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

                                                            S. Hrg. 114-161

                           JOBS AND A HEALTHY ECONOMY

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

                                    HEARING

                                   before the

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                JANUARY 22, 2015

                                   __________

           [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                Printed for the use of the Committee on Finance
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                              COMMITTEE ON FINANCE

                         ORRIN G. HATCH, Utah, Chairman

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

                         Chris Campbell, Staff Director

                  Joshua Sheinkman, Democratic Staff Director

                                C O N T E N T S

                                   __________

                               OPENING STATEMENTS

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

                                   WITNESSES

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

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

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

                                 Communications

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

                                     (iii)

                           JOBS AND A HEALTHY ECONOMY

                                  ----------

                           THURSDAY, JANUARY 22, 2015

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

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

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

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

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

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

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

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

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

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

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

                                A P P E N D I X

                  Additional Material Submitted for the Record

                                  ----------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

       Implementation of the WTO Trade Facilitation Agreement;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

        Other important principles for pro-growth tax reform include:

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

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

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

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

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

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

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                       ACHIEVING AMERICA'S FULL POTENTIAL

              More Work, Greater Investment, Unlimited Opportunity

                                                           January 2015

                       Business Roundtable SM

                         More Than Leaders. Leadership.

                             2015 POLICY PRIORITIES

                         A Plan to Move America Forward

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

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

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

         FISCAL STABILITY

         PRO-GROWTH TAX REFORM

         EXPANDED TRADE

         IMMIGRATION REFORM

         INVESTMENT IN PHYSICAL AND DIGITAL INFRASTRUCTURE

         SMART REGULATION

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

            87%                   $3.11T                       2x

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

    _______________________________________________________________________

    POLICY RECOMMENDATIONS

    Congress and the Administration should:

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

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

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

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

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

           39.1%                  +2.2%                       71M

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

    _______________________________________________________________________

    POLICY RECOMMENDATIONS

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

      Sets the corporate tax at a competitive 25 percent rate;

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

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

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

          1 in 5                    3x                        46%

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

    _______________________________________________________________________

    POLICY RECOMMENDATIONS

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

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

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

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

           $1.2T                  +4.8%                       40%

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

    _______________________________________________________________________

    POLICY RECOMMENDATIONS

    Congress and the Administration should:

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

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

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

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

            65%                    -11%                       100%

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

    _______________________________________________________________________

    POLICY RECOMMENDATIONS

    Congress and the Administration should:

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

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

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

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

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

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

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

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

            6%                     41st                       48%

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

    _______________________________________________________________________
    POLICY RECOMMENDATIONS
    Congress and the Administration should:

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

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

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

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

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

    202.872.1260

    brt.org
                                     ______

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

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

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

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

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

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

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

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

      Table 1: Changes in Labor-Force Participation Rates by Age, Sex, and
                   Family Income,  From 1998-2000 to 2011-2013
    ------------------------------------------------------------------------
                                  Men                        Women
                     -------------------------------------------------------
                       Lower half    Upper half    Lower half    Upper half
    ------------------------------------------------------------------------
    Teenagers                -7.1         -15.6          -8.8         -15.9

    20 to 34                 -4.4          -4.7          -1.9          -3.8

    35 to 59                  1.4          -1.7           0.4          -0.9

    60+                       4.7           2.8           3.9           8.9
    ------------------------------------------------------------------------

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

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

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

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

    Women                                 1.6          -0.7          -0.8          -0.1           0.8          -0.8
    ----------------------------------------------------------------------------------------------------------------

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

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

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

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

                                 Robert E. Hall

                 Hoover Institution and Department of Economics

                              Stanford University

                      National Bureau of Economic Research

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

                            Nicolas Petrosky-Nadeau

                     Federal Reserve Bank of San Francisco

                         and Carnegie Mellon University

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

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

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

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

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

    References

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

    Data
    Household total income

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

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

    (1) with job--working,

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

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

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

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

    This labor force history allow us to construct a CPS-style labor force
    classification for individuals in the SIPP. To do so, we classify
    someone as employed in a given month if their SIPP labor force status
    was 1 or 2 in the CPS reference week. For those whose SIPP status in
    the reference week was not 1 or 2 in the CPS reference week, we look at
    their status in the CPS reference week and the preceding three weeks.
    If during any of those weeks their SIPP labor force status was 3 or 4,
    they are classified as unemployed. If their SIPP labor force status was
    5 for all four weeks, they are classified as not in the labor force.
                                     ______

     Prepared Statement of Hon. Orrin G. Hatch, a U.S. Senator From Utah,
                         Chairman, Committee on Finance
    WASHINGTON--U.S. Senator Orrin Hatch (R-Utah), Chairman of the Senate
    Finance Committee, today delivered the following opening statement at a
    committee hearing on jobs and a healthy economy:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

        With that, I'll turn it over to Ranking Member Wyden for his
    opening statement.
                                     ______

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

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

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

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

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

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

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

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

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

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

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

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

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

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

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

        Labor markets and a healthy economy are of paramount importance to
    the health, happiness and well-being of all Americans, and I appreciate
    the opportunity to share my assessment with you today.
                                     ______

                     Prepared Statement of Hon. Ron Wyden,
                           a U.S. Senator From Oregon

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

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

        Now on to the matter at hand.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                 Communications

                                  ----------

                    Statement for the record on behalf of:
                               Coalition for GSP

                      1001 Connecticut Ave., NW Suite 1110

                              Washington, DC 20036

                                  202-347-1085

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      ESCA

                           THE AMERICAN DREAM AT WORK

                            Statement for the Record

                              Stephanie Silverman

                         President & Executive Director

                    Employee-owned S Corporations of America

                           805 15th Street, Suite 650

                              Washington, DC 20005

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                    Statement for the Record--Submitted by:

                   The Professional Beauty Association (PBA)

                       Steve Sleeper, Executive Director

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

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

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

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

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

                 Written Testimony of Dr. Elaine C. Kamarck and

                         James P. Pinkerton, Co-Chairs,

              Reforming America's Taxes Equitably (RATE) Coalition

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

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

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

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

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

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

    His statement for the record can be found below:

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

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

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

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

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

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

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

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

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

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