of
credits, deductions, and tax rates complicate State
forecasting. Policy changes and uncertainty can directly affect
State tax bases through changing definitions of income or
indirectly due to changes in taxpayer behavior. Especially
problematic has been uncertainty about future Federal estate
taxes, tax rates on dividends and income, and dividends and
capital gains, sources of volatile income for State
governments.
Third, if fundamental tax reform is undertaken, and I hope
it is, transition relief might be important for State and local
governments. Tax changes can help or hurt States, but
understanding the short-run effects will be important and may
require slower adoption of certain policies or some fiscal
relief. Understanding the state of the economy and the fiscal
health of State and local governments will be critical in
undertaking any reform.
Finally, due to our federalist system, Congress has a role
in helping to coordinate or protect the existing State and
local tax base. State and local governments' ability to raise
revenue can be hobbled by limitations that Congress could
remove. Most notably, Congress can enact legislation that could
help coordinate actions across States and would help enable
State and local governments to collect taxes on Internet and
mail-order sales.
As we consider tax reform, it is important to remember that
our actions will also affect State and local governments.
Thank you, again, for inviting me to appear today. I look
forward to your questions.
[The prepared statement of Dr. Rueben appears in the
appendix.]
The Chairman. Thank you, Dr. Rueben, very much.
Mr. Hellerstein?
STATEMENT OF WALTER HELLERSTEIN, FRANCIS SHACKELFORD PROFESSOR
OF TAXATION, UNIVERSITY OF GEORGIA SCHOOL OF LAW, ATHENS, GA
Mr. Hellerstein. Thank you, Mr. Chairman. I am honored by
your invitation to testify today, and I hope I can be of
assistance to the committee.
My remarks this morning will be limited to horizontal tax
coordination--coordination among State tax regimes--although my
written testimony also addresses vertical tax coordination--
coordination between Federal and State tax regimes.
In considering Federal legislation affecting horizontal tax
coordination, I think Congress should be guided by three
overarching objectives. First, Congress should seek to remove
the unreasonable burdens that State taxes impose on interstate
commerce. Second, in pursuing the first objective, Congress
should not unreasonably restrict the States from exercising
their essential taxing powers to fulfill their constitutional
obligations within our Federal system. Third, when possible,
Congress should strive to achieve both objectives at once, a
point that the chairman has already made.
Thus, Congress can both prescribe the manner in which
States may tax interstate commerce, thereby removing burdens
that complex State regimes impose on interstate commerce,
while, at the same time, enable States to exercise their taxing
power by eliminating preexisting judicially imposed constraints
on State taxing power that were designed to prevent the very
burdens that Congress has removed through its legislation. I
would like to offer the committee two examples of the third
type of intervention, one of them recently enacted, one of them
now pending before Congress.
In my view, the Mobile Telecommunications Sourcing Act, to
which the chairman has already referred, enacted by Congress in
2000, is a poster child for horizontal Federal-State tax
coordination at its best. Prior to this Act, the States' power
to tax interstate telecommunications was governed by the rule
announced by the U.S. Supreme Court under the dormant Commerce
Clause in the case called Goldberg v. Sweet. In Goldberg, the
Court held that the only States that have jurisdiction to tax
the consumer's purchase of an interstate telephone call are
States where the call either originates or terminates and is
charged or billed. But this rule often left the States
powerless to tax wireless telecommunications, as, for example,
when a business traveler who lives in State A, where she
received and paid her monthly phone bill, made a call while on
business in State B to a person in State C.
These and related difficulties led Congress, with the joint
support of the telecommunications industry and the States, to
enact the Mobile Telecommunications Sourcing Act, which permits
the State to tax all mobile telecommunication charges for
services provided by the customer's home service provider at
the customer's place of primary use, but only at the place of
primary use.
Congress both expanded and contracted State taxing power by
reference to the preexisting dormant Commerce Clause standard
established by Goldberg, simultaneously conferring such power
upon and limiting it to the customer's place of primary use.
The Mobile Telecommunications Sourcing Act is, thus, a
model for Federal-State horizontal tax coordination. It employs
Congress's power to both expand and restrain State tax power in
a manner that allows taxes to be collected in a sensible
manner, and, at the same time, protects taxpayers from multiple
taxation.
Let me turn, finally, to what I regard as an analog to the
Mobile Telecommunications Sourcing Act and several related
bills that are presently pending before Congress relating to
the States' power to require out-of-state sellers who have no
physical presence in the State to collect the sales or use
taxes that are due on their sales to customers in the State.
Just as the U.S. Supreme Court's decision in Goldberg was
essential to understanding the problem addressed by the Mobile
Telecommunications Sourcing Act, so the U.S. Supreme Court's
decision in Quill Corporation v. North Dakota is essential to
understanding the problem addressed by the proposed
legislation. Quill held that States have no power under the
dormant Commerce Clause to require mail-order sellers to
collect sales and use taxes on sales to customers in the State
unless they are physically present in the State. The proposed
congressional legislation, reflected in three bills, is
designed to authorize the States under specified conditions,
generally requiring harmonization and simplification of their
sales and use tax regimes, to require collection of sales and
use taxes by remote sellers despite their lack of physical
presence in the State.
Although the bills differ in their detail, they share in
common the concept of a deal authorizing collection of taxation
from remote sellers in return for removal of existing burdens
on such sellers through simplification and harmonization, as
well as the provision of tax-compliant software.
Without burdening this morning's hearing with the nuances
of my views on the different bills--they are contained in my
written testimony--I would say that legislation along the lines
of these proposals is precisely the type of horizontal tax
coordination that Congress should be considering, on the one
hand, and uses Congress's power to provide for increased
uniformity and simplicity among State tax regimes, as well as
the availability of tax-compliant software, thereby reducing
burdens on interstate business, on the other hand. And, at the
same time, it uses Congress's power to remove judicial
restraints from the States' taxing power that were attributable
to the burdens that Congress's requirement of uniformity have
now removed.
Thank you for the opportunity to address this committee.
[The prepared statement of Mr. Hellerstein appears in the
appendix.]
The Chairman. Thank you, Mr. Hellerstein, very much.
Mr. Henchman?
STATEMENT OF JOSEPH HENCHMAN, VICE PRESIDENT OF LEGAL AND STATE
PROJECTS, TAX FOUNDATION, WASHINGTON, DC
Mr. Henchman. Good morning. Thank you, Mr. Chairman, Mr.
Ranking Member, members of the committee. Thank you for the
opportunity to testify today on the role that Congress plays in
State tax policy.
In the 75 years since our founding, the Tax Foundation has
monitored tax policy at the Federal and State levels, and our
analysis is guided by the principles of economically sound tax
policy--simplicity, neutrality, transparency, and stability.
The main question I want to answer for you is, what is
Congress's role in State tax policy? After all, to be an
American is to be a believer in federalism, and that means
Congress has its areas and the States have their areas. Most of
the time, Congress should let the States do their thing, even
if it is bad policy. But, in a very few important situations,
Congress has the power and the responsibility to get involved
in State tax policy--two situations, in fact.
The first is to preserve the power of the Federal
Government. States cannot tax the Federal Reserve, for
instance, and there are Federal laws banning State taxes on
non-resident members of Congress and non-resident members of
the military.
The second situation goes to the reason why we adopted the
Constitution in the first place, which was mentioned by the
chairman in his opening statement. States went wild under the
Articles of Confederation. Port States put punitive taxes on
commerce going to interior States and vice versa. Tariff wars
proliferated.
So the Constitution was adopted, giving Congress the power
to restrain States from enacting laws that harm the national
economy by discriminating against interstate commerce.
In short, States will put their own interests ahead of the
Federal interests every time. They have an incentive to shift
tax burdens from physically present individuals and businesses
to those who are beyond their borders, non-voters. And, when
this behavior is not prevented by Congress or the courts, the
results can be taxpayer uncertainty, incompatible standards,
and harm to national economic growth.
As one example, take a multistate corporation with
operations in five States. If each of those five States imposes
a State corporate income tax, the companies' profit must be
divvied up or apportioned among those five States. That is so
no State taxes more than its fair share and no multiple
taxation occurs.
States game this, bending their apportionment rules to tax
profits that were earned in other States. Congress recognized
this problem and set up the Willis Commission in 1959 to adopt
one uniform apportionment standard. That threat was successful
in getting the States to adopt one on their own, although,
without congressional force backing it up, the States began
drifting away from it soon afterwards, and today only 11 States
stick with that uniform apportionment rule. The rest have
abandoned it to grab revenue from other States.
There are similar situations today which cry out for a
uniform standard, which I describe in detail in my written
statement. Just to highlight one problem, this is BNA's survey
of State tax departments. It is a compilation of State
questionnaire results on nexus-creating activities for business
activity taxes.
According to the survey results, 13 States find that you
are within their taxing jurisdiction if you have a website
hosted on another entity's server in that State. One State and
DC will tax you if you send employees to attend a seminar, even
if you engage in no sales activity. This volume, while the best
source we have today for businesses asking when they can be
subject to tax, is littered with footnotes, exceptions, and
appendix notations, reinforcing the lack of clarity the States
have imposed on those who engage in interstate commerce.
We at the Tax Foundation get calls all the time from
taxpayers caught in a trap by aggressive State nexus standards.
The same is true with individual income taxes on business
travelers, with sales tax, and with many other State taxes.
The States cannot solve these problems on their own.
Congress told the States to adopt a uniform corporate income
tax apportionment standard in 1959, and we are still waiting.
Sales taxes, despite the work of the Streamline Project, are
getting more complex and more numerous each year.
On income tax, on business travelers, or on sales taxes,
the States are not budging from their positions. Today, with
new technologies, even the smallest businesses can sell their
products and services in all 50 States. Business travel is
easier than ever before. The temptation is great to treat
interstate commerce like a golden goose to be squeezed. This
temptation can only be countered by well thought-out, uniform
rules imposed and enforced at the Federal level.
Thank you, and, as always, we are eager to be of assistance
on these issues now and in the future.
Thank you.
[The prepared statement of Mr. Henchman appears in the
appendix.]
The Chairman. Thank you, Mr. Henchman, very, very much.
Mr. Zinman?
STATEMENT OF SANFORD ZINMAN, OWNER,
ZINMAN ACCOUNTING, WHITE PLAINS, NY
Mr. Zinman. Thank you, Mr. Chairman and members of the
committee. I am a certified public accountant, I am a member of
the American Institute of CPAs, and I am currently the national
tax chair of NCCPAP, the National Conference of CPA
Practitioners.
Accompanying me is Mr. Edward Caine, the national vice
president of NCCPAP, who is a CPA in the Philadelphia area.
You have received my written testimony, and I would like to
focus on some key issues. The types of taxes which impact
taxpayers the most are income taxes of individuals and other
entities, employment taxes, and State and local sales and use
taxes.
The issue of income taxes for individuals with multistate
residency is not new, but has grown in recent years. Many
individuals, married or single, are purchasing second homes in
other States and dividing their time between their residences.
This poses a problem for these taxpayers.
In which State do they declare residency? Currently, this
issue is not being decided by the individual, but by the State
tax laws, and the State governments have become aggressive in
seeking additional sources of revenue. Each State sets its own
rules to establish and define what residency is for purposes of
income taxes, sales and use tax, and estate tax. I acknowledge
that Federal law should not supersede State law, but
individuals are left to battle with each jurisdiction that
wants a piece of the action in their tax dollars.
Businesses which have a nexus in multiple jurisdictions are
also potentially subject to double or triple taxation. Although
all States will acknowledge that credit should be given for
taxes paid to other jurisdictions, those credits will not be
given if the State perceives that the tax paid to another
jurisdiction is improper. Individuals and businesses may choose
to pay double taxation to avoid a lengthy administrative
process. After all, these taxes are often deductible federally
anyway.
Regarding employment taxes, workforce mobility is here to
stay. Federal law recognizes this mobility and offers
individuals and entities incentives to ensure that the workers
can keep working and the companies can keep good workers.
However, State and local employment laws and regulations vary
greatly from State to State.
The Treasury Department regulations on uniform definition
of a qualifying dependent have gone a long way toward resolving
related income tax issues. A similar effort on who is an
employee would be extremely helpful and would do a lot to level
the playing field for employers.
Next, there is the alternative minimum tax. NCCPAP has long
advocated for the abolishment of the AMT. The AMT
disproportionately affects taxpayers in certain States and
areas of the country, even though it is clear that was an
unintended consequence of the law.
Finally, sales and use tax issues also significantly affect
State and local governments. Over the past several years, in an
effort to increase revenue, States have increased their
collection efforts. By the end of 2011, eight States had
enacted click-through nexus provisions and more than 15 States
have proposed laws expanding sales tax nexus.
The States have begun to look for any connection that an
out-of-State seller might have and could be construed as a
physical presence. Some States have enacted legislation
imposing a sales tax liability on Internet companies if the
company has an agent in the State. While most people understand
the need for separation of Federal and State governments, it is
apparent that there is a loss of sales tax revenue due to
cross-border sales. It should also be noted that this
represents a potential loss of revenue to main street small
business retailers who have a physical presence in one State,
but are not big enough to be a multistate retailer.
The Multistate Tax Commission, in 2011, directed its sales
and use tax uniformity subcommittee to begin drafting a model
nexus statute based on the Amazon case. There is a strong need
for Federal oversight of State sales and use tax to ensure that
all States are able to collect their proper tax revenue.
Thank you.
[The prepared statement of Mr. Zinman appears in the
appendix.]
The Chairman. Thank you, Mr. Zinman, very much.
We all know that the cry these days is ``tax reform.'' It
is lower the rates, broaden the base, simplicity. A lot of
people refer back to the 1986 tax reform, where there was
significant rate reduction and base broadening.
Where in this area--that is, State and local taxes--can
Congress look to reduce tax expenditures; that is, reduce the
deduction, change the deduction, if you will, raise revenue, in
order to compensate rate reduction?
Let us assume, for purposes of discussion, that we are
talking about revenue neutrality here. But we all know we have
a tremendous debt, national debt. And without being too
dramatic here, we also know that if Congress were adjourned
today, of the $15 trillion national debt that we have, if
Congress adjourned today and did not reconvene until sometime
next year, we would automatically shave about $9 trillion over
10 years off that national debt--$9 trillion over 10 years.
Now, that is just debt reduction. Many suggest we need to
raise revenue and cut spending in order to address the debt. We
know the Simpson-Bowles Commission has all kinds of proposals.
Rivlin-Domenici, the Gang of 6, and so forth, almost all of
them say we should reduce the national debt by $4 trillion over
10 years, and we should do it with some combination of spending
cuts and revenue raised and try to get annual deficits down to
at least 3 percent of GDP. That is what economists tell us is
sustainable.
But in addition to tackling national debt, we have a
separate problem, which is tax reform. They are separate, but
they are also joint, because with tax reform, maybe we try to
broaden the base and lower the rates in a way that also raises
revenue.
So I just ask you. If we have to raise--let us start with
the easier one. Let us say a revenue-neutral effort to lower
rates and broaden the base, in this area, where do we cut tax
expenditures? Where in this area are tax expenditures reduced,
in addition to other areas of the code--we have other tax
expenditures that have to be reduced--in order to get the rates
down?
Some talk about the corporate rate is 35 percent, getting
it down to 25; some say get the top individual rate down to 25.
If that means we have to cut out some deductions and credits
and exclusions here, if we do all this, in this area, if we
have to, if Congress really wants to, if the American public
really wants to have tax reform--I am giving you time to think
about this. Where do we start to chop away?
Who is boldest here and wants to lead off?
Mr. Sammartino. Maybe I will. Of course, the Congressional
Budget Office does not make recommendations for policy.
The Chairman. Right. Right.
Mr. Sammartino. But we have, in the past, looked at various
options in this area, including options to limit the State and
local tax deduction, and we found that various options, from
eliminating it completely to placing a cap on it or, in one
case, converting it to a 15-percent credit, all would raise
significant revenues over a 10-year period.
One thing we looked at, in addition, was one of the main
features of the alternative minimum tax, which is that it
eliminates the State and local tax deductions for taxpayers who
are on the AMT.
So we considered the same set of options in the context of
eliminating the AMT, and we found that for all the options we
looked at, again, including complete elimination of the State
and local deduction, placing a cap on it, and all those options
except the option for the 15-percent credit, that if you both
restricted or eliminated the taxes-paid deduction and
eliminated the AMT, you would still raise revenues through that
combination.
Now, these estimates were done a couple of years ago. More
taxpayers would be likely eligible for the AMT. So the numbers
might change, but still, that is kind of one possible tradeoff
one can think about in the context of tax reform that we have
looked at.
The Chairman. Right. And that approach, is it a one-for-
one, or is this reduction in State revenue less than the gain
in Federal revenue?
Mr. Sammartino. So what we found is that if you were to
completely eliminate the taxes-paid deduction and eliminate the
AMT, it would still be a net revenue increase for the Federal
Government.
The Chairman. And the effect on the States would be?
Mr. Sammartino. I mean, the States, it is a problem,
because you are reducing some of the subsidy to State and local
governments. We did not examine what the impact would be. It
depends on how States would respond to that.
The Chairman. I just urge you and urge all panelists and
anybody else listening, anyone else who cares about tax reform,
to start thinking seriously about this and coming up with some
reasonable alternatives and reasonable suggestions, creative
suggestions on how to do it.
Yes, Dr. Rueben? My time has expired, but very briefly,
please. Briefly.
Dr. Rueben. I was just going to say, the other thing that
happens when you make this tradeoff between the AMT and State
and local deductions is you are also changing the distribution.
It is a way of shifting some of the tax burden away from
families who are more likely to be on the AMT. So there is some
within-State variation that occurs. But I think, in some ways,
if you actually had consistent tax policy with reform of the
AMT, that would be incredibly helpful for States. So you might
be able to have some sort of tradeoff between limiting the
deduction, if you gave them more knowledge about what tax
systems would look like.
The Chairman. Thank you very much.
Senator Hatch?
Senator Hatch. Thank you, Mr. Chairman.
This question is for the whole panel. Currently, most
taxpayers who itemize have a choice of deducting certain taxes
paid to State and local municipalities. Currently, deductions
are allowed for State and local real property, personal
property, State sales, and income taxes. Now, the Joint
Committee on Taxation estimates that the revenue loss to the
Federal Government will be around--well, from 2011 to 2015,
these deductions will be about $347 billion, if they are
extended for that time.
Now, as Mr. Sammartino notes, by lowering the net cost of
those State and local taxes, the taxes-paid deduction
encourages State and local governments to impose higher taxes.
My question is, how much do these deductions subsidize
State and local governments? We know what the revenue loss is
to the Federal Government, but even if one is comfortable
subsidizing State government, is this a good way to do it?
Additionally, for Mr. Zinman, how aware is your average
client of the dynamics of these deductions? Do they understand
that they are viewed as a benefit to State and local government
that might increase other taxes?
So whoever wants to answer that.
Mr. Zinman. I can tell you that 10 years ago, in my
office--as I have in my written testimony--my typical client
for individual income tax was not a wealthy stock trader, but a
working person. Ten years ago, we did not talk about AMT at
all.
Now, this is the typical conversation, and the conversation
centers around how much, in my case, in the New York
metropolitan area, people are paying for real estate taxes, but
are not getting a deduction on their Federal tax return because
of AMT. And, in fact, if nothing happens to AMT, it is
projected that by 2013, 50 percent of Americans will be
calculating their taxes using the alternative minimum tax
calculation.
So there are a number of individuals in certain States, and
that number is growing, who are now faced with an issue. Their
issue is that they are paying a higher amount of State and
local real estate taxes, State and local income taxes, and they
are not getting the Federal tax deduction that they were hoping
to get.
So the Federal income tax is not offset by what is
happening, and this is starting to trouble a lot of people.
Senator Hatch. Thank you.
Does anybody else care to comment? It is pretty simple.
Let me go to a second question. President Obama has
proposed to dramatically reduce the charitable deduction in his
latest budget, as well as previous budgets. He does so by
proposing to take away up to 29 percent of itemized deductions
for families that are in either of the top two income tax
brackets. Now, this appears to me to be a policy that would
lead to an absolute reduction in charitable giving, and charity
should be the last thing that the President is attacking, in my
opinion. The President is also going after the ability of
families and individuals to exclude interest on tax-
exempt bonds from their income.
So this question is for the whole panel, anybody who wants
to answer it. Yes or no? Let me just ask you to give a ``yes''
or ``no.''
Does everyone on this panel agree with me that the
President's proposal will increase borrowing costs for State
and local governments?
Mr. Sammartino?
Mr. Sammartino. Well, actually, we think it might have just
a minor effect on borrowing costs, because, when the State and
local governments have to set an interest rate to sell the
amount of bonds they want, it is usually--in order to clear the
market, they have to target that rate to taxpayers with lower
marginal tax rates to provide enough subsidies so those
taxpayers would buy the bonds, and I think most of the evidence
suggests that that rate is something below--at or below 28
percent.
So the President's proposal to limit the benefit of
itemized deductions to 28 percent would not affect taxpayers
whose marginal tax rate is at or below 28 percent. Taxpayers
above that, if their alternative to buying tax-exempt bonds is
to buy a taxable bond, would still be better off buying the
tax-exempt bonds at current rates than buying a taxable bond
and paying the tax.
Now, there could be some effect, because some of those
taxpayers may decide that they would shift their portfolios a
bit. But for most taxpayers, we think it is not going to have a
very big effect.
Senator Hatch [presiding]. My time is up.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman. And, obviously,
one of the things that we care about in the Pacific Northwest
is tax fairness and the fact that we do not have an income tax,
and we want the ability to deduct our sales tax from our
Federal income tax obligations. We do have a lot of itemizers
because of this. And so making sure that we continue that
policy and make it permanent is a big priority.
I did want to follow-up on this tax-exempt bond issue,
because one of the issues for us is that some of these tax-
exempt bonds are used to finance public power projects for
capital investment.
And I do not know. Maybe you do not know. Dr. Rueben, I do
not know if you know the answer to this or not. But what impact
would this have on utility rates as a result, if we got rid of
the tax-exempt bond status?
Dr. Rueben. I do not know what the precise rates would be,
but part of it is going to depend on how transition is done. So
part of the reason I think any sort of reform, especially in
the muni bond market, will need to have a certain level of
reform and transition involved is because financial markets and
local government revenues are still kind of not totally
recovered.
So I think whatever we do--and as the Federal Government
goes forward--if there is some switch in how we treat tax-
exempt debt, it will be important to think about how specific
localities will fare under these arrangements. And so having
some sort of transition period will be pivotal in terms of
being better able to understand what is going to happen in
individual locations.
Senator Cantwell. Would that missing advantage then have to
be covered by ratepayers overall?
Dr. Rueben. Partly, it depends how it is set up. So, if we
basically lower the tax-exempt status, it depends on whether it
is newly issued debt or whether it is existing debt.
So existing debt, any disadvantage would actually be borne
by the people who are holding the debt right now. So it is not
necessarily the people issuing it.
If we moved into a new regime where there was a different
system which maybe included tax credits rather than a tax-
exempt status, I think it would depend on the issuing ability.
And that is why I think having both systems in place, if we
were going to do some transition for a little while, will be
important to see whether revenue bonds can be approved at
minimal cost to investors and issuers.
Senator Cantwell. Well, I think this is an important
question. So we will be following up with you and the committee
on this just to make sure that public power is not
disadvantaged in a bond structure, moving forward.
We are continuing to grow, and we sell a lot of power to
California. We sell a lot of power all over. And making sure
that people have access and continue to build the grid is
something very, very important to us. It is a key element of
our economy.
So thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman.
I want to thank you and Senator Hatch for holding today's
important hearing, and to thank our panelists for their
willingness to testify.
There are a number of very important issues regarding State
and local taxation that are being discussed today, and I wanted
to focus on one in particular--the taxation of digital goods
and services.
Last year, I introduced, along with my colleague from
Oregon, Senator Wyden, the Digital Goods and Services Tax
Fairness Act. Our legislation would ensure that the fast-
growing digital economy is not stymied by multiple and
discriminatory State and local taxes.
Digital goods and services, such as movie and music
downloads and cloud computing services, are an ever-increasing
and vital part of our economy. Just as an example, in 2010, in
the United States, online retailers sold over 1 billion digital
music tracks, totaling $1.5 billion in revenue.
E-book sales in the U.S. reached $1 billion in 2010. They
are expected to almost triple by the year 2015. And sales of
downloaded apps have been especially fast-growing. In 2010,
there were 8 billion apps downloaded in the U.S. Last year,
there were 18 billion apps downloaded. It is projected that
more than 90 billion apps will be downloaded by the year 2015.
App revenue from smart phone downloads is projected to increase
from $1.9 billion in 2010 to more than $29 billion by the year
2015.
So, as the digital economy grows, we need to make sure that
we set some basic rules of the road so that multiple States
will not attempt to tax the same downloads. The legislation
that Senator Wyden and I have introduced simply clarifies that
the State with the authority to tax the digital download is the
State where the consumer resides. Our bill does not take away
taxing authority from States. In fact, it should provide States
with greater certainty going forward.
For States such as South Dakota, which does not have an
income tax and which relies heavily on sales taxes, protecting
the State's sales tax base is important, just as it is
important that Congress extend the deductibility of State sales
taxes for taxpayers who itemize, a provision that expired at
the end of last year.
I hope the Senate will have an opportunity to consider the
Digital Goods and Services Tax Fairness Act later this year,
and I appreciate the leadership of the Senator from Oregon on
this issue and look forward to working with him and with this
committee and hopefully being able to move this legislation
forward.
I just have a question for anybody on the panel. You
identified the Mobile Telecommunications Sourcing Act--I think
that was you, Mr. Hellerstein--as the poster child highlighting
the appropriate role for Congress to address certain
complexities that surface in State and local taxation of
interstate commerce.
Do you see the need--same need, I should say, for Congress
to set forth a similar framework for digital commerce?
Mr. Hellerstein. Senator, I think that that would
actually--that would fit within at least my view of what would
be appropriate legislation. It is very important, again, to
come back to Senator Hatch's point about, first, do no harm. It
is very important that this be done surgically.
So, if we are to identify a particular State that may tax
these goods and services and only that State, that, I think, is
quite consistent with the Mobile Telecommunications Sourcing
Act. On the other hand, as I read through this draft bill, I
think it would be a field day for lawyers given the
uncertainties with some of the definitions and the scope. So I
would just urge this committee or whoever is considering this
bill to be very, very careful in trying to do good, because
there are provisions in the bill, as drafted, which I would
regard as not ideal.
Senator Thune. Does anybody else want to comment on that?
[No response.]
Senator Thune. No. Let me ask just a question about this
issue. If you had a consumer from Washington who is visiting
Florida and downloads a song that is provided from a server in
Utah, which State has the legal authority today to receive the
tax revenue from that purchase?
Mr. Henchman. They can all try, and that is the problem.
Senator Thune. Yes. And without congressional action, is it
not questionable as to which State, if any, has a right to
receive the tax revenue from that transaction?
Mr. Henchman. Absolutely, and they will all try.
Senator Thune. Just as a question, too, I think you
indicated State and local taxes should not impose an undue
burden on interstate commerce.
Does it not make sense, then, if you agree that the
purchase of downloaded music should be taxed no differently
than the local purchase of a CD--I mean, if you are going to
buy a CD in a store--that downloading music ought to be taxed
in a similar way?
Mr. Zinman. Conceptually, that makes a lot of sense, yes.
Administratively, it may be difficult to do, but conceptually,
it makes a lot of sense.
Senator Thune. But nobody basically disagrees with that
concept? Conceptually, it makes sense?
The Digital Goods and Services Tax Fairness Act does not
dictate whether or not a State can tax digital transactions,
but rather sets a framework upon which State and local taxes
can be applied to this form of commerce in a fair and rational
manner.
Some have asserted there is no such impediment to a
rational tax structure under existing law, citing the fact that
consumers can get credits if they pay double taxes. However,
would not all stakeholders be better served for Congress to
establish some sort of framework that will provide the
certainty for consumers, providers, and State and local
governments in the taxes collected from digital commerce?
Mr. Henchman. Yes.
Senator Thune. Does anybody disagree with that?
Mr. Henchman. The States will not do it themselves.
Senator Thune. Thanks. Well, I guess the question is, how
we do it. And we have a proposal out there and, hopefully, with
your input, we can perhaps refine that and make it stronger and
more effective. But certainly it is an area that I think needs
to be addressed. And, with all the advances that we are seeing
in technology and the way that people purchase various things
these days, we are going to need some kind of a framework, and
it seems, to me at least, that that is an issue that Congress
is going to have to deal with.
So I thank you, Mr. Chairman. And thank you all for sharing
your insights today.
The Chairman. Thank you, Senator.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman. And let me thank
the panelists.
I want to talk about one of the major sources of revenues
for our States, and that is the sales and use tax.
Dr. Rueben, I want to focus on the fact of how much of
those revenues are not being collected today. It has been
estimated, as a result of out-of-State shipments, and
principally through the Internet, that there is $11 billion a
year not being collected.
Now, I got the Maryland number, and the Maryland number is
$300 million, which is an interesting number, because the
Governor is talking today about bringing the legislature back
to a special session in May because of a $300-million gap and
is looking at increasing a lot of taxes in our State because we
need $300 million to balance our budget.
If we had the sales and use tax, we would have a balanced
budget and there would be no need to bring the legislature back
into session, which brings me to the Marketplace Fairness Act
and trying to establish a level playing field.
You can go to a retail store in Maryland, use your phone to
take a photograph of its identification, then go on the
Internet and get that product shipped into Maryland and avoid
the sales tax. The price might be identical, but you are
avoiding the sales tax. And to me, this is a matter of tax
integrity.
That person who does that is supposed to pay a use tax. And
I have heard that retailers or Internet sellers feel it is such
a burden to have to collect a sales tax. It is a huge burden.
They ask Marylanders to pay a use tax.
So are we not picking winners and losers if we do not take
some action to provide for a level playing field?
Dr. Rueben. I am a big fan of there being some action to
help coordinate these issues. I think that as more sales get
done on the Internet or electronically or through catalogs, I
think State and local governments are going to be at a
disadvantage. And so congressional action to help coordinate
this seems like a no-brainer, in my perspective.
Senator Cardin. Thank you.
Mr. Zinman, I see that you are anxious to respond. I am
going to give you a chance.
Mr. Zinman. I am just agreeing.
Senator Cardin. Well, good. Let me just pose the question.
There are two issues that are usually raised by those who have
asked for delay of Federal action. One is that it is a little
complicated because of all the different sales and use taxes. I
point out that there is free software available that would
assist in the collection of this. And the other issue is a
small business exemption, which is included, by the way, in the
Marketplace Fairness Act.
I am not aware of any small business exemptions on the
brick-and-mortar requirements to collect sales tax if you have
a facility located in our State. Is there any administrative
reason why we should not be moving forward on this?
Mr. Zinman. Absolutely not. If you look at what is
happening with Best Buy, that is, even though they are
multistate, they are brick-and-mortar, and they are hurting a
lot because of the Internet sales because--I will give you a
perfect example.
An individual can go to New York and buy a set of golf
clubs, but he has a place in Florida. He buys an expensive set
of golf clubs. He says, ``Ship it to Florida.'' No sales tax.
It will cost him $30 to ship the golf clubs down to Florida.
Mr. Henchman. And Florida has a very high sales tax.
Mr. Zinman. But he is not paying--he is supposed to pay--I
am not saying what he is supposed to do. I am saying what
actually happens. What actually happens is he is not reporting
that sales tax in Florida.
Senator Cardin. I have not checked Florida's use taxes, but
my guess is there are not many being filed by individual
consumers.
Mr. Zinman. That is right. In New York, we have a line on
our New York State return--and many States have a line on their
tax return--asking the taxpayer to voluntarily compute and give
back the sales tax they should have paid in the form of a use
tax.
But you now take a State like Florida that does not even
have an income tax form to report this. They have the use tax
forms. They are there. They are available. But many people who
have multistate residences--and I am just using New York and
Florida as an example, because that is a corridor that a lot of
people travel--a lot of individuals are ignoring the taxes that
they have to pay.
Senator Cardin. It is my understanding that--and we have a
form in our State where you can include the use tax. So we have
that in Maryland.
The $300-million number I gave you was a net number.
Mr. Zinman. Right.
Senator Cardin. I do not know the exact amount of use taxes
we collect from individual consumers, but it is miniscule.
Mr. Zinman. I am sure it is miniscule.
Mr. Henchman. Very briefly, I just want to make sure the
goal of simplification is not minimized here, because, while
that retailer has to collect and does not get a de minimis
threshold, they are only collecting one sales tax. Internet
retailers would have to track and collect 9,600 across the
country.
And, yes, there is software on the rates, but that software
does not help you distinguish between all the sales tax
holidays and all the different rates on different products.
Senator Cardin. Are you telling me that computers cannot
figure this out? I have my----
Mr. Henchman. It is not computers. It is tracking the----
Senator Cardin. I am amazed at what I can put into my iPad
and get an answer to immediately. Are you trying to tell me
that we do not have a computer program that can figure out this
issue?
Mr. Henchman. It is not a question of computer programming,
but a question of tracking changes in legislative laws. And
there is a lot of----
Senator Cardin. And my iPad gets me the up-to-date
information on traffic instantaneously. You are trying to tell
me we do not have that technology available today?
Mr. Henchman. I work at the Tax Foundation. We do our best
to keep track of all State and local laws and changes, and it
is difficult for us, and we are not running a business. We are
a tax policy----
Senator Cardin. I think you had better get a better
program. I find this hard to understand that when you have
governmental actions, which are very public actions, every time
taxes are changed, that that cannot be done.
I am not minimizing the issues of simplicity. And we have
been talking about this ever since I have been in Congress,
which is 20-some years. This is being used as an excuse for
inaction. It is not a problem that cannot be overcome.
Mr. Henchman. To me, it is not an excuse for inaction. It
is an excuse for the right kind of action. Some of the bills
you mentioned have some very good----
Senator Cardin. After 20-some years, do you not think it is
time for some action?
Mr. Henchman. I agree.
Senator Cardin. Thank you. I appreciate your agreement.
Mr. Henchman. Some of the bills have some very good
simplification rules.
Senator Cardin. Thank you, Mr. Chairman.
The Chairman. I like that. That is good. [Laughter.]
That is how you get information out. That is great.
Senator Wyden?
Senator Wyden. Thank you, Mr. Chairman.
Mr. Chairman, in beginning, I want to commend you for what
I think folks need to understand is really what is at issue
with your agenda today. What you are essentially doing is
giving us an opportunity to lay out the digital rules of the
road, and the fact is, if you look over history, it has always
been this way with the economy. When you have new technologies
and new developments, you have to update the rules of the road.
We did it for the railroads. All through time, we have had to
do it.
So I want to commend you for the agenda, the way we are
looking at these issues, and I am looking forward to working
with you.
Senator Thune talked about one of our bipartisan bills and
laid out the Digital Goods and Services Tax Fairness Act. And
with Senator Snowe here, I thought what I would do is take a
couple of minutes to talk about our other major bipartisan
bill, the Wireless Tax Fairness Act.
Here is the reality, folks. Here is my smart phone. And
what we are dealing with is, we have smart phones today and
dumb tax policies, tax policies that have not kept up with the
times.
So we all remember the days of the mobile phone, these big,
old things, and essentially we have the same tax policies for
smart phones. And smart phones, of course, are how millions of
Americans access the Internet. They are really a lifeline for
some of the folks with a modest income that the Urban Institute
does a lot of wonderful work for.
So what Senator Snowe and I want to do is make sure that,
for the next 5 years, these smart phones are not subject to
what amounts to multiple and discriminatory taxes--multiple and
discriminatory taxes on wireless communications.
And, if you look at the last few years and all the taxes
that have been heaped on wireless technology, we now have many
States with taxes above 20 percent, the national average over
16 percent.
So what I would like to do is, first, get on the record,
Mr. Sammartino, we had the CBO analyze the tax implications of
our legislation. Now, remember, this is a bill--what Senator
Snowe and I are advocating is something that would be
prospective. It is not something that looks back in time.
It is part of laying out the rules of the road for the
digital economy for the future. And it is my understanding that
CBO has said--in the most recent analysis of July 28th of
2011--that our legislation, in the words of CBO, would have no
significant cost to the Federal Government. And then at page 2
of the analysis, CBO did not identify any costs as well to
State, local, or tribal governments.
So here is an opportunity, as we move in the committee of
jurisdiction for laying out these rules as they relate to the
digital economy, to take a major step forward in something that
is literally a lifeline for millions of Americans.
And I want to kind of trace the history from those big
mobile phones to these wonderful smart phones that are carried
by millions to access the net, and we can do it without any net
cost to either the Federal Government or the State and local
governmental authorities.
I would just like to get your confirmation that that is the
latest analysis by CBO, that the bill that Senator Snowe and I
are talking about will not generate new costs to either the
Federal Government or the State and local authorities. Is that
your understanding, Mr. Sammartino?
Mr. Sammartino. That is my understanding, Senator.
Senator Wyden. Then for you, Mr. Henchman, we have done a
lot of work with you all at the Tax Foundation. Why don't you
give me your thoughts--and we are certainly going to be talking
about the Marketplace Fairness Act in the days ahead, having
followed this since the days when I was a coauthor with Senator
Sununu and Senator McCain of the Internet Nondiscrimination
Act.
We have always tried to come to grips with how to handle a
new emerging technology. Is not the heart of it trying to have
policies that have the Federal Government, first of all, do no
harm and to ensure that there are not multiple and
discriminatory taxes that come about from these thousands of
jurisdictions?
When I first listened to some of the issues surrounding the
Marketplace Fairness Act, I looked out at these scores of
taxing jurisdictions, more than 5,000 of them, and some of the
stuff just defied common sense. You would have jurisdictions
that might--I remember there was one that would treat a
chocolate bar one way and a cookie another way.
Mr. Henchman. Right.
Senator Wyden. Are these not some of the issues that we are
going to have to deal with as we try in this committee to write
these digital rules of the road?
Mr. Henchman. Correct. And, as I specified, it is important
that simplification be kept in mind, because right now we are
up to 9,600 sales tax jurisdictions, growing by a couple
hundred a year. We added 400 last year.
So we are moving away from uniformity and away from
simplification in terms of number of rates, definitions, and
how complex it is, and there are a lot of things Congress could
lay out. And as I mentioned, some of the bills offer some very
promising simplification options.
Senator Wyden. My time has expired, Mr. Chairman. But,
again, I want to thank you, and I hope people understand what
is really at issue here, and that is, you are updating what are
essentially the rules for the modern economy, the economy where
the jobs are, and I really appreciate your leadership.
The Chairman. Thank you, Senator. You are pushing us in
that direction too, and we deeply appreciate it.
Senator Snowe?
Senator Snowe. Thank you, Mr. Chairman. Thank you for
holding this hearing. And I, too, want to underscore what
Senator Wyden has indicated with respect to this double
taxation and, also, on the whole issue of wireless technology.
It has a disproportionate impact on low-income households,
not to mention defeating our Federal policy of trying to make
broadband ubiquitous. And so I think, for all those reasons, I
would hope that we could pass this legislation, because it is
undeniable that wireless is playing a very critical role for
more than 300 million subscribers to wireless, not to mention
to our economy.
I would like to get to the broader issue of tax reform.
Because as I see it, comparing it to the past when we last
engaged in tax reform in the U.S. Congress--which, as you know,
culminated in the passage of the Tax Reform Act of 1986--
believe it or not, it was 2 weeks before mid-term elections. It
seems virtually impossible in today's political environment,
regrettably.
I commend the chairman for holding a host of hearings on
this issue. I just would hope that ultimately we move beyond
the issue of discussing overall tax reform to making it a more
concrete goal rather than a theoretical goal, because
ultimately, if you look at the scope and the entirety of the
issues that we are facing in this country with respect to the
economy, it is subpar economic growth. It is the worst post-
recession recovery in the history of our country.
There are two central issues. They are taxes and
regulations, and providing certainty--certainty to consumers,
certainty to businesses, but, also, certainty to State and
local governments.
Think about the range of issues that keeps State and local
governments in turmoil, between the failure to pass
appropriations and budgets on time to the fact that we have an
uncertainty with respect to the tax code, the disparate issues
that affect the economy, and tax policy changes from State to
State.
So I would like to ask the panelists--you, Mr. Henchman,
about the whole question of tax reform. If Congress could deal
with it, when should it happen and how should it happen? And is
that not preferable? I mean, we are talking about a lot of
different important issues.
But, if we start piecemealing our approach, it really is
going to preempt the overall necessity of overhauling the tax
code that has had more than 15,000 changes since 1986.
Mr. Henchman. The template of 1986, I think, is the best
one that you can go off of. I work mostly in State policy and,
generally, bolder plans have more success than piecemeal
approaches, because, when you are just parceling out one or two
deductions to eliminate, the beneficiaries of those deductions
can concentrate and preserve them and then you end up with
nothing at all.
Maryland, a few years ago, looked to broaden its sales tax.
It selected a handful of items to broaden it to. The
beneficiaries of those descended on Annapolis, and eventually
it turned into a tax on the one thing that had no lobbyists in
Annapolis--a tax on computer services. Then they hired
lobbyists and got that taken out, and Maryland ended up with
nothing at the end of the day.
So I do not think that approach works. I think a 1986
approach is better--broader, comprehensive. And rather than
saying, ``Well, should we get rid of this deduction,'' look at
it from the other perspective. Start from a blank slate and
say, ``What is justifiable? What should be included? What is
the best way to do it through a tax deduction as opposed to
through some other way?''
Senator Snowe. Would anybody else care to comment? Dr.
Rueben?
Dr. Rueben. I would just say that we should have something
that has certainty in it, getting rid of a lot of the temporary
provisions. I know it is costly if you are undertaking reform
and you have to pay for things, but I think, from the State
perspective, the fact that we are doing tax reform, and we are
doing tax policy, through 1- or 2-year extensions is a problem.
So anything that could make it more permanent rather than
having things expire would be useful.
Senator Snowe. Well, it is interesting, because one witness
who testified before this committee in a recent hearing
described our tax code as a permanent temporary tax code. And I
think that that is very realistic and true, and I think that
that is having a tremendous effect on the private sector, for
example, in trying to create jobs, to invest in capital
equipment, on consumers to make decisions, and, certainly, even
on State and local governments having to make up the difference
and the pressures on their own budgets.
So I think that that is the ultimate imperative, frankly,
and one that we need to grapple with sooner rather than later,
because ultimately I do not think we are going to see the kind
of economic recovery that we deserve in this country and most
certainly what the American people deserve.
Thank you.
The Chairman. Thank you, Senator. You make an excellent
point. But I must remind all of us that none of this is easy.
It is going to require some hard, tough decisions.
Since 1986, there are 15,000 changes to the code--15,000.
In 1986, with tax reform, there were no extenders. Today, we
have about 142, something like that; that is, provisions in the
code which are temporary. They last for a year, 18 months, et
cetera.
And I agree with the theory, and I am going to push hard to
practice it, that is: deal with these provisions, make them
either permanent or repeal them. Because you are right,
Senator: uncertainty is one of the biggest impediments to
growth in this country today, in my judgment, and the code
certainly adds to that uncertainty.
But, if we are going to make it more certain, we are going
to have to make some tough choices, very tough choices. And
that really means just, to a larger degree, interest groups are
going to have to subsume their narrow interests and try to come
up with some alternative that makes a little more sense for the
greater good.
The degree to which groups do that, the more likely it is
we are going to achieve our desired result here. But, if they
do not, with the narrow special interest politics in this
country these days, it is going to be extremely difficult to
achieve the goal that we all are pursuing.
So I just call on us all to be ready to bite the bullet and
to come up with constructive alternatives. You cannot beat
something with nothing. Come up with an alternative that might
make a little more sense as we work better together.
It really depends on the degree to which this country comes
together and the degree to which people that we work for--we
are just hired hands. We are just employees. It depends a lot
on how much our employers really themselves want to come up
with a constructive solution to this problem.
But you are right, Senator. I could not agree more. It is
going to be difficult.
Senator Hatch?
Senator Hatch. Thank you, again, Mr. Chairman.
Mr. Hellerstein, in your testimony, you stressed the
importance of adhering to a standard where income taxes are
paid by those who work or live in a jurisdiction. You also
discuss the example of a semi-professional soccer player who,
though earning a small sum of money, nonetheless was obliged or
obligated to file tax returns in many States.
In fact, I know this committee used to employ a
professional minor league baseball umpire who was required to
file returns in multiple States. And I am interested in your
analysis of how States have, over the past few years, become
increasingly aggressive in pursuing taxes from non-residents
and how new sources of information have become available in
States to facilitate their search for revenues.
Now, when did this trend originate, and how long has it
been going on? And do you see it increasing in the future?
Then, finally, Mr. Zinman, if you could answer how you have
witnessed States become more aggressive in their search for
revenues and how this has impacted your clients. Do you think
your clients are able to make residency decisions with full
knowledge of the tax implications of their decisions, or does
the complexity of State tax laws make that difficult?
So, if I could have you first, Mr. Hellerstein, and then
Mr. Zinman.
Mr. Hellerstein. Thank you, Senator. With all due respect,
I believe it was not my testimony. Presumably, it was Mr.
Zinman who referred to the soccer player. But I am familiar
with the problem of taxing professional athletes, and, more
generally--insofar as my testimony did address the problem of
personal income taxation with regard to the role that Congress
may play, and, indeed, this is an issue that I have testified
about before in the House--I believe that Congress has a
positive role to play here, at least with regard to employees
who are temporarily in a State.
It seems to me both a burden on the employee, not to
mention on the employer, who has to track 2 or 3 days of work
in whatever State the employees go to. To provide a uniform
standard under which employers have certainty and employees
have certainty as to when they have an obligation, with some
threshold--I do not know whether it should be 30 days or 40
days--I think is an appropriate thing to do, particularly
because, like academic disputes, there is so little at stake,
because to be sure, there are five States that do not have
income taxes and, for the most part, we are just talking about
which State gets the revenue. It is not like the revenue is
going up in smoke.
But I believe Mr. Zinman may have more colorful examples
than I do.
Senator Hatch. Mr. Zinman?
Mr. Zinman. Thank you, Senator.
First, let us talk about the problems that we have if we
are an employee. Employees in various States, if they work in
various States--and that is happening a great deal now--they
get taxed in those States as non-residents. However, States
have certain regulations on how the employers are supposed to
report the information, and who is an employee and who is not
an employee varies from State to State.
It becomes very difficult for an employee to report his
information. I had a client this year who was a part-year
resident of North Carolina and a part-year resident of New
York. New York regulations require, whether you are a part-year
resident, a non-resident, or a full-year resident, to report
100 percent of your earnings on your W-2 form in New York, and
then the tax preparer or yourself, if you have to, allocates
out based on the days, which is not always correct. So there
are a lot of issues that happen.
Now, as far as the residency decision is concerned, besides
family and quality of life, the tax rules do matter to a lot of
people. A lot of people have moved to Florida because of estate
tax issues, because of income tax issues, and a lot of people
have moved to a State like Florida--and this also happens out
in the West. They move to States that are tax-friendly,
especially with estate tax issues, and they go there, one,
because of quality of life and, two, because they can then give
more of their estate to their children.
So these issues do become important. And what becomes even
more important is that, if you do not do it right, your
previous State where you resided is going to try to grab some
of your assets anyway.
There are a lot of issues about people who reside in two
different States and each State trying to claim that that
person was a resident, and that does impact Federal law also.
There was just recently a Tax Court decision in Brown where a
husband and wife were New York and South Carolina residents,
and New York had an audit and declared that their capital gains
were New York capital gains. They agreed. They paid New York.
They paid New York the deficiency. They paid penalties and
interest, and they claimed the credit in South Carolina. The
Federal law did not want to allocate the interest expense and
the interest income the same way. So there was a problem, and
the Browns actually, in Federal law, lost a little bit of extra
money.
So where you are a resident and how the States look at that
residency and how much they go after, that is very important to
what the decisions are.
Senator Hatch. Well, thank you. The more I listen to you, I
just am very grateful that I am just a humble attorney rather
than a CPA. [Laughter.]
Mr. Zinman. We have a lot of fun doing this stuff.
Senator Hatch. I will bet you do.
Let me just end with this. Mr. Sammartino, I noticed in
President Obama's fiscal year 2013 budget that the President's
proposal for Build America Bonds resulted in an increase in
outlays of $70 billion, as well as an increase in taxes of $63
billion, according to the Joint Committee on Taxation.
Outlays are defined as spending under the Congressional
Budget Act. Therefore, the President's Build America Bonds
proposal would increase spending by $70 billion and would
increase taxes by $63 billion. Now, this would naturally
increase the size of the Federal Government by at least $63
billion, as I view it.
Now, do you agree that the President's proposal increases
spending by $70 billion and that it increases revenues by $63
billion? And do you agree that outlays are spending?
Mr. Sammartino. Yes. Those were the numbers that JCT
estimated for the proposal, that outlays would go up by $70
billion over 10 years and revenues from the reduction in
deductible State and local taxes would increase by $63 billion.
CBO agrees that outlays for Build America Bonds are
spending, but we also recognize that many economists would say
that it is not clear whether higher revenues from a reduction
in the tax expenditure for State and local interest is really a
tax increase or a spending reduction, even though it is scored
on the tax side of the budget.
But, yes, those were the numbers reported in our analysis
of the President's budget.
Senator Hatch [presiding]. Well, thank you. I appreciate
that.
I just want to mention, before we close down shop here,
that Senator Enzi would have been here, but he is ranking
member on the Health, Education, Labor, and Pensions Committee
that I have been going back and forth to, and he wants to be
excused, as he should be, because he is the ranking member
there and has had to be in that markup this whole morning. So
we will make excuses for him. And he is one of the more active
members of this committee, and I just want to make that very
clear.
We are really appreciative of your testimony. There are so
many other issues that could be raised, but we appreciate the
testimony. We appreciate the statements that you have put in
writing. We read those, and, frankly, this has been a very good
panel.
I just want to thank all of you for being here. And with
that, we will recess until further notice.
[Whereupon, at 11:40 a.m., the hearing was concluded.]
A P P E N D I X
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