[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




                 THE GLOBAL TAX ENVIRONMENT IN 2016 AND
               IMPLICATIONS FOR INTERNATIONAL TAX REFORM

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

                                HEARING

                               before the

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

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 24, 2016

                               __________

                          Serial No. 114-FC11

                               __________

         Printed for the use of the Committee on Ways and Means





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                      COMMITTEE ON WAYS AND MEANS

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
DEVIN NUNES, California              CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio              JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington        JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana  RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois            XAVIER BECERRA, California
TOM PRICE, Georgia                   LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida               MIKE THOMPSON, California
ADRIAN SMITH, Nebraska               JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas                 EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota              RON KIND, Wisconsin
KENNY MARCHANT, Texas                BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee               JOSEPH CROWLEY, New York
TOM REED, New York                   DANNY DAVIS, Illinois
TODD YOUNG, Indiana                  LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina

                     David Stewart, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director






















                            C O N T E N T S

                               __________
                                                                   Page

Advisory of February 24, 2016 announcing the hearing.............     2

                               WITNESSES

Itai Grinberg, Associate Professor of Law, Georgetown University 
  Law Center.....................................................    30
Michelle Hanlon, Professor of Accounting, MIT Sloan School of 
  Management.....................................................     9
Edward D. Kleinbard, Professor of LawTestimony, University of 
  Southern California Gould School of Law........................    39
Raymond Wiacek, Partner, Jones Day...............................    19

                              SUBMISSIONS

Andrew Quinlan, statement........................................   117
Brian Garst, statement...........................................   120
Organization for Economic Cooperation and Development, letter....   126
Fei, statement...................................................   128
Jeffrey Kadet, memorandum, February 23, 2016.....................   130
Jeffrey Kadet, memorandum, February 25, 2016.....................   136
Matthew Lykken, statement........................................   140
National Association of Manufacturers, statement.................   146
Organization for International Investment, letter of February 23, 
  2015...........................................................   152
Organization for International Investment, letter of March 2, 
  2016...........................................................   154
Patheon, letter of August 31, 2015...............................   157
Patheon, statement...............................................   162
Puerto Rico Manufacturers Association, statement.................   165
Tax Innovation Equality Coalition, statement.....................   170

 
                 THE GLOBAL TAX ENVIRONMENT IN 2016 AND
               IMPLICATIONS FOR INTERNATIONAL TAX REFORM

                              ----------                              


                      WEDNESDAY, FEBRUARY 24, 2016

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m. in 
Room 1100 Longworth House Office Building, the Honorable Kevin 
Brady [chairman of the committee] presiding.
    [The advisory announcing the hearing follows:]
    
    
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    Chairman BRADY. The committee will come to order. Welcome 
to the Ways and Means Committee hearing on the global tax 
environment in 2016, and implications for international tax 
reform. America needs a new 21st century tax code that will 
grow families' paychecks, grow local businesses, and grow our 
economy. It is why we are holding this hearing today about 
international tax reform, a critical component of our 
comprehensive plan to overhaul our tax system from top to 
bottom.
    Global events demonstrate how it is more important than 
ever that we make progress now in reforming our broken tax 
code. When Americans read the news or turn on the television, 
they regularly learn another major American job creator that is 
moving their headquarters to another country.
    First two months of this year we have already heard of 
three major American employers that decided to move overseas. 
And every one of these moves results in fewer American jobs, 
fewer small business opportunities, and weaker economic growth. 
To the millions of people who remain unemployed or under-
employed, these developments are more proof that our economy 
isn't working for them.
    We are holding this hearing today so we can talk about the 
real root cause of this issue, and determine the best path 
forward to save jobs and protect American workers.
    As chairman of the committee, I look forward to hearing 
from witnesses and members about the impact of the current U.S. 
tax system, including our exorbitant corporate tax rate.
    I also want to hear from you about the OECD's base erosion 
and profit-shifting project. Worldwide, American companies are 
rightly concerned that the BEPS project will result in higher 
foreign taxes, higher compliance costs, and double taxation. As 
countries around the world incorporate the BEPS ideas into 
their tax systems, many more companies could be forced to 
restructure their business operations and move U.S. activity 
such as research and development overseas.
    And I would appreciate your thoughts on the European 
Union's state aid investigations that threaten to subject 
American businesses to retroactive taxes going back 10 years.
    Each of these factors is making it harder for our 
businesses and the hard-working Americans they employ to 
compete successfully. The end result is driving American job 
creators to take their jobs and their investments to other 
countries.
    So, instead of attacking American companies, wringing our 
hands, or suggesting the same old, tired Band-Aids, Congress 
should act now to fix our broken tax code, and stand strong 
against global developments that hurt our workers.
    On this side of the aisle we are committed to delivering 
pro-growth tax reform that includes changes to our 
international tax system. I invite our colleagues on the other 
side of the aisle to join us. It is time to permanently lower 
America's tax rate, so that the estimated $2 trillion in 
stranded U.S. profits can flow back into America to be invested 
in new jobs, new research, and new growth.
    Our hearing today is another step in our plan to bring our 
tax code into the 21st century and protect American workers in 
their jobs. American people want leadership on this issue, and 
this Committee will deliver it.
    I thank all of our witnesses for joining us today. I look 
forward to your testimony.
    Chairman BRADY. And I now yield to the distinguished 
ranking member from Michigan, Mr. Levin, for the purposes of an 
opening statement.
    Mr. LEVIN. Thank you, Mr. Chairman. And welcome to all four 
of you.
    There is no doubt that there needs to be tax reform, and 
that for it to be successful there must be changes on how 
companies engaged globally are taxed. There is considerable 
talk today that, as a first step, we should reform our tax code 
as it relates to companies that are American-based with 
operations overseas.
    But there are immense difficulties in doing piecemeal tax 
reform, and it can't be done just to raise short-term revenue 
without considering long-term effects. And there are serious 
challenges in doing tax reform without considering the impact 
on domestic businesses. That is why the head of the Business 
Roundtable said last week--and I quote--``I don't think you can 
take them piecemeal, you have got to have revenue on the table. 
You have got to have lower tax rates on the table.''
    The odds seem strong that the only way to address tax 
reform is to undertake it comprehensively--and I add--on a 
bipartisan basis. For example, the large number of pass-
throughs represents a major challenge to how you do business 
reform without doing individual tax reform. That does not mean 
that Congress should be frozen in place. Not doing one big 
piece does not mean that we cannot act when there is a smaller 
piece that goes after the abuses that would have to be 
addressed in any tax reform.
    That is the case with the rapid race of inversions. More 
and more of the horses are galloping out of the barn using a 
huge loophole. Failure to close the barn door is bad for the 
American economy and unfair to the typical American taxpayer, 
who cannot lower their taxes by simply changing their address 
to another country with a lower tax rate. The Joint Tax 
Committee score of more than $40 billion on a legislation that 
we introduced to stop inversions shows how abused this tax 
dodge is.
    What makes it worse is that the companies that invert often 
then engage in earnings stripping. The U.S. entity usually ends 
up paying excessive amounts in deductible interest payments to 
its foreign parent, ultimately lowering its U.S. taxes. We need 
to shut the barn door before more and more horses run off from 
the United States and race overseas to lower the taxes they pay 
to the United States.
    I yield back.
    Chairman BRADY. Thank you. And, without objection, other 
Members' opening statements will be made part of the record.
    Today's witness panel includes four experts. Michelle 
Hanlon is the Howard W. Johnson Professor, and a professor of 
accounting at the MIT Sloan School of Management, where she 
teaches courses on taxation, business strategy, and accounting.
    Raymond Wiacek is a partner in Jones Day's practice 
involving the tax and business aspects of financial and 
international transactions, including mergers and acquisitions, 
cross-border financing, and transfer pricing.
    Itai Grinberg specializes in cross-border taxation issues 
and U.S. tax policy. Before joining the faculty at Georgetown 
University, Professor Grinberg was in the Office of 
International Tax Council at the U.S. Department of the 
Treasury. In addition, in 2005 Professor Grinberg served as 
counsel to the President's Advisory Panel on Federal Tax 
Reform, where he advised a bipartisan presidential commission 
that made sweeping proposals to restructure U.S. tax code.
    And Edward Kleinbard is the Ivadelle and Theodore Johnson 
Professor of Law in business at the University of Southern 
California's Gould School of Law, and a fellow at the Century 
Foundation. Before joining USC law, Professor Kleinbard served 
as chief of staff at the U.S. Congress's Joint Committee on 
Taxation, and was previously in private practice.
    The committee has received your written statements. They 
will all be made part of the formal hearing record. You each 
have five minutes to deliver your oral remarks. We will begin 
with Ms. Hanlon. You may begin when you are ready. Welcome.

  STATEMENT OF MICHELLE HANLON, PROFESSOR OF ACCOUNTING, MIT 
                   SLOAN SCHOOL OF MANAGEMENT

    Ms. HANLON. Chairman Brady, Ranking Member Levin, and 
distinguished Members of the Committee, thank you for inviting 
me to participate in this hearing.
    As you know, the U.S. has one of the highest statutory 
corporate income tax rates in the world. In addition, the U.S. 
has a worldwide tax system. In contrast, 28 of the other 33 
OECD member countries have adopted some form of a territorial 
tax system that allows active business income to be repatriated 
with little or no additional home country tax. The combination 
of the high corporate tax rate and the worldwide tax system is 
out of step with much of the rest of the world, and has led to 
negative economic consequences for the United States.
    The U.S. has a worldwide tax system with deferral. 
Describing it at a very high level, it operates such that 
U.S.--the U.S. taxes active foreign earnings, but not until 
they are repatriated back to the U.S. Thus, U.S. corporations 
have strong incentives to leave the active earnings of foreign 
subsidiaries in the foreign subsidiaries because doing so 
defers the high U.S. tax.
    Deferring the high U.S. tax increases current cash flows, 
often lowers the firm's effective tax rate for financial 
accounting purposes, and allows the U.S. multinational to more 
effectively compete for non-U.S. investments. As a consequence, 
U.S. multinationals are estimated to hold more than $2 
trillion--and rising--in un-remitted foreign earnings, a 
substantial portion of which is in cash.
    In addition, there is anecdotal evidence and academic 
research that shows that this lockout of foreign earnings leads 
companies to borrow more in the U.S. in order to fund domestic 
investment and return value to shareholders.
    It is extremely puzzling to me why we choose to retain a 
tax system that makes it economically rational for corporate 
managers to hold such large cash reserves on foreign 
subsidiaries, while simultaneously issuing so much debt in the 
United States.
    Ever more concerning, though, may be the consequences in 
the market for corporate control. The evidence and the academic 
research suggests that, after a cross-border M&A, the merged 
entity is less likely to locate the parent company in a country 
with a worldwide tax regime.
    In addition, evidence suggests that acquirers and M&A deals 
are less likely to come from worldwide tax jurisdictions. There 
are also studies that specifically examine the effect of 
locked-out earnings and cash of U.S. multinationals. For 
example, the more locked-out cash a U.S. target has, the more 
likely it is that it will be acquired by a foreign acquirer.
    There are also several studies that show that U.S. 
companies with large amounts of locked-out cash are more likely 
to spend that cash to purchase foreign but not domestic 
companies, and make foreign but not domestic capital 
expenditures.
    Finally, we have the transactions that have grabbed the 
media headlines, inversions, where U.S. companies reincorporate 
as foreign companies through cross-border mergers. We should be 
concerned about inversions for a variety of reasons. However, 
continuing to only focus on legislation to discourage 
inversions will not correct the much bigger problem that we 
have, that corporations do not want to be domiciled here 
because of our high tax rate and worldwide tax system.
    Many other changes are happening around the world, which 
the other witnesses here today will speak more about. But let 
me offer one example and potential consequence. Many countries 
have enacted or are contemplating innovation box tax policies 
that apply a lower tax rate to income attributable to 
innovation.
    The OECD, as part of the BEPS project, has put guidelines 
in place that will require nexus, meaning some association to 
research and development. If the U.S. does nothing in terms of 
tax reform, it is likely that U.S. companies wanting the lower 
rate of the innovation box will have to move some R&D 
activities--meaning jobs--into those jurisdictions. This type 
of real response will take time. But if the U.S. does not act 
to make our tax code more in line with the rest of the world, 
such a response--at least to some extent--seems inevitable.
    In summary, the United States is currently an outlier with 
a high corporate tax rate and a worldwide tax system, and this 
is leading to negative economic consequences. The U.S. has many 
attractive non-tax factors, but this is not an excuse for 
retaining an outdated tax code.
    Moreover, the non-tax advantages of the United States are 
not as strong as they once were, and other countries are 
working hard to use their tax laws to compete. The UK, which 
has many similar non-tax factors has a significantly lower 
corporate tax rate, which is soon to be 18 percent, a 
territorial tax system, and a patent box.
    In my opinion, we need to benchmark our tax system to other 
countries that are currently competing with us for business 
activity and jobs, and we need to reform our tax system in a 
way that attracts businesses and economic activity to our 
shores.
    Thank you again for inviting me to participate in this 
hearing. I look forward to your questions.
    [The prepared statement of Ms. Hanlon follows:]
    
    
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    Chairman BRADY. Thank you, Professor.
    Mr. Wiacek, you are recognized.

        STATEMENT OF RAYMOND WIACEK, PARTNER, JONES DAY

    Mr. WIACEK. Good morning, and thank you for inviting me to 
this important hearing. My name is Ray Wiacek, and I have been 
a tax lawyer for 40 years--hard to believe--and the head of our 
global practice for too many years to count. We were requested 
to testify on the global tax environment, what you face as you 
consider tax reform. So my written testimony touches on BEPS 
and state aid and great disparity and territoriality and a 
number of other issues.
    I hope I get a BEPS question, for example, or a state aid 
question, but I want to talk about competition. And I want to 
talk about competition fought through the tax code. It is real. 
It is not the ``C'' word, it is not a word that just comes up 
from tax lobbyists. It is not an empty suit.
    The UK has a 20 percent corporate income tax rate already 
scheduled to go to 18, and it taxes the return on intellectual 
property at 15 percent, already going to 18 percent. Of course, 
we have a 35 percent rate.
    Now, the UK didn't pass this elaborate rate structure and 
regime on a lazy Sunday afternoon for fun. They did it to 
compete. They did it to attract investments. They did it to 
attract jobs. And they did it through their tax code. And this 
competition is fierce and political. The UK would have you 
believe--it would tell its citizens that there would be no 
unemployment, there would be no cut in education costs, there 
would be no cut in rent subsidies, if only the American 
multinationals paid their fair share.
    BEPS. BEPS has the avowed purpose of increasing the take, 
the revenue, from multinationals, many of which are American. 
And, by the way, they also--it also has as its objective to 
share that additional revenue more fairly with the rest of the 
world. That is, not with us.
    State aid is kind of the little brother to BEPS, where, 
retroactively, the guys in Brussels are going after our 
companies and seeking big back taxes. For example, from Apple 
they are seeking $8 billion to $9 billion in back taxes with 
respect to a business plan that was submitted to the European 
governments involved in advance, fully disclosed, and approved 
in writing.
    Now, let me tell you. That $8 billion or $9 billion, should 
the EU be successful, with either hurt our American company or, 
because it is a tax, will be creditable in the United States 
and we, the Treasury, will bear the burden of the state aid 
actions.
    When we lose in this competition, when an American icon is 
taken over, it has terrible effects on jobs and our 
communities. People say that, you know, when an American 
company, an icon, becomes the subsidiary of the foreign 
company, it doesn't make any difference. It is still a great 
company, it is still operating in America, the greatest 
marketplace in the world, so it doesn't make any difference. To 
me, that is like telling somebody here who is in the Majority, 
maybe in a veto-proof Majority, and is now in the Minority that 
it doesn't make any difference because, what the heck, you are 
still a Member. Well, I mean, Anheuser Busch was the king of 
beers. Now it is one of a number of brands in a beer portfolio 
run by InBev from Brussels. That is not the same. That is not 
the same. And St. Louis is going to be hurt by that.
    I am from Detroit. We are all rooting for Fiat Chrysler. My 
goodness, we hope it succeeds. The North Jefferson plant is 
humming. But Fiat Chrysler is not Chrysler, and Sergio 
Marchionne is not Lee Iacocca. It makes a difference when we 
lose these companies.
    When I first started practicing long ago I represented 
Firestone. My firm started in Cleveland 125 years ago, and 
Firestone was one of the great companies of America. Now, of 
course, it is Bridgestone Firestone. Still a client, still a 
great company. But it is different. I used to go to Akron. 
Akron isn't what it used to be.
    And just by chance, as I was thinking of this example, in 
the Sunday Times, this Sunday Times, there was a story about 
the difference between Akron then and now, and the story was 
about the hundreds and hundreds of dilapidated and abandoned 
homes in Akron because it is no longer the tire capital of the 
world.
    Small businesses are affected, too. We talk about them all 
the time as the generator of jobs. They are the generator of 
jobs. But they are all part of the big guys' supply chain. Who 
do you think they make the labels for? Who do you think they 
make the boxes for?
    I got an example there, too. GE moved to Boston, so we are 
not talking about a foreign takeover, but do you think the 
businessmen in Connecticut are happy with that? Do you think 
the restaurants that are lining up and down the parkway to feed 
the GE employees are happy with that? What if GE had been taken 
over and moved abroad?
    So--but that is my message, the competition is real. And, 
you know, we can let the great be the enemy of the good, but--
thank you.
    [The prepared statement of Mr. Wiacek follows:]
    
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    Chairman BRADY. Thank you, Mr. Wiacek.
    Professor Grinberg, you are recognized.

    STATEMENT OF ITAI GRINBERG, ASSOCIATE PROFESSOR OF LAW, 
                GEORGETOWN UNIVERSITY LAW CENTER

     Mr. GRINBERG. Chairman Brady, Ranking Member Levin, and 
distinguished Members of the Committee, good morning. My name 
is Itai Grinberg, I am an associate professor of law at 
Georgetown. It is a pleasure to appear before you today to 
discuss the European Commission's state aid investigations, and 
the way that those investigations impact the international tax 
environment that we face.
    The international tax environment around the world is 
becoming both less stable and less favorable to American 
business. The BEPS project at the OECD was justified as an 
attempt to prevent the old framework for international taxation 
from falling apart and being replaced by unilateral action, 
double taxation, and what the OECD termed ``global tax chaos.''
    Unfortunately, the post-BEPS environment already shows 
signs of becoming characterized by much of the global tax chaos 
the BEPS project was supposed to prevent. We are seeing an 
increase in unilateral actions and more double tax disputes, 
especially in the transfer pricing area.
    The European Union's state aid investigations with respect 
to tax ruling practices represent an extreme example of the 
emerging challenges. EU law generally prohibits so-called state 
aid that threatens to distort competition by favoring certain 
businesses. The European Commission can retroactively demand 
assessments that reach back up to 10 years when it labels a tax 
result ``state aid.''
    EU state aid law dates the 1950s and was intended to 
prevent EU member states from subsidizing domestic national 
champion companies. In contrast, in the recent cases against 
American businesses, the Commission is claiming that EU member 
states provided illegal state aid to our companies merely by 
providing them legal certainty through tax rulings that 
clarified how generally applicable national law would apply to 
those companies' facts.
    These investigations are novel and unprecedented. Moreover, 
they do not seem to meet the test for state aid, because the 
kind of rulings at issue were broadly available to 
multinationals around the world. The enforcement reality, 
though, is that almost all the revenue and all but one of the 
named company investigations involve American businesses, even 
though rulings of this type are held by many, many European-
headquartered multinationals.
    Moreover, the remedy the EU imposes when member states 
provide illegal state aid is deeply inappropriate, to say the 
least, when applied to a foreign firm, instead of the domestic 
national champion firms for which the state aid regime was 
created.
    In the current cases, when the Commission finds that a 
member state has acted illegally, the remedy--the remedy--is to 
demand they take potentially billions of dollars from an 
American business. Importantly, those payments could be 
creditable. So the Commission's decisions may amount to 
demanding a multi-billion-dollar transfer from U.S. taxpayers 
to the EU member states the Commission claims acted illegally.
    In addition to basic rule of law concerns, the state aid 
investigations raise questions about whether the European Union 
may be discriminating against American business. Studying the 
difficult issues that arise under Section 891 of the code, 
which was enacted to address such discrimination, is one 
important policy step the U.S. Government can take.
    But more broadly, the EU's investigations are just one more 
indication of the urgent need for U.S. international tax 
reform. Our singularly high corporate tax rate and worldwide 
system are severely out of line with international norms. These 
EU investigations highlight yet another negative consequence of 
that.
    Our international tax system is allowing American 
businesses and the U.S. fisc to be turned into pawns in an 
inter-European fight between high-tax France and low-tax 
Ireland. In the current environment, with many countries 
searching for politically painless revenue sources, the foreign 
tax credits provided by our current system and that would exist 
in a minimum tax are a ripe target for governments looking to 
effectuate transfers from foreign taxpayers to their own 
coffers. Other developed economies can't be targeted in the 
same way the United States can, because they have true dividend 
exemption systems.
    More generally, continuing to impose relatively high income 
tax rates on multinationals places the U.S. at a disadvantage 
in today's global economy, given the mobility of capital, 
intellectual property, and, importantly, high-skilled, high-
quality jobs.
    So, thank you for the opportunity to testify before you 
today. I would be delighted to take any questions you may have.
    Chairman BRADY. Thank you, Professor.
    [The prepared statement of Mr. Grinberg follows:]
    
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    Professor Kleinbard, you are recognized and welcome.

STATEMENT OF EDWARD D. KLEINBARD, PROFESSOR OF LAW, UNIVERSITY 
           OF SOUTHERN CALIFORNIA GOULD SCHOOL OF LAW

    Mr. KLEINBARD. Thank you. You know, Akron isn't what it 
used to be. But neither is Birmingham, England, neither is 
Clermont-Ferrand, France. Let's not in this hearing confuse 
worldwide macroeconomic trends on the one hand with tax policy 
on the other.
    And further, let's not confuse international tax reform 
with the taxation of outbound investments by U.S. firms in the 
form of foreign direct investment. International is a two-way 
street. And let's think a little bit more about what 
international tax reform means when we consider the United 
States of America as a source country, as a place in which to 
invest.
    Yes, we need to redesign the outbound international tax 
system. The United Stats is, by far, the largest exporter of 
foreign direct investment in the world. And, yes, the U.S. 
statutory corporate tax rate is too high. But the statutory 
rate is largely irrelevant to the foreign operations of U.S. 
firms.
    For example, Pfizer tells shareholders that it operates 
under a 25 percent worldwide effective tax rate. But it appears 
that Pfizer's cash tax bills on its worldwide income actually 
are in the neighborhood of six or seven percent. The same is 
true for many U.S. multinationals. And what is more, when U.S. 
firms borrow in the United States to fund dividends to 
shareholders, as Apple just did, that operates as the economic 
equivalent of a tax-free repatriation of those funds.
    The essence of a territorial tax system is that income 
should be taxed where it is really earned. But it defies 
credulity that single-digit tax rates reflect the taxation of 
earnings in the places where they actual arose. And yet, in 
fact, U.S. firms would claim that 53 percent of all their 
foreign business income has its economic nexus in 6 tax havens.
    I don't claim that the international tax system is 
harmless, much less desirable. But of all its many faults, 
anti-competitiveness is not one. When it comes to BEPS and EC 
state aid cases, I find U.S. multinational cries of pains to be 
hyperbolic and premature. The U.S., along with every other G20 
country, endorsed the final OECD BEPS package in September 
2015.
    I am disappointed in particular that country-by-country 
reporting is at all controversial. Companies do not have a 
legitimate claim that their stateless income tax planning 
techniques that they use to drive down their tax rates to 
single digits somehow constitute protected, proprietary 
information akin to the formula for Coca Cola.
    Like it or not, U.S. multinationals will not enjoy single-
digit tax rates on their foreign income indefinitely. Adopting 
toothless territoriality will not forestall foreign countries 
from asserting their taxing rights, but will lead to more 
erosion of the U.S. domestic tax base, and that is the real 
irony at work here.
    There is a big tax competitiveness problem that is staring 
at us, but it is the competitiveness of the United States, as a 
business environment. The U.S. is also the largest importer of 
foreign direct investment in the world. International tax 
reform should, therefore, involve rethinking the attractiveness 
of the U.S. as a source country, as a place in which to invest, 
not just a jurisdiction from which to invest.
    Lower domestic statutory rates lead to more domestic 
investment by both foreign and domestic investors. And with 
more domestic investment, comes more national income, more 
jobs, and better paying jobs.
    Lower U.S. rates by themselves reduce the gap between the 
effective rates that U.S. multinationals and their foreign 
peers report to their shareholders, but so too does addressing 
earnings stripping, which is one of the two big payoffs from 
inversions. By stanching the bleeding of the U.S. domestic tax 
base, Congress would simultaneously protect U.S. revenues and 
raise the worldwide effective rate on those inverted companies 
and on other foreign firms that use earnings stripping into--
from the United States to turn the U.S. into a low-tax paradise 
for themselves.
    I don't fault companies for inverting, I don't hold them to 
some higher obligation to corporate patriotism, but I do hold 
Congress to a higher standard. Repairing flaws in the model is 
not a tax hike, but, rather, reflects an appropriate commitment 
to maintaining the enormous and delicate machine that is the 
tax code that has been entrusted to this Congress by the 50 
congresses that preceded it. Thank you.
    [The prepared statement of Mr. Kleinbard follows:]
    
    
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    Chairman BRADY. Thank you all for your excellent testimony. 
We will now proceed to the question-and-answer session. Let me 
begin.
    Professor Hanlon, Ranking Member Levin made, I think, a 
common analogy. His point is we need to close the barn door 
before more American companies leave. What I am interested in 
is what is fueling the fire that is driving these American 
companies out?
    Your testimony laid out an entire range of events going 
around the world, and combined with our uncompetitive--A, have 
you ever seen a confluence of events that drives investment and 
U.S. jobs overseas, grabs our U.S. revenue, and makes us less 
competitive? Have you ever seen a confluence like this ever 
occur?
    And two, what is your thought on the urgency for Congress 
to act in this area?
    Ms. HANLON. That is a good question. I think the pressure 
has just been building over time. So it--in terms of a 
confluence of events, I think just increasingly, as the rest of 
the world changes, the pressure has been building on the U.S. 
and we haven't really done anything to change our tax code at 
all.
    So, the way it stands right now, we are just so out of line 
with the rest of the world that I think that is what is driving 
companies to leave and try to seek out a better environment. 
And I think that is what drives them to do the tax planning 
that they do. They need to be competitive in these foreign 
jurisdictions. And I wouldn't expect any different behavior 
from them.
    Chairman BRADY. To the issue of urgency, how long does 
Congress stand by?
    Ms. HANLON. You know, I think it is already too late in 
some sense. But on the other hand, you wouldn't want to rush 
and make a policy even worse, so you want to make sure that you 
think it through. But there are some things that are obvious to 
do, and that is lower the corporate tax rate.
    Chairman BRADY. Yes. So rather than a Band-Aid approach, go 
after the real solution in this.
    Ms. HANLON. That is what I would recommend.
    Chairman BRADY. Mr. Wiacek, you talked about the BEPS 
project. More importantly, what happens when companies move 
overseas, what the--sort of that cascading effect here at home.
    So what is--in this global environment, what is the threat 
of job loss, locally, when we see these companies invert or 
leave?
    Mr. WIACEK. Well, you know, I agree with Ed that tax is not 
the only factor in competition, and that we can be out-competed 
because a foreign company invents something we wish we had, or 
our management is slow, or the foreign company operates under 
lax environmental regulations or with low labor prices. But I 
don't understand how anyone can think that tax isn't part of 
the competition.
    You compete, ultimately, with your bottom line, your after-
tax cashflow. And if one company is taxed at 35 percent, and 
another company is taxed at 15 percent, or if you start with 35 
but then plan to get it down, the other guy starts at 15 and 
also plans to get it down. It is the money that is left over 
that you can invest in wages and jobs, and invest in the 
future, and sponsor ball teams in your local community. And if 
the money you have left over is less, all those things are 
less.
    And, moreover, the way you determine the value of your 
company is by multiplying your after-tax cashflow, as one 
measure. That is what determines the value of your stock. So 
the foreign guy's stock is worth more, so he has a currency 
that is very valuable. And your company is worth less. That is 
exactly what happened to Anheuser. And you get taken over.
    Chairman BRADY. Mr. Wiacek, can I ask--because I am really 
piqued by the point you made in both your written and your oral 
testimony, that when global companies leave, there is an impact 
on local communities that maybe you don't think about from the 
vendors and the small businesses--can you talk a little about 
that?
    Mr. WIACEK. Well, sure, because I think one of the reasons 
I was invited is I am the practitioner. So, you know, I have 
been to Akron, I have been to what was world headquarters and 
isn't any more.
    And Congressman Levin, I am from Detroit, you know. I have 
been to the old site of the Dodge Main plant that is no longer. 
And we know what happens. I would use Detroit as an example, 
because it is my hometown. There are a lot of factors besides 
tax, but just look at Detroit. It is devastated. And you know, 
I am going to choke up, it is so devastated.
    So what happens? What happens to all the local vendors? 
Well, in Michigan, the whole economy was based on the auto 
industry. At one time we were--we had all big three. They were 
three of the five largest corporations in the world. And 
Michigan was an unbelievable state. It had more recreation and 
more tool and die companies and more suppliers than anybody. 
And those places are all gone.
    And I use the past, because that is not what is--those are 
not the companies that are going to be affected going forward. 
But we can't lose another round of companies. So maybe we are 
not going to be big in the auto industry any more or not, but 
we are big in tech now, and we are big in pharma now, and we 
are big in branded products, like Starbucks. And we can't lose 
those companies, too. And they are all under threat.
    And everybody just talks about inversions all the time. I 
didn't even mention inversions, because if you pick up the Wall 
Street Journal each day--there was another China acquisition 
today. There was another acquisition by Brazil yesterday. There 
is continuous acquisitions of our companies that have nothing 
to do with inversion, and in some cases have nothing to do with 
tax. It is just that we are here before the Ways and Means 
Committee, so we are talking about the tax component of it.
    But we better figure out for our communities and our 
country what is happening and why we are losing. And one of the 
reasons we are losing is that we have a non-competitive tax 
system.
    Chairman BRADY. Good. Thank you, Mr. Wiacek.
    Final question, Professor Grinberg, you made the point the 
BEPS project--developments--many countries are coming down hard 
on American companies. They are not going after their own 
companies, they are coming after ours, both in a revenue grab, 
a jobs grab, and an investment grab.
    Some argue that the answer is to impose tougher rules on 
American companies. I believe--I believe Republicans believe 
Congress should try to leapfrog our trading partners and 
economic competitors by fixing our tax code in a way that helps 
American workers and companies compete. Can you give us your 
insight?
    Mr. GRINBERG. Thank you----
    Chairman BRADY. Should we be taking--should we be solving 
the problem, addressing the fire that is driving these 
companies either overseas or to be targets of foreign 
acquisitions?
    Mr. GRINBERG. Thank you, Mr. Chairman. I couldn't agree 
more. I think that if we just talk about inversions, we are 
talking about the tip of an iceberg. And we, you know, need to 
understand that they are symptoms of much deeper problems, that 
the EU state aid investigations also help you understand the 
direction the rest of the world is headed, which is to engage 
in much more significant, source-country taxation, which our 
countries--our companies will be exposed to, to the extent that 
we remain in the system that we have today.
    My view is that the right way to proceed is to think about 
a much, much lower corporate tax, and move to dividend 
exemption as a minimum, while also keeping in mind that we have 
a world that is moving away from residence country taxation, 
and towards source country taxation, and away from income 
taxation, and toward consumption taxation. And so what that 
means for the United States is that we should think seriously 
about moving towards a system that defines the U.S. source base 
that we wish to defend, and then taxing exclusively on that 
basis, which would include jettisoning the concept of corporate 
residence as a basis on which we tax.
    Now, that would be a big leapfrog. But the first step is 
just to very--if you want to do a smaller step, the very, very 
first leapfrog step is just to lower our corporate tax rate so 
that it is competitive with the, you know, countries that 
Michelle mentioned, which are our true competitors, and 
meanwhile, move to a true dividend exemption system. So----
    Chairman BRADY. Great. Thank you, Professor. I now 
recognize the distinguished ranking member, Mr. Levin, for any 
questions.
    Mr. LEVIN. Thanks. Hi, Mr. Wiacek, a special hello. I 
worked at Dodge Main some years ago. And I think I and others 
share your concern.
    So let me just say a word, Mr. Chairman, about fueling the 
fire. You just don't let it keep burning and not address, where 
you can right away, one of the causes. And when you say, ``When 
we address inversions we are not getting at the basic problem, 
we are addressing symptoms,'' I think inversions are more than 
symptoms. But I think we learn you also need to address 
symptoms. Otherwise, the basic problem festers and grows.
    And no one is talking about addressing only inversions. We 
need to sit down--I think your testimony shows how important it 
is that we address taxation broadly, comprehensively. We aren't 
going to do it right now, if we are realistic. And to allow 
these inversions to continue without taking further steps--the 
Administration has already done what it thinks it can do. But 
the Majority here is relating to that doing nothing.
    And then there is the earnings stripping issue. And what 
these companies are doing when they invert, they essentially 
then borrow money and they deduct the interest paid to this 
thing overseas that they helped create. And so they lower the 
taxes they pay in the United States.
    So, it doesn't make any sense to let the fire burn--
whatever imagery you want to do--or let more and more horses 
run out of the barn, saying, ``We are going to close the door 
later.''
    So I think your testimony shows we aren't going to do this 
tomorrow. Mr. Grinberg, what you suggested is really, really 
basic.
    So let me just ask Mr. Kleinbard to comment. You talked 
about competition and also BEPS, what it meant, and what is 
going on. Just say a few more words as to how you think we 
should look at what is happening in Europe. It is clearly a 
problem, but how do we address it?
    Mr. KLEINBARD. Sure. The first point to keep in mind is 
that BEPS was a project of the G20 countries and, as such, 
represents the highest levels of agreement among the major 
countries of the world. The very foundations of the territorial 
tax systems that the other witnesses have urged depends on 
figuring out where income, in fact, is earned. And BEPS, at its 
heart, was trying to do that, trying to get to a better set of 
tools to figure out where income is earned. There is no source 
taxation without that.
    When it comes to state aid, I take a different view than 
does Itai. I don't see the state aid cases as the EC, the 
European Commission, substituting its tax judgement for that of 
Luxembourg or Ireland. I see, instead, the European Commission 
asking the question, ``Were these bona fide tax agreements at 
all that Luxembourg entered into?''
    And there, for example, the answer is clearly no. One man 
issued every ruling. One man issued a dozen rulings a day. 
Those rulings were scarcely read, much less negotiated. And 
those rulings, the way I see the EC, the EC is simply saying, 
``Maybe those rulings are just shams. They were devices used to 
deliver some kind of tax subsidy through the mechanism of an 
advanced pricing agreement in order to hide the fact that it 
was state aid, not that these were, in fact, tax agreements at 
all.''
    Mr. LEVIN. Thank you.
    Chairman BRADY. Thank you. Due to the scheduling 
constraints for our Members, and in the interest of allowing as 
many Members as possible to ask questions during today's 
hearing, without objection we will reduce question time for 
each Member to three minutes. Members who are----
    Mr. LEVIN. Mr. Chairman, you and I discussed this, and I 
just want it to be clear that this is not a precedent for how 
we are going to handle----
    Chairman BRADY. No, sir. You are exactly right. Thanks for 
making that----
    Mr. LEVIN. That should be utterly clear. You have a special 
need on your side.
    My own judgement is that this needs to be just the 
beginning of our discussion of international tax. And we need 
to sit down on a bipartisan basis and really dig into these 
issues. And so I had real qualms about limiting it to three 
minutes. As long as it is not a precedent, and let it be the 
precedent today that we are going to really dig into these 
issues deeply and effectively, and on a bipartisan basis.
    Chairman BRADY. Agreed. And I will recognize Mr. Johnson 
for questioning.
    Mr. JOHNSON. Thank you, Mr. Chairman. As you know, this 
Committee has been looking into tax reform for some time.
    And let me ask you, Ms. Hanlon, please, do recent 
international developments make fixing our broken tax code more 
urgent than it was five years ago?
    Ms. HANLON. Yes.
    Mr. JOHNSON. That is a good answer. Secondly, do these 
international developments just impact big companies, or does 
this also affect Main Street and American jobs?
    Ms. HANLON. I think what you have heard today suggests--and 
I think it is true--that it impacts big companies and Main 
Street and American jobs. It is very hard to separate those two 
things, because they are so intertwined. So I think it affects 
everybody, all of us.
    Mr. JOHNSON. It affects you and me, too, doesn't it? Okay. 
So the longer we wait to do reform, the greater impact on jobs, 
right?
    Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you, Mr. Johnson. I would like to 
take a moment of personal privilege. We are honored to have the 
former chairman of the Ways and Means Committee, the Honorable 
Bill Thomas of California, joining us today. Chairman Thomas, 
would you stand and be recognized? Thank you so much for 
joining us..
    [Applause.]
    Chairman BRADY. You look a little like the guy in the 
portrait, right in the middle of the wall over there. Thank 
you, Chairman.
    Mr. Rangel, you are recognized.
    Mr. RANGEL. I am always encouraged when there is words like 
``bipartisanship.'' And this situation is getting so serious 
that I would encourage you--there he goes--well, so much for 
bipartisanship.
    [Laughter.]
    Mr. RANGEL. But it would seem to me that we ought to get 
together, as Members of the Committee, and decide what it is 
that we would want to do without the hearings. Bring in the 
experts, ask the questions, and then decide that we have to go 
to our leadership and say, ``This is important.'' Hearings are 
good, but most of the time we have already made up our minds of 
what we want to do. And there is no press here.
    So I do hope that there would be informal discussions as to 
how we can help our country out and avoid people saying that, 
under this President, nothing meaningful will be done. Because 
the way the presidential elections are going, it is very 
possible that someone could get elected that the Congress could 
say that, ``We are not going to do anything that she wants 
done.'' And if the Congress is going to take that position with 
the executive, it doesn't really leave much hope for those 
corporations that want to make us competitive by going where 
they can be the most productive.
    I was very interested, Mr. Wiacek--and with all of your 
experience as a tax lawyer, you sounded like someone from the 
community, you sounded like the frustrations that we hear in 
both parties. You sounded like someone that says, ``America 
isn't doing what we expect her to do.'' And it would seem to me 
that if the United States Congress had that much feeling about 
it, that we could do something to alleviate the losses that we 
are suffering, not only financially, but in terms of the hopes 
and aspirations of so many Americans.
    Now, it has to be true that when we have this extremely 
high 35 percent corporate tax, that a lot of corporations, 
domestic corporations, are paying it, but very few 
international corporations are paying such a tax. I think Mr.--
Professor Kleinbard said that Pfizer pays nine percent.
    Isn't it abundantly clear that corporations don't pay the 
same taxes?
    Mr. WIACEK. Well, it is not abundantly clear. And the--
everyone starts with a certain corporate rate and does their 
planning and seeks to reduce it. So we can either compare our 
headline or our statutory rates to our effective rates, but we 
are being out-competed on the tax code.
    Mr. RANGEL. I am saying these multinational corporations 
are leaving our jurisdiction and avoiding tax liability so they 
don't pay the 35 percent. Isn't that true?
    Mr. WIACEK. They--our corporations do seek----
    Chairman BRADY. I am sorry, Mr. Wiacek, all time has 
expired.
    Mr. Nunes, you are recognized----
    Mr. RANGEL. What are you talking about?
    Mr. NUNES. Thank you, Mr. Chairman.
    Mr. RANGEL. I thought you said we had three minutes.
    Mr. NUNES. Ms. Hanlon, I have a question for you. I have 
introduced the American Business Competitiveness Act, ABC Act, 
which is based on the X-tax that was developed by David 
Bradford and others. As you are aware, it does away with 
subpart chapter F. It taxes amounts effectively connected with 
businesses in the United States--be a five percent toll.
    In the U.S. we continue to see the growing trend of 
inversions. For example, in my home state of California, 
biopharmaceutical companies have been the target of foreign 
acquisitions in recent years. Since 2010, almost 70 percent of 
U.S. and foreign biopharmaceutical company acquisitions have 
been by foreign companies.
    So, in your expert opinion, Professor, could you tell the 
committee how the X-tax cashflow system that I have proposed--
how that would impact those types of acquisitions switching to 
a territorial system, like my plan does?
    Ms. HANLON. Well, I think, to some degree, because we 
haven't run the experiment, we can't say exactly how it would 
affect it. But I think your question kind of gets at the spirit 
of what was said a little bit earlier. And I think it is very 
important to think broadly when we think about tax reform.
    There are many options that we could choose, and we could 
think about small--``small'' moves, like just dropping the 
corporate rate, which I think all four of us agree needs to be 
done, or we could think about something bigger. And I think the 
X-tax is a good option that we should consider and think about 
all the effects that it would have.
    So, I agree that this is something we should think about, 
and not only limit our view to small changes in the system, but 
also think a little bit more broadly about other things we 
could do to reform the tax system.
    Mr. NUNES. Well, thank you, Professor.
    I would like to--Mr. Grinberg, would you like to--are you 
familiar with the X-tax system?
    Mr. GRINBERG. Sure.
    Mr. NUNES. Oh, your mike, sir.
    Mr. GRINBERG. Thank you, Mr. Congressman. So the thing 
about moving to a consumption tax rather than an income tax, is 
that--which an X-tax is--is that it is simply a much more pro-
growth system than an income tax. An income tax creates 
distortions that a consumption tax does not.
    The United States is actually a reasonably low-tax country, 
we are just a high income tax country. There is no reason we 
need to live with the distortions that the income tax system 
creates. We have alternatives available to us.
    And so, I think it is correct to study consumption tax 
reform options that can help the United States be a more 
competitive economy while remaining, you know, relatively 
distributionally similar. So----
    Mr. NUNES. Thank you, Mr. Grinberg, and thank you, Mr. 
Chairman. I yield back.
    Chairman BRADY. Thank you. Dr. McDermott, you are 
recognized.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. A very eminent 
philosopher once said, ``Those who fail to learn from history 
are doomed to repeat it.'' Now, that is a very fancy way of 
saying what I learned in Chicago as a kid: The fix is in.
    This is a sham hearing. It is not going anywhere.
    The Speaker, before he got to be Speaker, when shown the 
OCED [sic] BEPS program said, ``Ultimately, the solution is to 
bring our tax code into the 21st century, allowing companies to 
bring back their earnings without penalty.'' Now, if that is 
the goal, to bring back their money from overseas without 
penalties of any sort, we ought to look at the last time we did 
that.
    Not many Members on this Committee were here in 2004, when 
we provided a repatriation holiday. This was--allowed companies 
to bring back their offshore profits at a lower tax rate than 
that 35 percent we always hear about, which is a sham in 
itself. The effective rate is about 16 percent for most 
corporations in this country.
    But never mind. They brought their money back. And they 
promised that they were going to use it to create jobs, and 
they were going to do all kinds of great things for this 
country. The 15 companies that benefitted the most from that 
2004 tax break cut more than 20,000 jobs. They brought back all 
that dough from overseas at low rates that we gave them. We 
said, ``Oh, bring your money back and invest in America.'' They 
brought it back, and they sent it to the stockholders in the 
next afternoon. That is what happens when you get this kind of 
thing.
    And we--although we heard about the other thing, about the 
fix that you really don't understand. These companies, they 
sell something in Germany. Do they pay the German tax rate? Do 
they, Mr. Kleinbard?
    Mr. KLEINBARD. They do only if they are poorly advised.
    [Laughter.]
    Mr. MCDERMOTT. Yes. If they are well advised, they do it in 
the Cayman Islands.
    Mr. KLEINBARD. In the end, right, the income is----
    Mr. MCDERMOTT. Or Bermuda.
    Mr. KLEINBARD. Yes, sir.
    Mr. MCDERMOTT. Or The Netherlands, or Luxembourg. Any place 
to get one of those--or Ireland, even. I mean the Irish are 
not--you know, we are not very smart, but we are smart enough 
to know if we have a low-enough tax rate, we can draw a lot of 
stuff if that isn't taxed in France and isn't taxed in Berlin 
and isn't taxed all over the world.
    This tax structure is not going to be solved by a hearing 
where people have three minutes to talk about it. This has got 
to be--you have--we had the Senate Member over today to the 
Democratic study group who said, ``Nothing is going to happen 
in the Senate on taxes.'' So whatever you talk about today is 
just a sham. This is not real tax reform. It took six years 
under Reagan.
    Chairman BRADY. Thank you. Mr. Tiberi, you are recognized.
    Mr. TIBERI. So much for bipartisanship. Mr. Wiacek, in your 
written testimony you talk about examples in communities of 
corporate headquarters going overseas, and the impact. And one 
of them is in Ohio that you mentioned, my home state, 
Bridgestone, Firestone.
    In Columbus we are really lucky to have a number of 
corporate headquarters, both domestic and international 
companies, and many of them are--most of them are involved in 
many other ways, in addition to just having a lot of jobs. In 
fact, one company, AllBrands, has seen the CEO in the company 
give tens of millions of dollars to Ohio State to create a 
state-of-the-art medical center. And I think it is safe to say 
that if they were headquartered in Dublin, Ireland, they 
wouldn't do that.
    My question to you is can you go through the ripple effect 
that is created in communities? We often solely talk about 
jobs, which are really important, but the ripple effect that is 
created when a corporation is moved overseas, not just in terms 
of jobs, but what it does in a community, the investment that 
many employees and executives make in many different things, 
and the impact that has. And, in addition to that, how recent 
developments in the BEPS project and what foreign governments 
are doing, unilaterally, to heighten that impact.
    Mr. WIACEK. Sure, and let me take BEPS first, just for a 
moment, because Ed made the comment that attacking BEPS is 
premature. And that is what got us to the place we are now. We 
thought that it was just advisory, and that we would get a 
crack at it because we have to adopt each of the proposals, 
country by country. But what we forget, while we wait about--
tax reform people are asking about--is the barn door open? Is 
the fire burning?
    So we are not in control of international taxation. 
Inherent in the definition of ``international'' is there is at 
least one other country involved, sometimes many. And they are 
galloping forward, and they are moving on. And BEPS is out of 
the barn and running.
    And BEPS--look, if BEPS works, and we have a level playing 
field, that is actually all we want, as a competitive manner. 
And I don't care whether the rate is the German rate of 15 
percent versus the U.S. effective rate of 16 percent or--just 
so everybody plays by the same rules. But that is not what is 
going to happen with BEPS, or at least not for 10 or 15 or 20 
years, because the different other countries are not going to 
adopt all of the proposals. Each country is going to adopt the 
proposals that is best for it. Each country is going to adopt 
the proposals in its own language.
    Someone talked about the privacy--oh, Ed did. And he said, 
``Why shouldn't we give all of our tax returns to every 
country?'' Well, Germany already doesn't think it is a good 
idea, either, and has said it is not going to do it. And France 
has already said, ``What the heck?''
    So this thing is just going to be--the whole international 
system is getting rewritten right now in Paris and Brussels. 
And we better catch up, because we would like to put a stamp on 
that. And they are not writing it in a way that is favorable to 
us.
    And I am sorry I didn't get to your community question, and 
maybe I will get an opportunity.
    Chairman BRADY.
    Thank you. Mr. Doggett, you are recognized.
    Mr. DOGGETT. Thank you, Mr. Chairman, and thanks to our 
witnesses.
    I think if this Committee had any genuine interest in 
addressing those companies that are dodging their taxes by 
declaring themselves un-American, we would have already 
approved the anti-inversion legislation that has been pending 
here for years. We would have approved a tax that is, in 
concept, the same as what we do for wealthy individuals who 
renounce their citizenship, and say, ``Your earnings may have 
been deferred, but they are not tax free,'' and impose that 
tax. And finally, we would be asking the United States Treasury 
Department to use its full authority to stop the Pfizer 
inversion and the other runaway inversions that are occurring.
    Instead, what we have is the call for an international tax 
reform that is nothing more than an excuse for discrimination. 
If Star Wars is competing down the street from Austin Java, it 
is Star Wars that has got the lowest tax rate right now through 
all the schemes that it has set up on its intellectual property 
and its offshore subsidiaries. And what this Committee is 
saying, ``Cut their taxes some more, but don't do anything for 
Austin Java.''
    It says to Pfizer that is up here, whining about the fact 
that it has to pay maybe a nickel, maybe even as much as $.07 
or $.08 on its worldwide earnings, we need to cut their taxes a 
little more, but Davila Pharmacy and the other community 
pharmacies around the country, they don't get their taxes cut 
at all.
    It says to Burger King, ``It is okay to go run off to 
Canada to invert. We are going to cut your taxes more. But we 
are not going to do anything with Estella's down the street 
that is a local, domestic business that is competing.''
    And the committee's determination to discriminate against 
domestic businesses is so extreme that last week even the 
Business Roundtable, that has as its members so many of these 
multinationals, rejected this approach with its chairman saying 
that tax reform cannot be piecemeal, that ``You've got to have 
revenue on the table, lower tax rates, and simplification in 
order to have a compromise for all.''
    I agree with a pro-growth, job creation tax policy, but it 
can't discriminate against American businesses. We aren't 
talking about a compromise here with the testimony today. We 
are talking about continuing to have an uneven playing field 
for our businesses, and to tilt it a little more through 
further so-called international tax reform.
    Specifically, I would ask you, Mr. Kleinbard, what you 
think about the so-called innovation box, or giveaway box, or 
whatever, and whether Pfizer needs additional tax breaks.
    Mr. KLEINBARD. In 11 seconds, I am opposed.
    [Laughter.]
    Mr. DOGGETT. Good.
    Mr. KLEINBARD. It simply rewards people today for research 
they did years in the past.
    Chairman BRADY. Well done.
    Mr. Reichert.
    Thank you for sticking to the time, on the dot.
    Mr. DOGGETT. Mr. Chairman, may I just ask, as you go to the 
next witness, your consent, unanimous consent----
    Chairman BRADY. Without objection.
    Mr. DOGGETT [continuing]. To put in the letter that you 
received from the financial accountability and corporate 
transparency group?
    Chairman BRADY. You bet, without objection.
    [The information follows:]
    
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    Chairman BRADY. Mr. Reichert, you are recognized.
    Mr. REICHERT. Mr. Chairman, could I ask the clock be set at 
three minutes, that----
    Chairman BRADY. Yes. Yes, sir.
    [Laughter.]
    Mr. REICHERT. My time was ticking away there. Thank you. 
Thank you, Mr. Chairman.
    I usually stick to a script, and I am going to go off the 
map a little bit here. I am just getting frustrated by hearing 
some of the comments today.
    I have--I look like I have been in Congress 40 years, but I 
have just been here--this is my twelfth year. So I was a cop 
before this, and cops are all about getting stuff done, right? 
I just want--you know, I think Mr.--is it Wiacek? I want to--
Wiacek?
    Mr. WIACEK. Wiacek.
    Mr. REICHERT. Thank you. You know, I thank all three--all 
four witnesses. You have provided some great testimony here 
today for us to be educated. However, I think that, Mr. Wiacek, 
you have really touched, you know, me in a personal way. I 
think I can--I mean I can see your emotion, your passion. Even 
though we are talking about tax reform, which is not--you know, 
how can you get excited and passionate about--unless you start 
talking about what it does to people in America.
    And the anger that we see in America today is all about 
what is happening right here in this Committee, the lack of 
bipartisanship, some of the comments made here to me are 
depressing, disgusting, and absolutely uncalled for. We have 
been working on tax reform for the past eight years that I have 
been on this Committee. Through Dave Camp and through Mr. 
Brady, and even when the other side was in the Majority, there 
was some attempt. But we have got to work together.
    And in the last minute and 30 seconds, I want Mr. Wiacek to 
continue on--with his conversation on how this affects all 
businesses across America, and what your solutions are. Just 
list them right off, you know, 1 through 10. Whatever you have 
got, man, I am ready to write them down.
    And, you know, I don't know how we can say that companies 
are only paying six and seven percent. I am talking to 
companies that are paying 50 percent.
    Mr. Wiacek, please.
    Mr. WIACEK. So I appreciate, by the way, the competition 
between the international company that sits next to the local 
company, and what does the local restaurant pay versus the 
Burger King. But if we don't get the international side right, 
Burger King is going to not only be in Canada, it is going to 
be run by the Canadians, and you are still going to have the 
tax competition, because now the Canadian company is not taxed 
on its U.S. income, it is a territorial system, it is going to 
have a lower rate.
    And someone talked about the German--don't even pay the 
German tax. The German tax is only 15 percent, by the way. And 
our tax is 16 percent, even if we take into account all the 
planning or the so-called--so what is going to happen if we 
don't solve the international side is we are going to lose more 
and more of the companies. And then the company that is 
reducing its taxes isn't even American, it is a foreign company 
that sits next to your domestic company. So these things are 
very hard.
    And wow, in 12 seconds what would be my list of things that 
we should do? Can I follow up with a supplementary thing to you 
or something?
    Mr. REICHERT. Yes, you can.
    Mr. WIACEK. Because it is a very difficult topic.
    Mr. REICHERT. Please do, thank you. Thank you.
    Chairman BRADY. Thank you----
    Mr. REICHERT. Mr. Chairman, I yield back.
    Mr. WIACEK. But we do need to get on with it.
    Mr. THOMPSON. Thank you, Mr. Chairman, and thank you, 
witnesses, for being here.
    Could each one of you witnesses just tell me--do you 
believe that tax cuts, either international, domestic, or 
otherwise, tax cuts should be revenue-neutral? Just a yes or 
no.
    Ms. HANLON. I don't think they necessarily have to be.
    Mr. WIACEK. No.
    Mr. GRINBERG. I don't think corporate tax reform should be 
revenue-neutral, necessarily.
    Mr. KLEINBARD. I think that the United States needs more 
tax revenues than it is currently collecting. I think that the 
business tax system can be reformed in a revenue-neutral way to 
still be more efficient----
    Mr. THOMPSON. I am a little perplexed, because the idea 
that we would not push policy here that is revenue-neutral--at 
some point you have got to--you know, you have got to pay the 
piper. And I don't think it is good public policy to say we are 
going to do all this stuff and then, you know, somebody else 
figure out how to pay for it. Or, as one prominent Republican 
has been saying, ``We will let Mexico pay for it.'' It just 
doesn't work. You have got to pay the bills.
    Mr. Kleinbard, the chairman stated when he--in his opening 
remarks that there is all this U.S. money stranded overseas. 
And we have heard time and time again that it stifles 
investments in this country. Is that accurate? Are there 
examples of ways to still invest in this country, still pay 
dividends in this country, notwithstanding the fact that you 
have some of your capital invested overseas?
    Mr. KLEINBARD. Sure. It is not a great idea to have a 
system in which firms are encouraged just to keep large 
quantities of cash in their offshore subsidiaries. But the 
consequences of that have been vastly overstated.
    It is simply not the fact that that money is buried in a 
backyard in Zug. That money, to the extent that it is invested 
in dollar assets, is in the U.S. economy. As my example of 
Apple, which just borrowed $12 billion in the U.S. capital 
markets demonstrates, it is possible to get to the tax 
equivalent of a tax-free repatriation of those funds. The money 
can be invested anywhere in the United States, except the 
pockets of the shareholders of that company.
    So the idea that the money is trapped overseas is false. It 
is not a desirable tax system, there are inefficiencies, but it 
is not the case that we have the kind of trapped money that is 
sometimes described.
    Mr. THOMPSON. Thank you. I yield back, Mr. Chairman.
    Chairman BRADY. Thank you.
    Dr. Boustany, you are recognized.
    Mr. BOUSTANY. Thank you, Mr. Chairman. I am angry too. I 
want to express the same anger my colleague just expressed.
    This is an urgent problem. It is an urgent problem. We have 
to impart the urgency, not only to people in this room, but 
beyond, to the American people, as to what is happening to 
American business.
    Look, we throw around the terms ``EU,'' ``state aid,'' 
``inversions,'' ``OECD,'' ``BEPS,'' ``action items.'' We all 
know what those things mean, but people across this country 
don't have a clue. But I think they do understand what happens 
when a multinational U.S. company that started here and grew 
here leaves from middle America and goes to Dublin, or it goes 
to Tokyo. They understand that.
    What they don't understand are what are the second-order 
and third-order effects of that. What happens to the suppliers 
and the other companies, small businesses, LLCs, private 
companies, that are part of the supply chain? What happens 
beyond that to local establishments, whether they are 
restaurants or whatever?
    We need to make that case and impart that sense of urgency 
throughout this country, because American business is under 
assault. And it is not just American multinationals, it is all 
of American business. And we need to start talking in those 
terms. This tax code is broken.
    Now, we need data from you guys. So, Mr. Wiacek, I am just 
curious. Do we have any hard data on these second-order, third-
order, fourth-order effects in communities across this country 
as a result of what is happening with this very hostile 
environment that is leading to inversions at an alarming rate, 
and leading to mergers and acquisitions where U.S. companies 
are leaving or they can't compete?
    What are those second-order, third-order, fourth-order 
effects? How does it affect the local hospital, the--you know, 
a real estate agency? We need that data. Is there data 
available?
    Mr. WIACEK. All right, so let us get it to you. There is 
such data, and there is data that is even more neutral, not 
what happens when the company leaves, or whether you fight the 
inversion fight, or why they left, or--but just what a Procter 
and Gamble means for Ohio. And you can just trace that through 
every supplier and every restaurant, and how much revenue comes 
from the tax imposed on the wages of the employees.
    And you know, a lot of you represent districts that have a 
city like the size of Akron or the size of Cincinnati or 
something. Just think what happens if you don't have that 
company. That is why I started with St. Louis. I mean the parks 
of St. Louis, the ball fields of St. Louis, all this stuff that 
the Busch family has done for that city--I am sure they will 
still be generous, but it is different.
    But you are right, I came up with----
    Mr. BOUSTANY. Our committee needs that data.
    Mr. WIACEK. Need data.
    Mr. BOUSTANY. We have to all go out and make that case. It 
is not just us on this dais here, or you guys. It is everybody 
out there. We have to make that case about this urgency.
    And I am sick and tired of the punitive measures being 
promoted on the other side against American business. We have 
capital that is locked out of here. Yes, they are doing it to 
get lower tax rates. Tax competition is real, it is part of 
economic competition. We have to win for the American worker, 
for the American people. It is time to act now. I yield back.
    Chairman BRADY. Thank you.
    Mr. Blumenauer, you are recognized.
    Mr. BLUMENAUER. Thank you. But I think it is important for 
us to think about how we act now, and for whom we act. There is 
no question that our broken corporate tax system has some--I 
represent some people--I don't know 50 percent that Mr. 
Reichert is talking about, but I represent some people who pay 
nearly the full statutory rate. They do business here, they 
manufacture here, they have assets. But that is not the 
average, and there are wild exceptions where people take 
advantage of it.
    I loved the article in the New York Times this weekend 
about Wales, where the local businesses started to say, ``We 
are not going to take it any more.'' The Starbucks pays no tax 
to the Great Britain. They finally were shamed into voluntarily 
coughing up a few hundred million, after having billions of 
dollars through these techniques that are legal, sort of. But 
the long-term impact for the people in that village is that 
they are paying the price in Great Britain.
    This is not just something that is a concern of people on 
this Committee. There are problems of equity throughout the 
developed world, where people are concerned about stateless 
income, they are concerned about a lack of equity.
    One of the things--to my friend from Louisiana--that we 
ought to do, we ought to have full transparency. It shouldn't 
be so hard to know what rates corporations are actually paying. 
It shouldn't be some proprietary secret about the double Dutch 
whatever it is that enables them to park huge amounts of 
corporate profits in a handful of jurisdictions where they 
don't really do business. Let's be transparent. Let's find out 
where the money is made, what amount is paid, and allow this 
Committee and the American public to make some judgements.
    Now, I don't think we are going to have massive corporate 
reform on a--by--without making it revenue-neutral. We are 
going to need probably another revenue source. All these 
countries you are talking about that have different corporate 
systems have a value-added tax. Ted Cruz notwithstanding, I 
don't think we are going to have a national sales tax here any 
time soon. Part of the solution is a carbon tax to help buy 
this down. But part of it is transparency now, understanding 
how it works.
    Part of the system is for us to stop making the code more 
complex, and dealing with little ancillary questions. Rather 
than looking at impacts for the people we represent, look at 
how we are going to pay the bill. Looking at other mechanisms 
to provide the resources Americans need, and to do so in a way 
that is simpler and less convoluted. And I think it would start 
with a little transparency that maybe we can help promote. 
Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Roskam.
    Mr. ROSKAM. Mr. Chairman, you have convened a really 
interesting discussion today. And if you step back and just 
listen to it, there are some themes. And the one theme is 
nobody is defending the status quo. There is no voice here on 
the dais among the witnesses--nobody is saying, ``Oh, it is 
great, just leave it alone.'' That is really interesting. 
Everybody is communicating a sense of urgency about this.
    I am from suburban Chicago. I get in and out a lot of 
companies in my district. And not unlike the Detroit 
situation--Chicago is not Detroit, thanks be to God, but there 
is a lot of issues as it relates to tool and die manufacturers, 
precision tool manufacturers that are selling into these other 
markets, and it really does matter where worldwide American 
headquarters are doing business, and so forth.
    And so, I think, you know, some of the differences between 
us--some friends on the other side of the aisle will ascribe a 
bad motive to a worldwide American company. We tend not to 
ascribe the bad motive. But, you know, when it comes down to 
it, who cares? They are either staying or they are leaving. 
They are sort of doing a jail break like Walgreen's tried to 
do. They would have done it, if they could have done it, but 
they were under so much pressure and they have so much federal 
business in their drug stuff, they couldn't do it. But if they 
were some other company, they would have been gone right now.
    So, Ms. Hanlon, question for you. You sort of mentioned 
this interplay between the inversion discussion, the tax rate 
discussion. Can you just educate us here on how those things 
play out together? They are not the same thing. How would you 
counsel us, moving forward? And what would be a couple of 
steps, if we were to gather around to try and move forward 
quickly? What would you counsel us?
    Ms. HANLON. Again, I think the number-one thing that, 
again, all of us agree on this panel is to reduce the corporate 
statutory tax rate. And it matters. The evidence in the 
academic research is very clear. That statutory tax rate 
matters. So I think the number-one thing to do is get that rate 
down.
    Then, I think, consider some version of a territorial tax 
system. If you want to think more broadly, a consumption tax or 
some of the other options available to us are also worthwhile 
things to think about and may have a lot of benefits. But the--
again, the number-one thing to do, if you want to act quickly, 
is to get that corporate tax rate down and reduce the pressure 
on the U.S. companies.
    Chairman BRADY. Thank you. To balance out the questioning, 
we will be going to two-to-one in the questioning.
    So, Dr. Price, you are recognized. Then we will----
    Mr. PRICE. Thank you, Mr. Chairman. I too want to thank the 
witnesses for their testimony and, Mr. Wiacek, for your clear 
passion on this issue. What you demonstrate is that these 
issues are real to people, they affect real folks in real 
communities and our constituents across this great land.
    Mr. Chairman, I don't know if you noticed, but there was an 
earthquake that happened in this room about a half-an-hour ago 
or 20 minutes ago. It is when Dr. McDermott said, ``If you 
lower the tax rate enough you will draw a lot of stuff in.'' 
That is a great recognition of what needs to happen. We need to 
be drawing folks in, we need to be encouraging folks to start 
businesses and expand businesses. And I just appreciate the 
fact that--my friend on the other side of the aisle recognizing 
that we need to lower the tax rate enough.
    Some folks have even been candid on the other side. One 
said, ``More tax revenue than currently collecting'' is what we 
need. It is important for people to appreciate we collect more 
revenue to the Federal Government now than ever in the history 
of the country. Ever. This is the greatest amount of money that 
has ever been collected by the Federal Government.
    So we can collect more, and the way you do that is through 
growth. And what we have done in our economy is actually 
decrease growth. Our growth rate is now 30 percent to 35 
percent lower than it has been in the history of the country.
    And then you got some peculiar comments on the other side: 
``We will force them to do it. We will stop those inversions 
because we will force those companies to not invert.'' Well, 
there is a good way to promote a commonality of theme with the 
business community.
    Mr. Wiacek, I want to touch on--I am going to get wonky 
here for a second on the BEPS project, the base erosion of 
profit shifting. This appears to me to be a revenue grab by 
foreign countries of American companies. And one of the ways 
they are going to do that is to require that this ``sensitive 
company data,'' that has been belittled by another member of 
the panel, will be required to be given to the countries.
    I ask you. Is--what are the examples of this sensitive 
data? What data are they seeking? And what should the United 
States Government be doing to protect United States companies 
doing business overseas to make it so that they don't have to 
give away this kind of information that would make them non-
competitive?
    Mr. WIACEK. Well, in fairness to BEPS, I think it starts 
with a good motive, which is the motive we all have here, which 
is to admit the system is broken, and not just here, but across 
the world. The reason the system is broken is there is not a 
level playing field, and the systems aren't working well 
together.
    We wouldn't need to lower the 35 percent rate if this 
Committee or this Congress could ensure that everybody else was 
paying it. So we could get 35 percent from Pfizer if Britain 
gets 35 percent from Glaxo. We could get 35 percent from 
Microsoft if Germany would get 35 percent from SAP. But when 
that is not what is happening, they are eating our lunch.
    So BEPS was kind of a think tank, do-good effort to fix 
this. And in a lot of ways, it is fixing it. But the view in 
Europe of what is the right fix is not always in our interest.
    Now, you talk about the----
    Mr. PRICE. I will follow up with you.
    Mr. WIACEK. I am sorry.
    Mr. PRICE. Thank you.
    Chairman BRADY. Thank you, Mr. Wiacek, Dr. Price.
    Mr. Kind, you are recognized.
    Mr. KIND. Thank you, Mr. Chairman. Mr. Chairman, the 
complexity of this topic, I think, really does call for 
additional hearings. So hopefully, we will take some time to 
walk through all this. But we appreciate the testimony that we 
are hearing today.
    Let me just ask all of you on the panel just a simple 
proposition on whether or not, no matter what we end up doing, 
if anything, on international tax reform, it should at least be 
revenue-neutral.
    And the reason I say that is because I asked the 
Congressional Budget Office to get me some numbers recently. If 
we had paid for the extension of the Bush tax cuts a few years 
ago, and if we had paid for the tax package that was reported 
out last December, our budget deficit this year would be $34 
billion, not $544 billion, as it is. And there is a propensity 
around this place to enact tax reform without paying for it. 
And that makes it very difficult, addressing the aging 
population that we have in this country today.
    So let's just go right down the line. And I would like to 
hear each of your opinion on whether or not we should be paying 
for any changes in the international tax code.
    Ms. HANLON. There's ways that you could pay for it or cover 
the cost, but I don't think the reform necessarily needs to be 
revenue-neutral.
    Mr. KIND. Okay.
    Mr. WIACEK. I think, if you have the courage or the will or 
the way to raise additional money, that would be good. But if 
the great becomes the enemy of the good while BEPS proceeds and 
the rest of the world proceeds without us, and state aid 
proceeds, and our companies are leaving or something, that is a 
problem. Because we can wait around for a long time to get this 
right.
    And the fact of the matter is, on international taxation, 
you folks are not in control. This is multilateral. This--my 
main message: this is happening without you.
    Mr. KIND. All right. So you are kind of fudging on that. I 
understand the complexity----
    Mr. WIACEK. Well, okay. I didn't mean it to be a fudge, I 
meant it to be an answer.
    Mr. GRINBERG. So I worry a lot about opportunity for future 
generations. And for that reason, because I think the real 
consequences to not acting, I believe in revenue-losing 
corporate tax reform. And I think you can get the revenue other 
places.
    I think that there are lots of opportunities--if you need 
to get revenue, why would you do it here? Even the OECD, you 
know, says that the corporate tax is the least pro-growth tax 
out there, it is the most damaging tax that exists. They, in 
fact, recommend and note that every country--every other 
country is going towards a consumption tax.
    So, you know, we should think about doing some--if we need 
revenue, not from this spot----
    Mr. KIND. Mr. Kleinbard.
    Mr. KLEINBARD. We need revenue. Business tax reform should 
be revenue-neutral within business tax reform. There is plenty 
of revenue within business tax reform to do it in a revenue-
neutral way. And the United States today is the lowest-taxed 
major economy in the world. The lowest-taxed major economy in 
the world.
    Mr. KIND. All right, thank you. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you. And, Mr. Kind, just to clarify 
from my standpoint, what I believe is that within dynamic, 
real-life scoring, overall tax reform can be revenue-neutral. 
But we are not going to leave growth on the table if we are off 
a dime a two. We are looking for jobs, we are looking for 
opportunity. We are looking to leapfrog and go to the lead pack 
of where our competitors are at.
    Mr. Smith, you are recognized.
    Mr. SMITH of Nebraska. Thank you, Mr. Chairman. And thank 
you for the opportunity to have a dialogue here.
    I will say that sometimes it can be a little frustrating, 
hearing some of the pessimism and why not to do something, and 
when we know that we have got an incredible problem with our 
current tax code. And I want to do what I can to move the ball 
down the field. And I think the importance of international tax 
reform is incredibly high.
    Regardless of the fact that a lot of folks in my district, 
you know, they pay under the individual rate, many will face a 
tax rate as high as 47.9 percent. So we can hear about some of 
the single-digit effective tax rates and--or maybe even zero 
effective tax rate. But we need to do our job in addressing the 
problems that we know exist. And I would hope that, as we move 
the ball down the field, that we can actually help even small 
businesses through the corporate tax reform, international tax 
reform, and those items that any reasonable person would 
acknowledge need some correction.
    Can any of you elaborate on how perhaps a small business, 
who does pay through the individual rate, individual code, 
would benefit from international tax reform? Go ahead, Ms. 
Hanlon.
    Ms. HANLON. You know, first, I guess I would like to 
clarify a couple things. It is very common for people to say, 
``Oh, individuals pay the 39 percent rate.'' But the IRS 
statistics would tell you that most of the evasion happens at 
the individual level, and for cash-basis small businesses. So 
it gets a little tiring to me to hear us all going after 
multinational corporations when the data actually would tell 
you that the tax evasion is stronger on the individual side, 
and for cash-basis small businesses. It is not like they are 
all paying the 39 percent rate.
    Sorry, what was your question, again?
    Mr. SMITH of Nebraska. That is okay. And in terms of 
positive impact on small businesses, but----
    Ms. HANLON. Oh, yes. I think we have heard a lot about 
that. There is--it affects jobs, it affects all of us.
    Mr. SMITH of Nebraska. Mr. Grinberg.
    Mr. GRINBERG. So, you know, I think you are right to worry 
about Main Street. Still the largest producer of jobs in the 
United States. The thing about Main Street is it often supplies 
corporate America, and that is important.
    As you think--if you think really broadly, if you go to a 
system that goes all the way towards moving away from, you 
know, income taxation as the base, there are real advantages 
for small business, too, of consumption taxation.
    Mr. SMITH of Nebraska. Thank you. Thank you, Mr. Chairman. 
I yield back.
    Chairman BRADY. Thank you.
    Mr. Paulsen.
    Mr. PAULSEN. Thank you, Mr. Chairman. And just to follow up 
a little bit on that, you know, a lot of time when we have a 
conversation on this issue it is always being focused on the 
larger American job creators that are often the target, right, 
of these foreign takeovers, or that are forced to relocate 
their headquarters, just so they can remain competitive. And 
what often gets lost in that conversation, though, is the Main 
Street businesses, and that concept, and the ripple effect, the 
cascading effect.
    And I am glad that we had some testimony--Mr. Wiacek, you 
mentioned it, you have that in the written testimony, as well--
the effect that these takeovers and these acquisitions have on 
the small business community that either supply those large 
companies, or they provide goods and services to their 
employees.
    And, you know, for me--and Minnesota has had some instances 
of the inversion issue--but consider, as an example, I mean, if 
you have a Minnesotan who loses her job when a company is 
actually forced to move their headquarters to another country 
because they have a lower corporate tax rate, more competitive 
international tax system, just because she ends up not going to 
work for the day, she is not going to stop on her way 
necessarily to the local Dunn Brothers coffee shop to get her 
coffee and her muffin. That might be a $5 expenditure.
    She may not be stopping after work to pick up her dry 
cleaning at the Pilgrim Dry Cleaners. So that might be $25 
right there, at the local dry cleaners. She is probably not 
going to be picking up her children from the New Horizon Day 
Care facility, which in Minnesota could be about $60, $64 a 
day. And then she may not be dropping off her husband to pick 
up the car that was left for an oil change overnight at Bobby 
and Steve's Auto World. And that could be $40.
    And then, finally, maybe on the way home she is not going 
to stop at the Cub Foods to purchase extra groceries that would 
be used either for dinner--or they may not be going out to 
dinner for $20.
    So you add up that money, and it is about $154, maybe just 
in that one day, you know, a very busy day. And, obviously, if 
you are to spread those activities out, even over the course of 
a few days, and then multiply it by hundreds of other employees 
that may be negatively impacted by losing their job from a 
large headquartered company, we are talking about lots of other 
Main Street Minnesota small businesses in the supply chain 
missing out on hundreds of thousands of dollars every week.
    And even in an economy like Minnesota, that is actually 
doing pretty well. This would be a really big hit. And while 
this is only a hypothetical example, I think the whole issue of 
inversions and acquisitions and companies relocating overseas 
is very real, and your testimony absolutely describes that.
    You know, you think about 51 U.S. or American companies 
moving or being reincorporated outside the United States since 
1982, but 20 of those have happened just since 2012. We have 
had three more announcements just in the first month of this 
year. And our tax code has not kept pace with the modern 
economy. So it not only about keeping the headquarters that 
provide these good-paying jobs, but for me it is about the Dunn 
Brothers, the Bobby's--and Steve Auto World, and others that 
rarely come up in these conversations that I think we need to 
focus on and keep the attention on.
    So I want to compliment the chairman for the hearing, and 
make sure we don't leave job growth on the table as we move 
forward. And thank you for your testimony today.
    Chairman BRADY. Thank you.
    Mr. Pascrell, you are recognized.
    Mr. PASCRELL. Thank you, Mr. Chairman. Thank the panelists, 
each and every one of them.
    Mr. Kleinbard, you wrote an article in 2014 in the special 
report on tax notes which I find very intriguing, because it 
really contradicts a lot of what I have heard today, not from 
you, but from other panelists, concerning competitiveness.
    So, in other words, this whole thing could be summed up, 
this discussion about whether we want to make Americans able to 
fit into a competitive system, is if those of us who question 
the direction we are going in, we don't want competitiveness, 
we don't want our businesses to compete, which is false, which 
is false.
    You pointed out in that article very decisively--in fact, 
you used an example--what happened in 2013 to the Mylan 
Company, M-y-l-a-n. You derived about--that company derived 
about 57 percent of its worldwide revenues--essentially, gross 
receipts--from the United States. Yet, as--told investors that 
its worldwide effective tax rate was 16.2 percent. That is 
interesting. I find that interesting.
    So, if it had faithfully complied with the SEC rulings that 
it identify its tax footnote, the United States tax cost of 
repatriating its offshore cash, but they didn't do it [sic]. 
They didn't do it.
    So, I agree, competitiveness has nothing to do with what we 
are talking about. Working Americans across the country do not 
have the benefit of hiring consultants and shifting their 
earned income and assets around the world to find the lowest 
tax rate. That is what we are talking about, no matter how you 
slice it. Yet many multinational corporations do just that. And 
we are aiding and abetting this behavior with our lack of 
action on an outdated and overly complex tax code.
    And when that happens, here is what happens. Like if I 
don't pay my taxes, my property taxes, regardless of what--
every state is different. In Patterson, New Jersey, and the 
next guy down the block doesn't pay his property taxes, or 
there is foreclosures and people can't pay their taxes, 
somebody has got to pick up the slack. And that is what we are 
talking about here.
    So you could put it any way you want, about how this 
present system, which we all agree should be changed, needs to 
change in order to benefit corporations. I want you to know 
that this is a very important bottom line that we are talking 
about.
    And I would ask you the question--not going to have a 
chance to answer it--you pointed out that the international 
reform is needed, but that today a good portion of our tax 
revenue is flowing out of the United States. So discretionary 
spending has fallen to its lowest level since 1940. Here is 
what we are trying to do, Mr. Chairman.
    Chairman BRADY. Quickly.
    Mr. PASCRELL. Thank you for your indulgence.
    Chairman BRADY. Sure.
    Mr. PASCRELL. Here is what we are trying to do. We are 
trying to squeeze that discretionary money even further by 
making cuts here and cuts there, and trying to communicate to 
the American public, mind you, that the problem is that our 
corporations can't compete because of the tax system. And that 
is not the basis of the problem.
    Chairman BRADY. Thank you, Mr. Pascrell.
    Mr. Marchant, you are recognized.
    Mr. PASCRELL. You are welcome.
    Mr. MARCHANT. Thank you, Mr. Chairman. I represent a 
district that has a lot of multinational corporations, but a 
lot of very large corporations that operate in the United 
States. When I visit with them, this whole issue about tax 
reform is beginning to be a very sensitive subject because they 
have shareholders. Their shareholders are intelligent 
shareholders. They have boards of directors. They have hired 
very high-powered law firms and very good tax counsel. And in 
every case they are being told by all four of those levels that 
they need to do something about their taxes to either maintain 
profits or to enhance profits. That is, by the way, the job of 
the CEO, the CFO, the board, for shareholders.
    So, we as a Congress owe it to the businesses of the United 
States to either simplify the tax code or lower the tax rate, 
where they do not have this constant internal conflict going on 
inside of their board rooms.
    And people think, well, these are big corporations. Why 
should we feel sorry for them? Well, because they are a 
representative of the shareholders. They are broadly held. And 
I don't believe--I believe that the pressure on these companies 
is going to increase daily. And all of the Wall Street Journal, 
all of the stories, all they are going to do is begin to apply 
an additional layer of pressure.
    So I don't think we have just years to ponder this and 
think about it. I think that just because of the way our system 
is set up, we must act. Will it be revenue-neutral? It 
certainly has to take a strong factor of growth into it.
    As far as the money overseas--and I found Mr. Kleinbard's 
answer correct--these companies can access that money, 
basically, by going to the capital markets over here, or the 
bond market, and paying that. But that in itself is reducing 
the revenue to the Treasury, because they are then having to 
pay interest on that, which is then deductible, and it lowers 
their bottom line. And, in fact, the profits of those 
corporations are being penalized.
    So, in my view, we don't have, you know--we don't have a 
long time to ponder this. We have got to determine an effective 
way for those corporations to get the money back here, 
effectively. And we have got to figure out a way for our 
presidents and directors of these corporations to walk into 
their board rooms and say to their shareholders and directors, 
``No, we need to stay here, here is how we can do it,'' and not 
invert. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mrs. Black, you are recognized.
    Mrs. BLACK. Thank you, Mr. Chairman. I appreciate the panel 
being here today. This is such an important conversation that 
we absolutely have to have. And I know that some may say these 
hearings aren't worthwhile, but I will say for me they are very 
worthwhile. And I know they are for the people here in this 
audience and those that are watching, as well.
    So, Professor Grinberg, I want to go to you, because in 
your testimony you specifically mention how continuing to make 
these mistakes in the global tax environment will be extremely 
costly, in terms of employment and opportunity, and especially 
for those younger generations.
    I hear from the younger folks in my district all the time 
how difficult it is to find a job, or how few opportunities 
they have. And if we continue down this path of preventing our 
U.S. companies from competing globally, how will this impact, 
not just today, in what I am hearing from the younger 
generation, but also looking out--my grandchildren and even my 
children, but my--more importantly, my grandchildren 10 years 
or 20 years down the road.
    Can you just look out and tell me what you think this is 
going to look like, if we continue down this road without 
making any changes?
    Mr. GRINBERG. Thank you, Congresswoman. It is an important 
question. The international tax environment is changing very 
rapidly. And I believe that the BEPS project will succeed, at 
least in requiring that in order to shift income to lower tax 
jurisdictions you must also shift jobs into that jurisdiction.
    And as many people on both sides of this aisle have said 
and acknowledged, you know, we don't blame corporations for 
trying to get to a lower rate. And so, what will happen, unless 
we act to produce a competitive system that leapfrogs us at 
least to the middle of the pack, is that over time there will 
be corporations that migrate offshore, or incorporate offshore 
to start. And more and more of their high-skilled, high-quality 
opportunities will be staffed abroad, as they have headquarters 
abroad and as the leadership of those companies just make 
decisions about where they want to have, you know, small and 
medium business suppliers, for example. They will be in Europe, 
not in the United States.
    And, as a result, I really do fear that there will be fewer 
opportunities for younger people in the U.S. That will be a 
slow process. It is not like something that happens overnight. 
But if you think out a ways, you have to hope that the United 
States can move to a competitive system so as to make sure 
that, you know, future generations have the kind of 
opportunities that prior generations have had.
    Mrs. BLACK. And I know my time is going to run out, I have 
eight seconds left. This not only goes to jobs, but it also 
goes to growing our economy, and where we are with $19 trillion 
in debt. And if we don't have jobs and we don't have the 
economy moving along, we are going to sink.
    So thank you so much for being here today, and I appreciate 
the opportunity to ask you that question.
    Chairman BRADY. Thank you. Mr. Davis, you are recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman.
    Professor Kleinbard, I represent downtown Chicago. So it is 
obvious that I have a number of multinational corporations. My 
question and my interest and my issue--how do I keep them--help 
keep them competitive with their global competition, and yet 
exact from them a fair share of the cost of doing business that 
will help to keep our economy solvent and growing? I think that 
is also the question Mr. Pascrell was really asking--you didn't 
get a chance to answer.
    Mr. KLEINBARD. First step is lower the domestic U.S. 
corporate tax rate. If you think that people in your various 
districts are overburdened by taxes, first step is to lower the 
domestic corporate tax rate. We all agree on that. The second 
step is to protect the corporate tax base so that foreign 
companies can't strip income out and enjoy a low-tax paradise 
inside the United States available only to them.
    People are not inverting because of the headline tax rates. 
Companies today invert for two reasons only: one is to get 
their hands on the offshore cash, tax free; the other is to set 
up the earnings stripping game, so that they can turn the 
United States of America, domestic income, into tax haven 
income. Those are easily fixed. Those last two points are 
easily remedied. Those, in turn, protect the base from 
depredation. Then, going forward, you want a medium rate, U.S. 
tax, with fewer tax expenditures, with fewer special deals.
    Right now we have--through accelerated depreciation we 
actually end up paying U.S. companies to make investment in 
capital equipment when that equipment is debt-financed. We need 
to, therefore, have fewer tax expenditures. We need to scale 
back interest deductions to make the system more neutral, and 
we have to reduce the rate. And then the United States of 
America is the competitive environment.
    What the Congress needs to focus on is what Congress can 
control, which is the business environment in which Americans 
operate. And it is very odd to me that in this hearing we talk 
so much about the poor little multinationals and not nearly 
enough about what to do domestically for American companies and 
American citizens.
    Mr. DAVIS. Thank you very much. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you. Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman, and thank you to our 
panelists.
    Echoing on that comment, as I go into this, obviously, the 
focus of this hearing is talking about the corporate 
international tax reform. So I share the concerns of making 
sure that, when we talk about our pass-throughs and our 
individuals, I think there is a commonality across the aisle 
here that the tax code is broken for everybody. But what we are 
talking about today is international competitiveness, and how 
we are going to potentially take on this issue, going forward. 
So I want to make a note that I am committed to making sure 
that we stand with the individual tax reform, also.
    Also, no one has talked about--this has been 30 years, 
essentially, since the last time we did tax reform. So if what 
we are trying to do here today is to get to the middle of the 
pack, to catch up to other folks, are we going to get to the 
middle of the pack and then have to wait 30 years to become way 
behind in order to catch up again? Are we going to be that 
nimble, as you said, Mr. Grinberg, that the environment 
internationally is happening rapidly, it is changing rapidly?
    So my real question to you is give me your best 
recommendation as to how we get ahead of the pack, how we make 
the American market competitive. And I am going to focus first 
of all, Mr. Grinberg, on Mr. Wiacek and Ms. Hanlon, because Mr. 
Wiacek is a practitioner. He is talking to the people in the 
field.
    What is it that would put us ahead of the pack, and 
potentially keep us at the head of the pack for competitiveness 
for the next 20 to 30 years? Because, God forbid, we are not 
going to get to reform for another 30, 25 years down the road. 
Mr. Wiacek.
    Mr. WIACEK. Well, if we want to have a real revolution 
here, the corporate income tax is just a bad way to raise 
money, or to contribute to the fisc. And if we really wanted to 
unleash American business domestically and internationally, we 
might consider eliminating the corporate income tax.
    Now, that is just not going to happen, and you would, 
obviously, need to still have discretionary spending, and still 
take care of everybody, and you might have to replace it with a 
VAT or some other form of consumption tax----
    Mr. REED. So a consumption-based tax. Ms. Hanlon.
    Ms. HANLON. I mean I think I agree with this, and with the 
statements we have already said, in a sense, is there are a lot 
of things we could consider and a lot of things we could do 
that are bigger than just reforming the corporate tax system 
that we have today.
    And I think the statements that were made before, that the 
corporate tax system--corporate taxes, in general, are bad for 
growth, is true.
    Mr. REED. Because this is my concern. If we are not going 
to think big--we are here to think big. I came here to 
Washington to fix problems. I came here to move the needle. And 
if all we are going to do is go to the middle of the pack, how 
much complexity, how much danger is there that, if we do this, 
and then all of a sudden the system reacts to it, how much 
loss--how efficient is that?
    If we are going to go big, why don't we go big and get it 
done, as opposed to go to the middle of the pack, everyone 
adjust, everyone gets more advice, creates different shelters, 
different structures? Why would we do that? That doesn't seem 
to make sense to me.
    Does anybody understand? Can anyone defend that situation?
    Mr. WIACEK. No, and you know that that is not what the rest 
of the countries are doing. So we keep looking for ways to get 
to the middle, or get money from the corporate income tax, and 
the rest of the world is not using the corporate income tax. So 
we are always going to be disadvantaged, even with a lower 
rate.
    Mr. REED. Appreciate it. With that, I yield back.
    Chairman BRADY. Thank you.
    Mr. Kelly.
    Mr. KELLY. Thank you, Chairman. Thank you all for being 
here.
    It is interesting. And, Mr. Wiacek, I agree with you. I 
remember the old Detroit. I remember Clark Avenue, when they 
were building Cadillacs up there. I know Akron very well. I 
also know Butler, Pennsylvania, Eerie, Pennsylvania, where you 
see all these areas where we had great companies that are now 
nothing but rusting.
    But I want to get to something that is really important, 
because I think what we talk about--we all agree, and I agree 
with Mr. Rangel--and I am only going to have three minutes to 
address this with you?
    But seriously, I mean, we all agree on the same thing. But 
unfortunately, we are not able to fix it. And so it is the old 
story of while Nero fiddled while Rome burned. And it is to the 
point now where--there is an old saying. When you are up to 
your rear end in alligators, that is not the time to worry 
about who was supposed to drain the swamp. The answer was we 
were.
    So, addressing these things, there is three things, there 
are three factors, I think, that--why companies invert, or they 
are foreign takeover targets. The first is a lock-out effect. 
The second is anti-competitive effect of U.S. statutory rates 
versus world rates. And the third is the ability for foreign-
owned firms to strip the U.S. base. So, as we look at all 
these, if you don't do them all together--because it is a two-
sided coin--there is no answer to his.
    And I would just tell you in my business, the automobile 
business, you either pivot or you perish. You either understand 
that you live in a global, competitive nature, or you are not 
going to be part of it any more.
    So, absent of fixing all of it, do any of you see 
anything--it is not any one thing, is it? It is a number of 
things we have to fix. Is there any who want to weigh in? Does 
anybody agree that just--if we just fix this inversion thing, 
and if we really beat the living daylights out of these guys 
that want to jump ship, we are going to keep them home?
    Mr. GRINBERG. Okay, so--thank you, Congressman. I mean my 
view--when I teach about the inversion rules and talk about 
proposals about them, I call them the Hotel California rules: 
you can check out, but you can never leave. And the problem 
with imposing those kinds of rules is that eventually no one 
new checks in. And also, you know, if the rule is that you have 
to be fully taken over by a foreign firm in order to check out, 
and you are in the Hotel California, that is what you will do.
    And so, I think that is the difficulty with just focusing 
on inversions and not addressing the broader problems that 
exist in the system by moving to a modern, competitive system 
that puts us in a position to compete with the rest of the 
world.
    Mr. WIACEK. I think, as I said--and my testimony doesn't 
mention inversions--I think inversions has unfairly stolen the 
debate. I testified about companies that are just taken over 
with no tax planning for competitive reasons. This is about 
competition. And, as I said, if you pick up the Wall Street 
Journal, there is a Chinese company buying an American division 
every day. It has nothing to do with inversions.
    So don't let diversions [sic] steal the debate. They are 
just the tip of the iceberg. And we are losing jobs and 
companies every day because we are not competitive. And it is--
and that is what it is.
    Mr. KELLY. I want to stay in touch with you, because you 
all have great ideas.
    Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Ms. Sanchez, you are recognized.
    Ms. SANCHEZ. Thank you, Mr. Chairman, and to our witnesses 
for joining us here today. While I think that this hearing is 
important, and it is providing us a chance to delve deeply into 
some very timely tax issues, I would be remiss if I didn't 
start my time by urging the committee to take up true 
comprehensive tax reform, rather than just walling off the 
international piece.
    And that is not to say that many of the issues that have 
been discussed today aren't important. Things like base 
erosion, inversions, and a generally outdated system, those are 
all very important. But you can't do the international piece 
without--in a vacuum, because a tax code is like a spider web: 
If you tinker with one part of it, it has ripple effects 
throughout the whole.
    Mr. Kleinbard, in your written testimony you discuss the 
relative relevance of the U.S. statutory corporate tax rate for 
multinationals versus the impact the rate has on purely 
domestic companies. And you started to discuss that a little 
bit with Mr. Davis's question. But I would like to push on this 
a little bit.
    In your written submission you state that corporate tax 
rates inside the United States should be our highest priority, 
and that a lower domestic rate reduces, to some extent, the 
long-term attractiveness of inversions or stateless income 
planning.
    I agree that competitiveness for all U.S. businesses is 
extremely important. But equally important, I think, is that 
fair playing field for domestic companies who also, we forget, 
employ workers and create jobs here in the United States--
domestic companies who, I might add, don't generally have the 
resources to take advantage of tax planning schemes in order to 
lower their effective tax rate. And I think it is important to 
distinguish between what is the statutory rate and what people 
actually pay as their tax rate.
    So, Mr. Kleinbard, if we are attempting to get as close to 
a level playing field for domestic companies as possible, would 
international-only reform be the correct route to take?
    Mr. KLEINBARD. Well, I think the answer to that is no. When 
international is understood the way it is being described here, 
which is fixating on the taxation of foreign direct investment 
by U.S. firms, that is half of international, much less all of 
business. The other half of international, again, is that the 
United States is the largest importer of foreign direct 
investment in the world.
    So if what you want is a level playing field, and you are 
going to insist that that be understood as meaning only 
international, well then, the United States is part of 
international. The United States is a source country, as well 
as a residence country. It is inbound, as well as outbound. 
Both parts really ought to be thought of.
    And things like the base erosion point, closing off 
earnings stripping, closing off the excessive interest 
deductibility, dealing with the so-called hopscotch loans that 
motivate inversions, those protect the domestic base so that 
there is a level playing field with wholly domestic 
competitors.
    Ms. SANCHEZ. Thank you very much. I yield back.
    Chairman BRADY. Thank you.
    Mr. Renacci.
    Mr. RENACCI. Thank you, Mr. Chairman, and I want to thank 
the witnesses.
    You know, Mr. Kleinbard, you had talked a little bit 
earlier about all these things we have to do, and then you 
ended by saying, ``and that is how we can be competitive.'' And 
I think the answer is that is the issue. These multinational 
companies are not competitive, which gets back to what Mr. 
Wiacek said earlier, that the only way we can be competitive is 
to be able to compete. If I had a business today, and I knew 
that I could move it and save 17 percent or 22 percent, that is 
a savings, especially when you are working on a small margin. 
That is why we have to become more competitive.
    You all have said we need to reduce rates. That is an easy 
answer. We could do that tomorrow. Here is the issue: We are 
not--this country just doesn't have C corporations, they have 
pass-throughs. So you just can't reduce rates on corporations 
when you have pass-throughs. So you would all agree that that 
is probably the stumbling point between just reducing rates.
    Mr. KLEINBARD. No. Sorry, I can't. And I also can't agree 
with the idea that international firms are not competitive. 
There is just no evidence, when Pfizer is paying worldwide cash 
tax at a rate of six-and-a-half percent, where is the 
competitiveness----
    Mr. RENACCI. Have you ever operated a business?
    Mr. KLEINBARD. Have I operated a business? Yes. I was one 
of the executive committee of my law firm at the old days. It 
is a billion-dollar business.
    Mr. RENACCI. I was in a business for almost 28 years. I can 
tell you that if I could save 14 percent or 22 percent, I----
    Mr. KLEINBARD. They are not saving it, that is the point. 
There is not, in fact, a cash tax savings----
    Mr. RENACCI. I don't want--with three minutes, I can't 
argue with you.
    I--go ahead, Mr. Grinberg.
    Mr. GRINBERG. I think you are right, that it is important 
to think about Main Street. And if you are kind of thinking 
about fundamental, comprehensive tax reform, and you want to 
leapfrog, then you need to find a way to address everyone's 
concerns. But if you go down that road, then I think you have 
to talk about very, very fundamental tax reform. That is why 
consumption tax looks attractive. A consumption tax looks 
attractive to Main Street, and it looks attractive to corporate 
America.
    Mr. RENACCI. One thing I do want to agree with, one of my 
colleagues talked about, you know, we have to get--make sure 
the American people understand this.
    I was thinking back, Mr. Wiacek, when you talked about 
Firestone. You know, Firestone, on March 18, 1988 the New York 
Times reported that Bridgestone acquired Firestone the night 
before. I live 15 miles away from that corporate facility, and 
I was a firefighter at that time, I was a businessman, I was a 
CPA, but I never really thought of the impact. Twenty-eight 
years later, I know what the impact is now.
    I don't know if there is any statistics you can bring to 
the table on Akron in specific, but Akron is a great case 
study, because we have seen what happens when a major 
corporation leaves the city, and what it does. So I only have 
23 seconds left, and I do want to move on to one other 
question.
    Mr. Grinberg, you also said that it is important to 
recognize that countries around the world are moving away from 
residence country taxation towards source country taxation. I 
agree with that, it shouldn't matter where the residence is, it 
should matter where the source of the income is. Can you just 
touch on that?
    Mr. GRINBERG. So in three seconds all I can say is I agree. 
And, you know, I think that is another issue that Congress 
should consider. Thanks.
    Chairman BRADY. Thank you very much.
    Mr. Meehan, you are recognized.
    Mr. MEEHAN. Here is the bottom line--and this is 
fascinating testimony, but I feel like, if I was in law school 
and I wrote the same paper, I would have two professors who 
would grade it completely differently. And that is one of the 
frustrations of this.
    Mr. Wiacek, you talked--the other thing that concerned me 
is the inequity of the playing field and what we are doing here 
in the country. You are suggesting that we have had American-
based businesses that have relied on opinions that have been 
given by other countries, they have made their calculations 
based on that, and now European countries and others are 
changing the rules halfway around the game. So how do we 
respond to that?
    But basically, the question is, I get asked by--I have a 
lot of pharmaceutical companies in my back yard. When they 
leave, and they go to another country, all of the things that 
you discussed are part of it, Mr. Wiacek. What do I tell them? 
When they say to me, ``What are you doing about it,'' what do I 
say? ``Here is the answer.''
    Mr. WIACEK. So that is why they voted for you instead of 
me. But, you know, if they all leave, you know, as you go up 
and down the Garden State Parkway you know it is pharmaceutical 
central and we are in big, big trouble if that happens.
    And you know, there has been this discussion that--there is 
a vilification of the pharmaceutical and the tech companies for 
not paying a 35 percent rate. Thank goodness. You know? The 35 
percent rate is not competitive. And Ed and everybody--
everybody has said we have to lower the rate. I don't think 
that is the only answer.
    Then we move on to what do we do about deficits, do we have 
consumption tax, what do we do--but just since a lot of them 
are in your district, there is nothing wrong with the planning 
they do, just as there was nothing wrong with getting a ruling 
from The Netherlands as to their business plans and what the 
tax effect would be in Europe about it.
    If we get 16 percent from them, which was the rate proposed 
from someone on the Democratic side, that is a competitive 
rate. That is where they should be. If you actually expect 
everybody--and you are really mad at them if they don't pay the 
35 percent rate--if they pay the 35 percent rate, they are 
toast. They are toast.
    Now, I understand that you have a local restaurant that 
pays the 35 percent rate, or a pass-through that pays the 35 
percent--and we have to--you know, we have to figure out how to 
do that. Heck, I pay 39.6. I work so hard for my clients I 
don't attend to my own taxes at all, and I just write the damn 
stuff and grit my teeth like every American.
    But we have got to make these companies competitive. And my 
consistent point is it is urgent, because everyone else is 
galloping forward and doing it anyway and already. BEPS is out 
of the barn.
    Source-based taxation isn't always the best idea. It is 
anti-American, because we are the resident country. We invent 
the stuff, we make the stuff, we sell the stuff. What source-
based taxation says, ``But I buy the stuff, and I would like to 
take a big piece of the revenue.'' And that is--that favors 
India and Brazil and Mexico and a lot of places that aren't us.
    Chairman BRADY. Thank you.
    Mr. Neal, you are recognized.
    Mr. NEAL. Thank you, Mr. Chairman. Ms. Hanlon, I know that 
you have taken an interest in innovation box pursuits. And Mr. 
Boustany and myself, we have focused a proposal on that whole 
notion of the innovation box. Would you care to comment, and 
then maybe Mr. Wiacek.
    And then I am going to have Mr. Kleinbard, whose book I 
feverishly read last summer and have been recommending widely 
to people, tell me why he disagrees with me.
    Ms. Hanlon.
    Mr. WIACEK. Do you want Ed to go first, or me, or----
    Mr. NEAL. No, no, you two go first. He is going to take 
the--he will do the clean-up spot for us.
    Mr. WIACEK. I am not a big fan of the innovation box or the 
patent box. I understand why it is there, or--it is a little 
bit, to me, a part of the debate of how much do you want to 
bite off at any one time. So it bites off the return to--and 
tries to be--if you are the UK and you put it in, you are not 
trying to attract all investment, you are trying to attract the 
investment that is most wealthy, most modern. You are trying to 
attract technology. That produces the most jobs.
    I would bite off more, and I would try to not do the patent 
box and fix international taxation. Other people here want to 
bite off the whole thing and fix all taxation. It is just kind 
of this step along the line for me----
    Mr. NEAL. Ms. Hanlon.
    Ms. HANLON. I think innovation boxes are, you know, 
possibly a good alternative.
    Again, though, I think we need to reduce the overall 
corporate tax rate. That would be the best thing we could do. 
If that is too politically difficult to do, then a patent box 
becomes even more appealing at that point.
    Mr. NEAL. Okay. Mr. Kleinbard.
    Mr. KLEINBARD. Mr. Neal, first, I appreciate your kind 
words about the book. And second, I----
    Mr. NEAL. It was--your book, by the way, was very 
reasonable. Entirely reasonable, when I----
    Mr. KLEINBARD. Completely inconsistent with my personality.
    [Laughter.]
    Mr. NEAL. Go ahead. Finish, please.
    Mr. KLEINBARD. So, you know, I hate to--ever to disagree 
with you, but I am not a fan of patent boxes. I do know that 
they will be job creators, but those jobs that they create--
that it creates will be entirely in the accounting profession, 
as people devote huge amounts of energy to squeezing all sorts 
of ordinary course business activity into the patent box.
    I wrote, you know, a paper using Starbucks as a case study 
called, ``Through a Latte Darkly.'' And in the paper what I 
discovered was that Starbucks pretends that its so-called 
Starbucks experience is a separate intangible that it can 
charge a license for. So when you start down the innovation box 
road you have that problem.
    You also have the problem that you are rewarding for past 
behavior. We have lots of incentives right now for R&D, like 
the R&D credit, like the deductability of R&D expenses. I think 
that those make sense, those ought to be the focus, not the 
reward for past behavior that the innovation box offers.
    Mr. NEAL. I think my time has expired.
    Chairman BRADY. It has. Mr. Holding, you are recognized.
    Mr. HOLDING. Thank you, Mr. Chairman. It is pretty clear 
from this hearing that our foreign rivals aren't stupid, and 
they have taken steps to attract business, innovation, 
implementing territorial tax system, lowering corporate rates, 
and aggressive IP regimes, including innovation boxes and 
research credits. So all of this serves to show how broken our 
own system--everything that they are doing highlights a broken 
part of our own system. And it is my concern, if we don't do 
something now, it is the American worker that is going to pay 
for this.
    Professor Hanlon, in your testimony you discussed, as we 
have said, the implementation of innovation or patent boxes by 
a number of foreign countries. And then, highlighting this, you 
touched on a concern of mine with this proposal, which is the 
OECD's nexus requirement.
    So innovation and research is, especially in the life 
sciences, very important in North Carolina, and the fact that 
the life science sector in North Carolina accounts for about 
$73 billion in economic activity and employs about 66,000 
people across North Carolina. So these are the high-paying, 
high-value jobs that are making North Carolina a leader in 
innovative research.
    So, Professor Hanlon, could you please describe how the 
OECD's nexus requirement, in conjunction with the 
implementation of foreign patent box regimes, could affect 
research and development activities as well as jobs here in the 
U.S.? And if you see any steps that Congress could take to 
encourage and attract companies to conduct research and 
development here.
    Ms. HANLON. Sure. I think it is a good question. The OECD 
BEPS requirement for nexus basically will require companies to 
have economic activity--meaning R&D, generally--in the 
jurisdiction or in the entity that is going to get the benefits 
of the innovation box.
    So it is a risk, in the sense if we don't do anything we 
will plausibly lose R&D jobs. Not just the income from the 
patents going forward, but actual R&D jobs will have to move 
offshore. And I think that is a big risk----
    Mr. HOLDING. Because they are complying with OECD BEPS.
    Ms. HANLON. Yes, yes. And so that is a big risk. I think 
there is a lot of things we could do, a wide array of things. 
Increase the R&D credit. I think making it permanent was a 
great step, but we could increase those incentives. We could--
you know, the government could give more grants, we could do an 
innovation box. There is lots of things at our disposal that we 
could think about doing. But it is a risk, I think, if we don't 
do anything--we don't reduce the corporate tax rate, we don't 
do any tax reform, we are at a serious risk of losing R&D jobs.
    Mr. HOLDING. Right, because the foreign countries are 
putting in regimes to attract other--to attract these 
businesses. And for them to take advantage of it they are just 
simply going to have to move the jobs out of the United States 
and into the other countries.
    So thank you, Mr. Chairman, I yield back.
    Chairman BRADY. Thank you. Mr. Smith, you are recognized.
    Mr. SMITH of Missouri. Thank you, Mr. Chairman. I want to 
thank all the witnesses for being here today. This is an 
extremely important subject, as we all know, to discuss.
    But I also want to make a point. I think that inversions 
are a huge, serious issue that we should all continue to 
examine. We have seen that. And it is clearly a symptom of our 
broken tax system in the U.S., and we need reform.
    At the same time, I believe that we should be careful not 
to conflate the issue of inversions with foreign investment in 
the U.S., which, as we can see, can have a positive impact 
throughout our country. I can give you a couple examples in my 
congressional district alone.
    In my district, TG Missouri, which is a Japanese company 
that employs over 1,400 employees, one of the largest employers 
in our congressional district, has great, high-quality paying 
jobs. And, in fact, they are expanding. That is a foreign 
investment. That is different than inversion. But I want to 
make sure we are clear on that. And I think this Committee 
needs to be very careful when we are looking at the tax 
structure and looking at it.
    There is also another company that has been mentioned 
around here that is located in Jefferson County in our 
district, a $280 million investment for a bottling company to 
manufacture aluminum cans, aluminum bottles. There is really 
only one company that does aluminum bottles; you can figure 
that out. But that was a foreign investment, and not an 
inversion. And so we need to look at that when we are looking 
at the tax structure.
    I do have a question, Mr. Grinberg. As things stand today, 
my constituents in southern Missouri are not all that worried 
about BEPS and what is going on over in the European Union. 
They really aren't. They are concerned about getting their 
crops in the ground and how to just make ends meet, balance 
their budget, live within their means. But you have been quoted 
in saying that the U.S. is one of the losers in the BEPS rule. 
Assuming the U.S. does nothing to step BEPS from being 
implemented, what is the impact of those families back in 
Missouri?
    Mr. GRINBERG. Thank you, Congressman Smith. So I think it 
is too late to un-ring the BEPS bells. I think that whatever 
one thought about the old international tax environment, the 
new environment puts greater competitive pressures on the 
United States, and means that we need to very substantially 
lower our corporate tax rate and move to a dividend exemption 
system as a first step.
    I think that, you know, the families of the people in your 
district should be concerned about it because it is about 
opportunities and jobs for future generations of Americans, and 
they are affected by that.
    Mr. SMITH of Missouri. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Rice, you are recognized.
    Mr. RICE. Recent polls say 65 percent of American families 
don't believe that their children will have the same 
opportunities that they have had. I think the American people 
do realize this.
    And you know, it is perplexing and frustrating to me that 
the President and Republicans and Democrats and House and 
Senate Members all talk about this as a huge problem for 
American competitiveness every day, every day, and yet we can't 
seem to push anything forward.
    Let me ask you all a question, just a hypothetical. You got 
two companies, one an American company that wants to be 
patriotic, doesn't want to invert, and wants to pay every dime 
that it is supposed to pay, and it is paying a 35 percent rate. 
And then you have got an Irish company that is paying at 13 
percent. And they both buy from the same suppliers, sell to the 
same customers, and they are competing hard every day. What is 
going to happen? What is the outcome of those two companies, 
Ms. Hanlon.
    Ms. HANLON. I think the Irish company will win.
    Mr. RICE. They will either buy the American company, or the 
American company will go bankrupt, right?
    Mr. Wiacek, do you agree with that?
    Mr. WIACEK. I do. The Irish company will buy the American--
--
    Mr. RICE. Mr. Grinberg, do you agree with that?
    Mr. GRINBERG. I think we should be----
    Mr. RICE. Mr. Kleinbard, do you agree with that?
    Mr. KLEINBARD. No, for a reason. And the reason is simply 
that if the Irish company is doing business in the United 
States, selling to the same U.S. customers, it will be dragged 
into the U.S. tax net. So you have to compare apples to 
apples----
    Mr. RICE. So three out of four agree that it is a matter of 
economic survival, it is not a matter of patriotism. If we 
punish inversions, does that solve that problem, Mr. Wiacek?
    Mr. WIACEK. No.
    Mr. RICE. Ms. Hanlon.
    Ms. HANLON. No.
    Mr. RICE. Mr. Grinberg.
    Mr. GRINBERG. Again, inversions are a symptom of this 
broader problem. We need--one of the things that----
    Mr. RICE. So it--I am sorry, I got limited time.
    Mr. GRINBERG. Yes.
    Mr. RICE. It doesn't solve the problem, does it? Okay.
    Do all you all favor a consumption tax over corporate tax? 
I heard the first three. Do you--is that true?
    Mr. WIACEK. When we can't lower the corporate income tax or 
fix our competitiveness problem in the corporate income tax 
sector because people talk about deficits or discretionary 
spending and another source and fairness, another source of 
revenue--I think even Ed agrees, or we all agree that another 
source of revenue may be necessary.
    Fred Goldberg testified before you folks for a----
    Mr. RICE. I am sorry, I have got very limited time, I am 
sorry.
    Mr. WIACEK. Okay, I am sorry. But----
    Mr. RICE. In general, do you favor, Ms. Hanlon, a 
consumption tax over corporate tax?
    Ms. HANLON. Potentially, yes.
    Mr. RICE. For economic growth?
    Ms. HANLON. Depending on the details.
    Mr. RICE. Mr. Wiacek.
    Mr. WIACEK. Potentially, yes.
    Mr. GRINBERG. Yes, we should move towards consumption 
taxation and away from----
    Mr. RICE. Mr. Kleinbard.
    Mr. KLEINBARD. I actually have a comprehensive tax reform 
proposal called the dual business enterprise income tax. You 
will like the fact that----
    Mr. RICE. Is that yes or no?
    Mr. KLEINBARD [continuing]. That the business component of 
that functions as a consumption tax, but it is integrated with 
an income tax at the individual level.
    Mr. RICE. Okay. Well, I yield back my last two seconds. 
Thank you. I am sorry I pushed so hard. I had to get all that 
out, I am sorry.
    Chairman BRADY. I think you set the record for questions 
today, Mr. Rice.
    [Laughter.]
    Chairman BRADY. So, Mrs. Noem, you are recognized.
    Mrs. NOEM. Well, thank you, Mr. Chairman. And while I am 
sure everybody is glad to be getting down to the last few 
Members of Congress, we prefer to think of ourselves as the 
grand finale.
    [Laughter.]
    Mrs. NOEM. So, South Dakota is primarily an ag state. It is 
our number-one industry. And while we don't have a lot of 
multinational companies located in the state, we are extremely 
competitive because we do not have a state corporate income 
tax. We do have some companies that have recently moved in, and 
it has been because of our tax climate. Babybel Cheese, a 
French company, has recently set up facilities within the 
state, and we are glad to have them.
    But you know, companies look to locate in our state over 
other states, because of the environment that we have created. 
We know that we--they need to be competitive and, if they are 
going to be in the United States, that we need to make that 
package as--available to them so they can be successful, as 
well.
    I guess I just wanted to ask you today, since I think 
virtually every question under the sun has been asked already, 
is if you could be a bit visionary for us. Tell me what each of 
you believes will happen if we do not deal with corporate 
income tax, international tax reform, in the next 5 to 10 
years. What do you envision will happen to the economy in the 
United States, and American companies that are struggling to 
survive in this competitive tax environment, globally?
    We will start with Ms. Hanlon.
    Ms. HANLON. In general, I think we will see a continuation 
of the trends we have already observed, meaning we will see 
more companies trying to exit the U.S. We will see more 
companies being acquired by foreign companies. We will see more 
cities, perhaps, that look like Akron. So I think it is quite a 
risk. And I don't think we can sit by and do nothing.
    Mrs. NOEM. You spoke specifically in your testimony about 
companies being forced to invest poorly overseas, rather--could 
you expand on that a little bit, that they are making poor 
choices because--not being able to repatriate those funds to 
the United States. Could you just expand on that a bit?
    Ms. HANLON. So it is basically an effect of this locked-out 
cash. And there is two plausible hypotheses about why it 
happens. But generally, what we observe is that these companies 
invest in foreign companies, and they invest in foreign capital 
expenditures, rather than the U.S. And it is economically 
rational for them to do that, because they avoid the 35 percent 
tax. But it is true that these companies with a lot of cash 
that make these foreign acquisitions, the market return to 
those acquisitions are lower than, say, returns----
    Mrs. NOEM. Right, and you don't----
    Ms. HANLON [continuing]. For other kinds----
    Mrs. NOEM [continuing]. Want to necessarily leave the cash 
in their pockets and become a target for takeover, as well.
    Ms. HANLON. That is right, that is right.
    Mrs. NOEM. Okay. Well, we will move on to the other three. 
If you could be a little visionary with me and share what you 
think could happen in the next 5 or 10 years if we do not have 
any type of international tax reform.
    Mr. WIACEK. Well, I hesitate to quote Donald Trump, but I 
think----
    Mrs. NOEM. No, no.
    Mr. WIACEK [continuing]. Continue to lose.
    Mrs. NOEM. We are going to lose?
    Mr. WIACEK. We will continue to lose.
    Mrs. NOEM. We won't be great again?
    Mr. WIACEK. I don't think it will be a crisis, I don't 
think you will have one big event where everybody is taken 
over, but a kind of slow drumbeat of erosion and----
    Mrs. NOEM. Steady decline.
    Mr. WIACEK [continuing]. Lack of confidence and no jobs for 
the future and people actually, on survey, worrying that the 
next generation will not do as well.
    Mrs. NOEM. I think I am out of time, but for--I appreciate 
you being here today.
    Chairman BRADY. Thank you.
    Mr. Dold for the last question.
    Mr. DOLD. Thank you, Mr. Chairman. And I want to thank you 
all for taking your time and for your testimony.
    I think what is interesting, as we have listened to--and 
again, you have three minutes--so I think what is interesting 
is kind of this similarity of a lot of the questions, because 
that is what we are hearing from our constituents.
    And then the other thing that I find so interesting is the 
fact that most of you--in fact, all of you--agree that we need 
to do something with regard to our corporate rate. And I would 
be one, as a small business owner, that recognize two-thirds of 
all new jobs are created by small businesses that are not 
necessarily C corps.
    But I also know, representing a district that has 23 
Fortune 1000 companies, that these Fortune 1000 companies 
support thousands of small local businesses. And what they 
fear? They fear that they are not competitive, and we have all 
highlighted that. We are not operating in a competitive 
environment today. We are in a global economy and, frankly, we 
are going to get our heads handed to us if we don't step up and 
do something.
    And so, whether it is you are able to manipulate, whether 
it is you are able to pay an effective rate that may be lower, 
the long and the short of it is would you all agree that we are 
currently not in a competitive tax environment here, in the 
United States? Just quickly.
    Ms. Hanlon, are we in a competitive tax environment for our 
companies here in the U.S.?
    Ms. HANLON. No.
    Mr. DOLD. Mr. Wiacek.
    Mr. WIACEK. No.
    Mr. DOLD. Mr. Grinberg.
    Mr. GRINBERG. No.
    Mr. DOLD. Mr. Kleinbard.
    Mr. KLEINBARD. Domestically, no.
    Mr. DOLD. Okay. What I inherently hear from folks, from 
businesses, is that they are terrified. And I represent a 
district that has a lot of life sciences companies. They are 
terrified that foreign competitors are going to use our own tax 
code as a weapon against us, that they are going to be taken 
over, they are no longer going to be U.S. based.
    And therefore, these good, high-paying careers that are 
spending an enormous amount of resources, that are donating to 
charities, that are propping up our communities, are no longer 
going to be there. They are no longer going to be the decision 
makers. In fact, they are going to be based overseas.
    And so, while I do agree that we have to deal with a 
comprehensive approach, my fear is that we are not prepared to 
do so in 2016. And if we are waiting, more and more of these 
businesses are going to become foreign-owned. More and more of 
these inversions are going to happen.
    And what I have also heard from companies--and if there is 
anyone that agrees--many of them are inverting because they can 
invest back in the United States easier from a foreign base, if 
they can, as if they are U.S.-based. Would you agree, Ms. 
Hanlon, that that is happening?
    Ms. HANLON. Yes.
    Mr. DOLD. Mr. Wiacek.
    Mr. WIACEK. Yes, indeed.
    Mr. GRINBERG. We are no longer a good jurisdiction to 
domicile a global business, and that is a problem.
    Mr. DOLD. Mr. Kleinbard.
    Mr. KLEINBARD. You have the power to change that with a 
snap of your fingers. Yes, it is true that when you invert you 
can get your hands on the offshore cash, but that is because 
there is a--because you need to repair Section 956 of the code. 
You have the control over that.
    Mr. DOLD. And I welcome your advice and counsel, because 
that is exactly what we need to do. We need to make sure that 
American businesses are allowed to be able to compete and win. 
And if we don't step up and act and act now, we are going to 
find more of these businesses that are going to have decisions 
taken away from them, and those decisions will be made 
overseas, and we will be uncompetitive, making our communities 
less competitive. And again, opportunities for job growth 
decline.
    Mr. Chairman, my time has expired, but certainly appreciate 
the opportunity. And I want to thank our witnesses for being 
here.
    Chairman BRADY. Well, thank you, sir. Mr. Young has 
returned.
    You are recognized.
    Mr. YOUNG. Thank you, Chairman, for this hearing. I thank 
our witnesses for being here today.
    Indiana has a robust life sciences industry. My hope is 
that it continues to play a very important role in our state's 
economy, future jobs, and jobs that pay well.
    Professor Hanlon, there is widespread agreement that our 
corporate tax system is in urgent need of reform. Hence our 
hearing today. The combination of high corporate tax rate and 
worldwide tax base hinders the competitiveness of U.S. global 
innovative businesses in the United States as a place to 
invest. As a result, foreign-parented businesses have a more 
efficient platform for business growth, acquisitions, and 
shareholder value than U.S.-parented businesses. We see this 
playing out in M&A, particularly in the life sciences sector, 
where intense competition is highly sensitive to these tax rate 
differentials.
    Don't you agree that any tax reform should adopt policies 
that solve these competitiveness issues, rather than making 
them worse?
    Ms. HANLON. Yes.
    Mr. YOUNG. Okay. As a follow-up, Professor, one of the key 
objectives of international reform is to solve the so-called 
lockout problem with respect to foreign earnings. All the 
recent proposals, of course, would do this by making 
repatriation no longer a taxable event, and adding measures to 
prevent erosion of the U.S. corporate tax base. While these are 
common features of recent proposals, the details matter when it 
comes to their impact on competitiveness.
    Don't you agree that replacing deferral with what amounts 
to an uncompetitive worldwide tax system for intangible income 
would exacerbate, rather than solve the serious competitiveness 
issues faced by American innovative global businesses?
    Ms. HANLON. Absolutely, yes.
    Mr. YOUNG. Any other thoughts on the issue from members of 
the panel?
    Mr. GRINBERG. Again, one has to think seriously about, in a 
global economy with a global market for corporate control, 
thinking about--I think the Congress should consider whether or 
not we want to use corporate residence as a basis for, you 
know, a really, truly fundamental tax reform. Because you are 
exactly right that, you know, if you impose a minimum tax which 
only applies to U.S.-headquartered companies, then there is an 
incentive to avoid that regime.
    Mr. YOUNG. Mr. Wiacek.
    Mr. WIACEK. I am just about done. I mean before you came 
back there was the comment that we have all been saying the 
same thing in many different ways, and I think that is right. 
We need a lower rate, and we need to fix the system, and it is 
hard to do.
    Mr. YOUNG. I would add that this is something we, as 
Members of Congress, need to continue to be repetitive about, 
to hammer home the importance of making these sorts of changes 
so essential sectors, like our life sciences sector, receive 
the relief they need so they can continue to grow. I yield 
back.
    Chairman BRADY. You know, I am convinced that America is 
beginning to hear the giant sucking sound of American companies 
and jobs and investment overseas. Part of that is generated by 
our global competitors who are shrewdly understanding how our 
tax code works and are moving aggressively, but the root cause 
is our tax code.
    And I am convinced the first step we can take toward 
overall pro-growth tax reform is to permanently lower the tax 
gates to allow our U.S. companies to bring their profits back 
home to invest in our communities, in our jobs, in research and 
development, in growth. Because no one has yet convinced me an 
American dollar stranded overseas is better than an American 
dollar brought back home to invest in--for any purpose 
whatsoever. So I am convinced the first step we should take is 
in that area.
    We are determined to create overall pro-growth tax reform. 
But I am convinced we have to act now. And I am charging our 
committee and Chairman Boustany and the Tax Policy Subcommittee 
to bring that solution forward so we can start to put this on 
the field and move these balls.
    Your--witnesses today were tremendously helpful to setting 
the environment we are competing in. Thank you for being here. 
And pleased be advised Members may submit written questions to 
be submitted later in writing, and those questions and your 
answers will be made part of the formal hearing record.
    And with that, the committee stands adjourned.
    [Whereupon, at 12:23 p.m., the committee was adjourned.]
    [Submissions for the record follow:]
    
    
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