[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]


                        HOW TAX REFORM WILL GROW
                      OUR ECONOMY AND CREATE JOBS

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

                                 HEARING

                               BEFORE THE

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

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 18, 2017

                               __________

                          Serial No. 115-FC01

                               __________

         Printed for the use of the Committee on Ways and Means
         
         
 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]   
 
 
                  U.S. GOVERNMENT PUBLISHING OFFICE                    
33-393                  WASHINGTON : 2019                     
          
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                      COMMITTEE ON WAYS AND MEANS                     
                    

                      KEVIN BRADY, Texas, Chairman

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

                     David Stewart, Staff Director

                 Brandon Casey, Minority Chief Counsel

 
                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 18, 2017 announcing the hearing..................     2

                               WITNESSES

John J. Stephens, Senior Executive Vice President and Chief 
  Financial Officer, AT&T Inc....................................     6
Zachary Mottl, Chief Alignment Officer, Atlas Tool Works, Inc....    17
David N. Farr, Chairman and Chief Executive Officer, Emerson 
  Electric Co....................................................    22
Douglas L. Peterson, President and Chief Executive Officer, S&P 
  Global Inc.....................................................    33
Steven Rattner, Chairman, Willett Advisors LLC...................    44

                   MEMBER SUBMISSIONS FOR THE RECORD

Assessing the House Republicans' ``A Better Way'' Tax Reform.....   113
J.P. Morgan......................................................   128
Goldman Sachs....................................................   135
Peterson Institute for International Economics...................   142

                        QUESTIONS FOR THE RECORD

Questions from Representative Jason Smith of Missouri to Mr. 
  Stephens.......................................................   171
Questions from Representative George Holding of North Carolina to 
  Mr. Peterson and Mr. Stephens..................................   171

                       SUBMISSIONS FOR THE RECORD

A Call to Invest in Our Neighborhoods (ACTION) Campaign, 
  statement......................................................   174
AdvaMed Accel, statement.........................................   178
Advisory Council on Historic Preservation, statement.............   184
Alliance for Competitive Taxation, statement.....................   187
America's Health Insurance Plans, statement......................   190
American Chemistry Council, statement............................   194
American Council for an Energy-Efficient Economy, statement......   202
American Council of Life Insurers, statement.....................   206
The American Farm Bureau Federation, statement...................   208
American Forest & Paper Association, statement...................   215
American Legislative Exchange Council, statement.................   217
The American Made Coalition, statement...........................   224
Americans for Fair Taxation, statement...........................   226
Americans for Prosperity, statement..............................   229
Americans for Tax Reform, statement..............................   230
Association for Corporate Growth, statement......................   236
Basin Electric Power Cooperative, statement......................   239
Beverage Industry, statement.....................................   240
  Beer Institute.................................................   240
  Brewers Association............................................   240
  Wine Institute.................................................   240
  WineAmerica....................................................   240
  Distilled Spirits Council......................................   240
  American Craft Spirits Association.............................   240
Bipartisan Policy Center, statement..............................   242
Business Coalition for Fair Competition, statement...............   252
Business United for Interest and Loan Deductibility, statement...   259
Competitive Carriers Association, CCA and ITTA--The Voice of 
  America's Broadband Providers, statement.......................   263
Center for Fiscal Equity, statement..............................   265
Centurion LV, statement..........................................   271
Coalition for a Prosperious America, statement...................   272
Coalition for Fair Effective Tax Rates, statement................   278
Regional Economic Models, Inc., statement........................   284
AHA, NACUBO and NAHEFFA, statement...............................   289
Miscellaneous finance and housing agencies, statement............   292
  Council of Development Finance Agencies........................   292
  Education Finance Council......................................   292
  National Council of State Housing Agencies.....................   292
  National Development Council...................................   292
  Performance Based Building Coalition...........................   292
Committee for a Responsible Federal Budget, statement............   294
CompTIA, statement...............................................   296
CRANE Coalition, statement.......................................   299
Credit Union National Association, statement.....................   302
Douglas Holtz-Eakin, statement...................................   311
Economic Policy Institute, statement.............................   347
Edison Electric Institute, statement.............................   353
Education Finance Council, statement.............................   357
Employee-Owned S Corporations of America, statement..............   360
Federation of Exchange Accommodators, statement..................   363
Freedom Partners, statement......................................   367
FreedomWorks, statement..........................................   370
Fuel Cell & Hydrogen Energy Association, statement...............   375
Gaspard Properties, LLC, statement...............................   384
Global Infrastructure Investor Association, statement............   385
Miscellaneous agricultural organizations, statement..............   389
  Agricultural & Food Transporters Conference....................   389
  Agricultural Retailers Association.............................   389
  American Farm Bureau Federation................................   389
  American Mushroom Institute....................................   389
  American Sheep Industry Association............................   389
  American Soybean Association...................................   389
  American Sugarbeet Growers Association.........................   389
  Cobank.........................................................   389
  National Barley Growers Association............................   389
  National Corn Growers Association..............................   389
  National Council of Farmer Cooperatives........................   389
  National Milk Producers Federation.............................   389
  National Peach Council.........................................   389
  National Pork Producers Council................................   389
  National Renderers Association.................................   389
  Panhandle Peanut Growers Association...........................   389
  Southwest Council of Agribusiness..............................   389
  South East Dairy Farmers Association...........................   389
  United Egg Producers...........................................   389
  United Fresh Produce Association...............................   389
  U.S. Canola Association........................................   389
  U.S. Rice Producers Association................................   389
  U.S. Sweet Potato Council......................................   389
  USA Rice Federation............................................   389
  Western Growers................................................   389
  Western Peanut Growers Association.............................   389
  Western United Dairymen........................................   389
Nation's family farmers and ranchers, statement..................   391
  Agricultural & Food Transporters Conference....................   391
  Agricultural Retailers Association.............................   391
  American Farm Bureau Federation................................   391
  American Mushroom Institute....................................   391
  American Sheep Industry Association............................   391
  American Soybean Association...................................   391
  American Sugarbeet Growers Association.........................   391
  California Association of Winegrape Growers....................   391
  Cobank.........................................................   391
  Farm Credit Council............................................   391
  National Barley Growers Association............................   391
  National Cattlemen's Beef Association..........................   391
  National Corn Growers Association..............................   391
  National Cotton Council........................................   391
  National Council of Farmer Cooperatives........................   391
  National Milk Producers Federation.............................   391
  National Peach Council.........................................   391
  National Pork Producers Council................................   391
  National Potato Council........................................   391
  National Renderers Association.................................   391
  National Sorghum Producers.....................................   391
  Panhandle Peanut Growers Association...........................   391
  Southwest Council of Agribusiness..............................   391
  South East Dairy Farmers Association...........................   391
  United Egg Producers...........................................   391
  United Fresh Produce Association...............................   391
  U.S. Apple Association.........................................   391
  U.S. Canola Association........................................   391
  U.S. Rice Producers Association................................   391
  U.S. Sweet Potato Council......................................   391
  USA Rice Federation............................................   391
  Western Growers................................................   391
  Western Peanut Growers Association.............................   391
  Western United Dairymen........................................   391
Real Estate Roundtable, statement................................   399
  ADISA--Alternative & Direct Investment Securities Association..   399
  American Hotel & Lodging Association...........................   399
  American Institute of Architects...............................   399
  American Land Title Association................................   399
  American Resort Development Association........................   399
  American Seniors Housing Association...........................   399
  Appraisal Institute............................................   399
  Asian American Hotel Owners Association........................   399
  The Building Owners and Managers Association (BOMA) 
    International................................................   399
  CCIM Institute.................................................   399
  Federation of Exchange Accommodators...........................   399
  Institute of Real Estate Management............................   399
  International Council of Shopping Centers......................   399
  IPA--Investment Program Association............................   399
  Mortgage Bankers Association...................................   399
  NAIOP, the Commercial Real Estate Development Association......   399
  National Apartment Association.................................   399
  National Association of REALTORS'...................   399
  National Multifamily Housing Council...........................   399
  REALTORS' Land Institute............................   399
Heating, Air-conditioning and Refrigeration Distributors 
  International, statement.......................................   409
Statement........................................................   417
Residential Energy Efficiency Industry Leaders, statement........   418
  Home Performance Coalition.....................................   418
  E4TheFuture....................................................   418
  Efficiency First...............................................   418
  Building Performance Institute.................................   418
Independent Community Bankers of America, statement..............   422
Industrial Minerals Association--North America, statement........   426
Insured Retirement Institute, statement..........................   428
James DiCampli, statement........................................   431
The Leadership Conference on Civil and Human Rights, statement...   434
Leading Pointe Strategies, LLC, statement........................   437
The Like-Kind Exchange Stakeholder Coalition, statement..........   438
Louisiana Asphalt Pavement Association, statement................   442
Missouri Health and Educational Facilities Authority (MoHEFA), 
  statement......................................................   443
Motion Picture Association of America, statement.................   445
Municipal Bonds for America Coalition, statement.................   447
National Alliance of Forest Owners, statement....................   452
National Association of Electrical Distributors, statement.......   453
National Association of Energy Service Companies, statement......   455
National Association of Insurance and Financial Advisors, 
  statement......................................................   460
The National Biodiesel Board, statement..........................   464
National Council of State Housing Agencies, statement............   468
National Grocers Association, statement..........................   475
National Low Income Housing Coalition, statement.................   480
National Multifamily Housing Council and National Apartment 
  Association, statement.........................................   490
National Retail Federation, statement............................   500
National Sporting Goods Association, statement...................   501
NRS, statement...................................................   502
The Power of Recognition, statement..............................   504
The Patriotic Millionaires, statement............................   513
Property and Casualty Insurance Industry, statement..............   515
  American Insurance Association.................................   515
  National Association of Mutual Insurance Companies.............   515
  Property Casulty Insurers Association of America...............   515
  Reinsurance Association of America.............................   515
Public Citizen, statement........................................   521
Reforming America's Taxes Equitably Coalition, statement.........   524
End Citizen-Based Taxation, statement............................   528
Retail Industry Leaders Association, statement...................   532
Rick Hohensee, statement.........................................   536
Semiconductor Industry Association, statement....................   543
Small Business & Entrepreneurship Council, statement.............   551
Student Debt Reduction Coalition, statement......................   555
TechNet, statement...............................................   562
Polsinelli, statement............................................   564
The Advertising Coalition, statement.............................   565
ESOP Association, statement......................................   572
MassDevelopment, statement.......................................   575
The Military Coalition, statement................................   578

 
                        HOW TAX REFORM WILL GROW
                      OUR ECONOMY AND CREATE JOBS

                              ----------                              


                         THURSDAY, MAY 18, 2017

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                            Washington, DC.

    The Committee met, pursuant to call, at 10:07 a.m., in Room 
1100, Longworth House Office Building, the Honorable Kevin 
Brady [Chairman of the Committee] presiding.
    [The advisory announcing the hearing follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BRADY. The Committee will come to order.
    Good morning. And thank you all for joining us. And today 
our Committee is focused on a top priority for the American 
people, pro-growth tax reform that will create jobs, increase 
paychecks, and strengthen our Nation's economy. America now has 
one of the most costly, unfair, and uncompetitive tax systems 
in the world. The need for pro-growth tax reform is urgent.
    Today's high tax rates on American businesses drive good-
paying jobs overseas. It makes it much more difficult for our 
job creators and our workers to succeed here at home. America's 
burdensome international tax system destroys U.S. 
competitiveness and discourages investment in our local 
communities. Scores of loopholes give favored treatment to 
Washington's special interests while millions of hardworking 
Americans haven't seen a real pay raise in years.
    Here is the good news: President Trump is leading the 
charge for bold tax reform that will unleash the growth of jobs 
and paychecks nationwide, and he is calling on The House and 
the Senate to put forward our best ideas. Our Committee is 
ready to answer that call.
    Over the past several years, we have held roughly 40 full 
Committee and Subcommittee hearings on all aspects of tax 
reform. All of our Members, no matter what side of the dais you 
sit on, know that tax reform is an economic imperative.
    Now is the time to go bold. Now is the time to deliver real 
results for the American people. We welcome all serious 
solutions that will help achieve that goal.
    While there is no perfect way to tax, there are proven 
solutions to grow our economy and improve the lives of all 
Americans, especially the middle class. So let's take a look at 
the numbers. Currently, we have the highest corporate tax rate 
in the developed world at 35 percent. For small businesses, it 
is worse. The rates can be as high as 44.6 percent. To unleash 
job creation, increase middle class paychecks, we know these 
rates have to come down. Washington must take less from 
American job creators so they can invest more in their 
businesses, their workers, and their futures.
    In addition to lowering rates, we also know that bold 
policies, such as full and immediate expensing, are incredibly 
pro-growth for jobs, for paychecks, and for our economy as a 
whole. According to estimates from the nonpartisan Tax 
Foundation, this provision alone, allowing businesses of all 
sizes to immediately write off their business investment in 
buildings, equipment, software, and technology, will grow 
America's economy by more than 5 percent over the next decade, 
create 1 million full-time jobs, and raise wages and paychecks 
significantly.
    Finally, the numbers show us that businesses of all sizes 
are eager for tax reform. They are ready for the opportunity to 
innovate, to grow, and to hire new workers. Recently, the 
Business Roundtable surveyed a group of more than 120 CEOs 
about tax reform: 82 percent of them said tax reform will 
prompt companies to increase business investment, and three out 
of four said they will increase hiring. These CEO responses 
make clear that tax reform will create jobs, create paychecks, 
and grow our economy.
    But make no mistake: There are also consequences if we fail 
to act. Ninety percent of the CEOs said that delaying tax 
reform will harm the U.S. by causing slower growth, slower 
hiring, and slower capital investment. And more than that, 
delay would force all Americans to continue to live with a Tax 
Code that works against them, not for them.
    Take from Roger and Natalie Goertz, constituents of mine 
who own and operate a Mr. Rooter plumbing franchise in 
Montgomery County, Texas. Roger, who is a friend, and his wife, 
who are so deeply involved in the community, said: As a small 
business owner, I am scared to death each year in how I am 
going to have to pay into the government. That uncertainty is 
devastating, he says. It is kind of like trying to operate your 
business with one hand tied behind your back; sometimes you 
feel like both hands are tied behind your back. All small 
businesses know that feeling.
    In today's hearing, we will hear from more business 
leaders, real live business leaders about exactly what is 
needed to get jobs, paychecks, and the economy moving again.
    Our witnesses are top-level executives from American 
companies of all size, from 80 workers to 80,000 middle class 
workers. Their expertise will help us understand how different 
proposals will impact America's job creators, workers, and our 
families. Since releasing our House Blueprint for Tax Reform 
last June, we have received thousands of comments from 
businesses and thought leaders, feedback we take very 
seriously. We look forward to the expert guidance our witnesses 
will provide today. We thank you all for being here to lend us 
your insight.
    Again, there is no perfect way to tax. But there are proven 
ways to grow our economy. With today's hearing, we will take a 
critical step toward putting these ideas into action for the 
American people.
    With that, I will now recognize Ranking Member Neal for his 
opening statement.
    Mr. Neal.
    Mr. NEAL. Thank you, Mr. Chairman, for holding this 
important hearing and highlighting the need for tax reform. We 
all agree the Tax Code is broken. It is far too complicated and 
certainly in need of repair. Our current tax system isn't 
working for families and businesses alike, and we all agree 
that any revisions to the Code should promote economic growth 
and create jobs for working families.
    However, we should reject ideology and work together to 
reform our tax system for the 21st century. According to a 
recent Pew study--based on fact, not opinion--the share of 
adults living in middle-income households in the United States 
fell from 62 to 59 percent from 1991 to 2010. Aggregate 
household income has also shifted from the middle- to the 
upper-income households. Pew's research found that 49 percent 
of U.S. aggregate income went to the upper-income households in 
2014, up from 29 percent in 1970. And for middle-income 
households, the share of income was 43 percent in 2014, down 
from 62 percent in 1970.
    Wealth is now concentrated at the top, and I assume there 
is broad agreement on that issue. We can disagree on how that 
happened but not to miss the point greater concentrated wealth 
at the top is a reality as we proceed to this discussion.
    Income stagnation is a real challenge and one that needs to 
be addressed in tax reform. This is in part why working 
families sent a strong signal to Congress last November.
    They haven't received a pay raise in years. Their bills are 
piling up, and they are concerned about uncertain financial 
security. Put simply, too many feel forgotten and left out by 
their government. Tax reform should be about moving the dial to 
help middle class families prosper. That means focusing on job 
creation and helping families with day-to-day costs, like 
housing costs, grocery bills, and childcare. It also means 
helping working families to buy their first home, to send their 
children to college, and help care for their elderly parents. 
And, of course, it also means helping families save for 
retirement, and that means protecting the tax incentives in the 
Code for retirement savings.
    Our focus should be on making sure that when our American 
families sit down around the dinner table, they can look across 
at their spouse, or their partner, and their children and know 
that things are going to be all right. That is not the case in 
too many homes across the country today, and that needs to be 
addressed. That is why Democrats are committed to ensuring that 
middle class tax reform is the true winner in any tax reform 
proposal. The American people don't believe that massive tax 
cuts for millionaires and billionaires grow the economy. The 
American family knows that tax reform that provides middle 
class tax relief and asks corporations and the wealthiest 
Americans to pay their share is what will grow our economy.
    We will oppose any tax plan that simply helps the rich get 
richer and does nothing for those who really need our help. And 
all of us should oppose any tax reform that results in a 
greater burden on the middle class. The Trump tax plan 
currently fails to meet this standard, and I hope the 
Administration will move back to the test that was set out by 
Secretary Mnuchin for tax reform, which he stated, quote, 
``There will be no absolute tax cut for the upper class.''
    Furthermore, the tax reform, if it is to be successful, 
must be done in a responsible manner. To that end, words like 
dynamic scoring and supply-side economics are thrown around a 
lot these days. But make no mistake, tax cuts do not pay for 
themselves and anything to the contrary is a nonstarter.
    However, as we consider tax policy and economy-wide 
effects, I would argue the importance of considering the 
macroeconomic effects of other policy changes, including an 
acknowledgment that robust investment in our Nation's 
infrastructure would have significant growth effects throughout 
our economy.
    I also think that we should think about using the revenue 
from a deemed repatriation tax to pay for infrastructure and 
for other productive investment purposes.
    In conclusion, we have a unique opportunity to sit down and 
work together on tax reform. After all, we all agree that the 
current system is inefficient and underproductive. I stand 
ready to work in good faith on tax reform with our Republican 
allies and friends in Congress and also the Administration, and 
only if we do and make the effort to assist the middle class.
    Thank you, Mr. Chairman, for calling this hearing. We look 
forward to calling our witnesses as they join us today. And we 
look forward to a continued and productive conversation.
    Chairman BRADY. Thank you, Mr. Neal.
    Today's witness panel includes five experts: John Stephens 
is the senior executive vice president and CEO of AT&T, Inc.; 
Zach Mottl is the chief alignment officer at Atlas Tool Works, 
Inc.; David Farr is chairman and CEO of Emerson Electric; 
Douglas Peterson is president and CEO of S&P Global; and Steven 
Rattner is chairman of Willett Advisors LLC.
    The Committee has received your written statements, and 
they will all be made part of the formal hearing record. We 
reserve 5 minutes to deliver your oral remarks.
    Mr. Stephens, we will begin with you. And, again, welcome. 
Thank you for being here.

STATEMENT OF JOHN J. STEPHENS, SENIOR EXECUTIVE VICE PRESIDENT 
             AND CHIEF FINANCIAL OFFICER, AT&T INC.

    Mr. STEPHENS. Thank you, Chairman Brady and Ranking Member 
Neal. And thank you, Members of the Committee. I appreciate the 
opportunity to be in front of you today.
    I am John Stephens. I am the chief financial officer of 
AT&T, and I sincerely appreciate this opportunity to discuss 
the importance of enacting comprehensive corporate tax reform 
with you today.
    AT&T is a company with a 140-year heritage of research and 
innovation that includes eight Nobel Prizes and more than 
15,000 patents and pending patents worldwide. We employ more 
than 200,000 people here in the United States. And over the 
past 5 years, we have invested more in the U.S. economy, than 
any other public company, right at $135 billion.
    One of the biggest issues facing this country is how to 
unleash economic growth which has underperformed for the last 
decade. We can and should do better. The key driver of U.S. 
economic growth is private sector investment. When investment 
increases, so does economic activity, hiring and wages. And 
when more people are working and making more money, they have 
more money to spend.
    However, private sector investment in the U.S., measured as 
a percentage of GDP, is at its lowest level in generations. It 
is not surprising that the U.S. economy has been marred in 
sluggish growth for nearly a decade. If we are serious about 
robust growth, then we must get serious about jump-starting 
private sector investment. And the best way to do that is to 
fix our broken, last-century corporate Tax Code.
    Achieving competitive corporate tax rates is likely the 
most effective catalyst available for public policymakers to 
increase capital investment, create jobs, and increase wages.
    Lowering the corporate tax rate will also make the United 
States more competitive globally. We can respond to foreign 
countries that have implemented modern tax policies to 
aggressively compete for our jobs and our investment.
    We have a once-in-a-generation opportunity to 
comprehensively update the Code for the 21st century and put 
the U.S. back on top.
    First, we need to reduce the top corporate tax rate. This 
is the quickest, most straightforward way to jump start 
investment in our country. We will bring our tax system in line 
with other developed countries. By reducing the rate, simple 
economics will drive companies to invest more in America rather 
than elsewhere.
    Secondly, policymakers should allow for the full expensing 
of capital investments. This is an effective way to quickly 
stimulate the economy. The tax foundation estimates that this 
policy change would create the equivalent of one million full-
time jobs. One hundred percent immediate expensing removes the 
negative effects of taxation on investment. And we know it 
works. Bonus depreciation, a provision with bipartisan support 
from this Committee, allowed accelerated depreciation that 
positively affected our investment decisions in those years. 
Plain and simple, we at AT&T invested more under bonus 
depreciation than we would have otherwise done.
    The ability to fully expense investment would do even more 
to incentivize AT&T and companies throughout the United States 
to accelerate investment. And more investment directly means 
more jobs.
    We recognize that any comprehensive corporate tax reform 
will involve tradeoffs. That is clear. But the key word is 
``comprehensive.'' Any plan being considered should be judged 
in totality, not just by a single provision.
    For example, one area I know the Committee has looked at is 
eliminating interest expense deductibility. Viewed in 
isolation, that provision would be extremely problematic for 
me. But I understand that it may be necessary as part of a 
broader solution. If the Committee plans to eliminate interest 
deductibility, I would encourage you to utilize reasonable 
transition rules that do not penalize past choices companies 
like ours have made under a vastly different tax system. This 
would not only give companies appropriate time to adjust their 
capital structures to the new system but also allow them to 
immediately increase their investment in response to a lower 
overall tax rate.
    Chairman BRADY. Mr. Stephens, thank you for your testimony. 
Five minutes always goes faster than it appears on paper. So we 
will return during the questioning period for you.
    Again, thank you for being here.
    [The prepared statement of Mr. Stephens follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman BRADY. Mr. Mottl, you are next up. Thank you, 
again, for being a witness.

STATEMENT OF ZACHARY MOTTL, CHIEF ALIGNMENT OFFICER, ATLAS TOOL 
                          WORKS, INC.

    Mr. MOTTL. Mr. Chairman and Members of the Committee, my 
name is Zach Mottl. I am the chief alignment officer for Atlas 
Tool Works, a fourth-generation, family-owned, small 
manufacturer in Lyons, Illinois. I am here today representing 
not only my own company but also the 750 manufacturers who are 
members of the Technology and Manufacturing Association, TMA, 
in Illinois. These manufacturers, many in Congressman Roskam's 
district, are proud to provide good-paying jobs and careers to 
about 30,000 people in the Chicago area. Most are like mine, 
small- to medium-sized supply chain companies that have 
survived NAFTA, weathered the China tide, and managed through 
the Great Recession.
    Through innovation, modernization, and cost control, we now 
produce more product than we did 20 years ago. Plus, we are 
poised to take advantage of the well-earned opportunity for 
reshoring. We are successfully competing against the best the 
world has to offer, and we are proud to help manufacture the 
wealth of America.
    However, in order to continue our success and grow while 
creating more good-paying jobs for Americans, we need your 
help. I am here today to testify in support of your work to 
comprehensively reform the U.S. Tax Code. I believe this is the 
best and fastest way to grow the U.S. economy and create more 
jobs in America.
    I would like to highlight two things: the opportunity for 
trade competitiveness through tax reform and the unique pain 
felt by small manufacturers due to excessive complexity and 
unfair treatment under the current Code. Today, the most 
difficult barrier to growth American manufacturers face is our 
self-inflicted Tax Code. Much of it, written decades ago, fails 
to account for today's internationally competitive environment.
    I understand that many are going to argue for simply 
reducing the current rates. And this might be helpful in the 
short run, but I believe our economy and our citizens need and 
deserve permanent comprehensive reform that also improves 
America's trade competitiveness. That is why the manufacturers 
I represent are so pleased that this Committee has placed 
border adjustability at the center of its tax reform efforts. 
Nearly every one of our trading partners currently use border 
adjustable consumption taxes, BATs, in the form of value added 
taxes, VATs, or good and services taxes, GSTs. These average 17 
percent globally, and they act as tariff and subsidy 
replacements.
    Most European Union nations have VAT rates between 17 and 
22 percent, and every American exporter into the EU has to pay 
those rates to sell their product there.
    Now when Mexico agreed to NAFTA, they abolished most of 
their tariffs. But, instead, they raised the Mexican VAT to 15 
percent. So they basically built a new tax wall for American 
products.
    India, it is now in the process of adopting a goods and 
services tax.
    Furthermore, any country that wants to mimic a currency 
devaluation can increase their VAT and use the proceeds to 
reduce other domestic taxes.
    In reality, I believe tax policy and trade policy, they go 
hand in hand. And I believe that tax policy has far greater 
effect on trade than any trade agreement ever could. Good tax 
policy, one that encourages domestic production and exports is, 
in effect, good trade policy. Moreover, it is unilateral. We 
don't need to negotiate with anyone. We don't need to ask 
permission from any international trade body, and we don't need 
to risk sparking a trade war.
    Remember, every one of our trading partners has already 
some type of a BAT system. So we simply need to change our tax 
laws and immediately American producers regain their edge, and 
the working men and women can get a tax break. In short, I want 
to get back to a world where American producers compete and win 
on price, quality, and service.
    The second point I want to highlight today is the 
importance of simplifying the Tax Code and reducing the overall 
rate.
    My company, it is like many small manufacturing businesses 
in America. We are often family owned. We usually own our own 
real estate, and we do not have a significant staff of tax 
experts. We work hard to be competitive, create jobs, and pay 
our fair share.
    Consider that small businesses have provided some of the 
fastest employment and output growth in the United States, but 
we receive some of the worst tax treatment under the Code. 
Usually, smaller manufacturers are paying the highest rates 
because we do not have the resources to develop a globally 
comprehensive tax avoidance plan. That is why I believe we must 
reduce the overall rate, offer a reduction in payroll taxes, 
and fund these reductions through BATs.
    It is also important to simplify the Tax Code and avoid 
disadvantaging small businesses, subchapter S and LLCs. These 
types report the taxes on the owners' personal tax reform. The 
calculations, they are excessively complicated.
    My own family business, which together employ about 80 
people, have three different tax structures: one C corp, two S 
corps, and one LLC to hold the real estate.
    TMA member companies like mine and tens of thousands of 
others throughout the United States, we are not looking for a 
handout or an unfair advantage. What we are hoping for is a 
level playing field from our Tax Code and the opportunity to 
earn our prosperity by, again, competing on price, quality, and 
service.
    All we are asking for from Congress is a permanent Tax Code 
that drastically improves our competitiveness through a move 
toward a more simplified and reduced tax system that places the 
emphasis on a border adjustable component. This reform will 
provide a level playing field so that we can dramatically 
increase good-paying American jobs and grow the American 
economy at a rate we have not seen in decades.
    Thank you for the opportunity to provide this input. I look 
forward to your questions.
    Chairman BRADY. Thank you, Mr. Mottl.
    [The prepared statement of Mr. Mottl follows:]
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    Chairman BRADY. Mr. Farr, you are recognized. And welcome

   STATEMENT OF DAVID N. FARR, CHAIRMAN AND CHIEF EXECUTIVE 
                 OFFICER, EMERSON ELECTRIC CO.

    Mr. FARR. Thank you very much.
    Good morning, Chairman Brady, Ranking Member Neal, and 
distinguished Members of the Committee. Thank you for the 
opportunity to appear before you on this critical U.S. economic 
growth issue.
    My name is David Farr. I am chairman and CEO of Emerson in 
St. Louis, Missouri. I serve as the current chairman of the 
National Association of Manufacturers, NAM, Board of Directors.
    Emerson is a $15 billion manufacturing company providing 
innovative products, solutions in industrial, commercial, and 
residential markets. And we have over 80,000 people and 
operations in more than 150 countries. The NAM, the Nation's 
largest industrial trade association, is committed to a policy 
agenda that helps manufacturers grow and create jobs. We 
appreciate the current efforts to advance pro-growth and 
permanent tax reform.
    Manufacturers of the United States struggle to compete and 
win under a tax system with high tax rates and outdated 
international tax rules and a significant tax compliance 
burden. We have the best chance in over 30 years to advance 
significant tax reform and must take full advantage of this 
opportunity. It will enhance U.S. economic growth.
    Since the last major reform in 1986, manufacturers in the 
U.S. have innovated, but the Tax Code has not. With a combined 
statutory corporate tax rate that could top 39 percent, 
manufacturing in the United States faces the highest corporate 
tax rate among OECD nations. And this is a competitive problem. 
And top rates for manufacturers organized as passthrough 
entities can be even higher, and this hurts their investment 
opportunities.
    Over the past 3 years, Emerson paid $1.8 billion annually 
in taxes worldwide. More than half of that was paid in the 
United States. At an average effective tax rate of 
approximately 32 percent and a marginal tax rate of over 37 
percent, Emerson pays real cash taxes here in the United 
States.
    A key NAM objective shared by Emerson is a top Federal tax 
rate of only 15 percent. We must also lower tax rates for 
passthrough entities including many smaller companies in the 
U.S. manufacturing supply chain. Lower rates will make 
manufacturing more competitive, encourage greater investment in 
the United States, and promote job creation, and stronger 
economic growth.
    Outdated and cumbersome tax rules for taxing international 
income represent another major problem. Emerson's business is 
global. More than 52 percent of our sales in 2016 were outside 
the United States. As a U.S. company headquartered in St. 
Louis, Missouri, Emerson typically pays more in taxes on 
worldwide earnings than our foreign competitors. This is 
another competitive issue. Most developed countries have 
territorial systems, and their global companies pay little to 
no tax when they bring their foreign earnings back home. The 
United States, on the other hand, has a worldwide system, 
meaning global U.S. companies, where they do business they pay 
taxes, as well as in the United States when we bring the 
earnings back home. This added tax burden is a significant 
disadvantage when U.S. companies are competing for global 
business.
    To improve U.S. competitiveness, any tax reform plan should 
include a territorial system similar to those in other 
countries where our competitors are headquartered. This will 
increase U.S. jobs, exports, and strengthen U.S.-based 
suppliers and allow for the flow of capital back to the United 
States for investment right here in America.
    A tax reform plan must encourage long-term capital 
investment by allowing accelerated depreciation of newly 
invested assets, one of the most important being the full 
expensing the first year. Expensing lowers the after-tax cost 
to capital, can drive increased investment and economic growth 
along with job growth.
    As the head of a global manufacturing company headquartered 
in St. Louis, Missouri, I strongly support a robust R&D 
incentive. Continuous research and development is critical to 
ensuring that the United States remains a leader in global 
innovation and maintains Americans' competitive advantage in 
technology.
    U.S. manufacturing want the United States to be the best 
place to compete and manufacture in the world. We want to 
attract direct foreign investment. A permanent tax reform that 
reduces the corporate tax rate to 15 percent, provides lower 
tax rates for passthrough entities, moves to a territorial 
system, maintains a strong R&D incentive, and includes faster 
capital cost recovery, will ensure we achieve this goal and 
improve our country's competitiveness and ability to grow.
    We operate in a fiercely competitive global economy, and we 
need a fiercely competitive tax system. And we need it now.
    Emerson and NAM are committed to working with you to 
advance this much-needed tax reform as soon as possible.
    Mr. Chairman and the Committee Members, thank you very much 
for having me here today, and I look forward to the Q&A. Thank 
you.
    Chairman BRADY. Thank you, Mr. Farr.
    [The prepared statement of Mr. Farr follows:]
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    Chairman BRADY. Mr. Peterson, welcome. And you are 
recognized.

STATEMENT OF DOUGLAS L. PETERSON, PRESIDENT AND CEO, S&P GLOBAL 
                              INC.

    Mr. PETERSON. Thank you.
    Good morning. Chairman Brady and Ranking Member Neal, thank 
you for inviting me to speak. I am grateful for the opportunity 
to share my perspective on how tax reform can help U.S. 
companies of all sizes that are competing in the global 
marketplace.
    I am Doug Peterson, president and chief executive officer 
of S&P Global. Our commitment to transparency, integrity, and 
superior analytics has been at the forefront of U.S. economic 
growth since our founding over 150 years ago as a small 
business. Beginning with the expansion of the Nation's railroad 
system to the rise of the world's most liquid and resilient 
capital markets to the growth of digital information 
technology, S&P Global's essential intelligence has remained 
independent and guided important decisions throughout U.S. 
history.
    Today, I want to thank the Committee for all the work you 
have been doing to reform the Tax Code.
    I offer you my continued support as you move through the 
legislative process.
    My message to you today is twofold.
    First, we need to reform the U.S. tax system, including 
lowering the corporate tax rate, to level the playing field and 
putting in place a more competitive international system.
    Secondly, we need a permanent, comprehensive fix that will 
promote investment, innovation and growth in the U.S. economy 
to support American companies and American workers.
    S&P Global competes on an international level. While we 
have grown significantly since our inception, we have kept most 
of our intellectual property in the U.S., which means we pay a 
large majority of our taxes in the U.S. Since the U.S. 
currently has the highest statutory corporate tax rate among 
the countries in the OECD, at 35 percent, we have a much higher 
effective tax rate than our international competitors. For 
example, Canada has dropped its corporate rate from 36 percent 
to 26 percent, and the United Kingdom will have a rate of 17 
percent by 2020. In fact, throughout S&P Global's history, we 
have consistently paid an effective tax rate of over 30 
percent. While many of our competitors pay in the low teens, 
this high rate hurts our ability to compete against companies 
located in countries where corporate tax rates lower their 
overall costs.
    With a less competitive international system, U.S. 
companies face an uphill battle. Currently, when foreign 
companies establish in a country with a territorial tax system 
to sell goods into the U.S., they pay little, if any, corporate 
tax here. In addition, foreign companies may pay little to no 
corporate tax when they return profits home. In contrast, U.S. 
businesses that sell goods and services to foreign customers 
are taxed fully in the U.S. And more than $2.5 trillion in 
profits from U.S. companies is offshore today, something that 
doesn't happen under other tax systems.
    The basis of our Tax Code was designed after World War II 
when our economy was geared toward manufacturing and 
agriculture. The last rewrite, in 1986, occurred before the 
internet and the information economy, which introduced new 
innovative business models. The emergence of technology, 
advanced manufacturing, modern agriculture, the growth of 
intellectual property, and the globalization of markets, are 
all new features of our economy. The Tax Code, though, has not 
evolved with the economy. The result is a highly unfair system 
that undermines competitiveness. The tax inequities that 
advantage foreign competitors over their American counterparts 
can be traced to this antiquated code. It is time for a change. 
For decades, the United States has been the birthplace of 
innovation and new business formation. We should use this 
opportunity for comprehensive, permanent tax reform to ensure 
it continues to be the engine of growth for small businesses, 
startups, and other American job creators. Today, we are losing 
ground, and we should be leading.
    I hope Congress will seize this moment and enact 
substantial changes that will foster investment, growth, and 
jobs in the U.S.
    Thank you for the opportunity to provide this testimony, 
and I look forward to having a discussion with you today. Thank 
you very much.
    Chairman BRADY. Thank you, Mr. Peterson.
    [The prepared statement of Mr. Peterson follows:]
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    Chairman BRADY. Mr. Rattner, you are recognized. Again, 
welcome.

   STATEMENT OF STEVEN RATTNER, CHAIRMAN AND CHIEF EXECUTIVE 
                 OFFICER, WILLETT ADVISORS LLC

    Mr. RATTNER. Thank you, Mr. Chairman and Ranking Member 
Neal for having me here today. I speak as someone who has spent 
35 years in the private sector as an investment manager meeting 
with companies, analyzing companies, investing with companies, 
as well as having spent time in the Treasury in the early part 
of the Obama Administration. And I would certainly concur with 
what every single previous speaker has said about the need for 
comprehensive tax reform after 30 years of neglect.
    However, in my opinion, any major tax legislation should 
meet several important tests. First, it should be deficit 
neutral given projections for rising fiscal gaps. Secondly, it 
should be fair and certainly not diminish the progressivity of 
our system. Thirdly, it should be growth- and investment-
enhancing. Fourthly, it should improve our international 
competitive position.
    On that basis, the proposal by the Administration falls 
short in several important respects.
    While the President's focus on tax reform is laudatory, his 
1-page plan includes far more detail on how the Administration 
would cut taxes than how it would pay for those reductions. 
Based on the information provided, nonpartisan researchers have 
estimated that its net cost could be $5 trillion to $6 trillion 
over the next decade. Without adequate offsets, these tax cuts 
would drive up interest rates, the deficit, and the Federal 
debt. And I would note that the deficit is already rising 
again.
    These projected deficits would be substantially exacerbated 
by the Trump plan. Again, before incorporating the 
Administration's plan, the Committee for a Responsible Federal 
Budget forecasts that the ratio of debt to gross domestic 
product, already at a historic high of just under 80 percent, 
would rise sharply and could reach 89 percent by 2027, above 
every previous high, except for a short period after World War 
II. The Trump plan would drive this ratio to an astounding 111 
percent by 2027 even as we continue to deal with the effects of 
an aging population.
    To counter these concerns, the Trump Administration appears 
to be resurrecting discredited supply-side theory that high 
deficits resulting from tax cuts don't matter because faster 
economic growth will quickly close the gap. That is not what 
happened following the Reagan tax cut of 1981. And by the end 
of Reagan's tenure, roughly two-thirds of his tax reductions 
had been reversed. Nor is it our experience following the tax 
cuts pushed through by President George W. Bush in 2001 and 
2003.
    To pay for the Trump plan, we would need average growth of 
4.5 percent per year. That has not happened on a sustained 
basis in modern history and is highly implausible in the future 
given our current aging and productivity trends. For its part, 
the nonpartisan Congressional Budget Office projects 
approximately 2 percent growth for the next decade. Treasury 
Secretary Steven Mnuchin believes that annual growth of 3 
percent is attainable from the Trump plan. I know of no 
independent economist who thinks that is possible. And even if 
it were, the result would be about $2 trillion of additional 
revenues, far short of what is needed.
    Secondly, on fairness: Given the economic strains on middle 
and working class Americans with which we are all familiar, it 
is critical that any tax reform plan be focused on helping 
these Americans. However, the details of the Trump plan 
unassailably contradict Secretary Mnuchin's assertions that 
there would be no net tax cut for the rich. The plan includes 
lowering the top rate on earned income, eliminating a 3.8-
percent levy on investment income, and doing away with the 
estate tax and the alternative minimum tax. Yes, some 
deductions are to be eliminated, most notably for State and 
local taxes. But when the Trump Administration provides enough 
information for experts to score the proposal, I have no doubt 
that the rich will be the big winners.
    Gary Cohn, the Director of the National Economic Council, 
has argued the increase in the standard deduction qualifies Mr. 
Trump's plan as a middle class tax cut. The problem is that a 
family of two or more pays less tax under current law than it 
would under Mr. Trump's plan because of the availability of 
both the standard deduction and personal exemptions, which Mr. 
Trump said in the campaign he would end.
    Thirdly, regarding growth and investment: While the large 
tax cuts could be viewed as enhancing short-term growth, the 
size of Mr. Trump's tax cuts, a lack of progressivity, will 
quickly overwhelm the positive benefits. Most importantly, 
rising interest rates will soon squeeze out private investment. 
The Tax Policy Center has estimated that his plan would reduce 
GDP by half a percent after a decade and 4 percent after two.
    Fourthly, it should enhance our international competitive 
position. I would agree that the need for corporate tax reform 
is without question. While the stated rate for U.S. companies 
is 39 percent, many pay far less because of the use of 
avoidance techniques. As a result, the average corporate tax 
rate is 10 to 15 percent--10 to 15 points lower less than the 
statutory rate. That is unfair to many stakeholders. What 
should be done is a thorough elimination of abusive practices, 
such as transfer pricing, in return for lowering of the 
standard rate to 25 percent, which is in line with the OECDs 
unweighted average.
    I would like, during the questions, to talk more about 
issues like the trapped cash that were referred to in the 
earlier comments. But, for the moment, I would close by simply 
agreeing, again, that a comprehensive tax bill is long overdue. 
But it needs to be deficit neutral, and it needs to be fairer 
to the average American as well as reforming our corporate tax 
system.
    Thank you very much.
    Chairman BRADY. Thank you, Mr. Rattner.
    [The prepared statement of Mr. Rattner follows:]
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    Chairman BRADY. And we will begin questions.
    So, fixing our broken Tax Code only occurs once in a 
generation. It is important we do this right.
    The goals the House Republicans developed for this once-in-
a-generation opportunity is, first, rather than a Tax Code 
designed merely to wring money from you, we already have that 
one, we want a Tax Code built for growth, literally designed to 
grow jobs, grow paychecks, and grow the U.S. economy, and, as 
we are doing that, leapfrog America from nearly dead last among 
our global competitors into that top three and keep us there. 
That means designing a Tax Code where our local businesses can 
compete and win anywhere in the world, especially here at home. 
And so we are going all in on growing middle class jobs and 
growing middle class paychecks.
    So let's begin with a bipartisan issue. For years, here in 
this room and back at home, we have heard from our businesses, 
large and small, about the importance of investing back into 
their workers and into their future. That is what led us, 
Republicans, Democrats, together, to support issues like what 
we call bonus depreciation and Section 179, the small business 
expensing. It is all about rewarding businesses for investing 
in buildings, equipment, software, and technology.
    But we want to go bolder. And, as you know, the House 
blueprint calls for a shift from an onerous business income tax 
to a U.S.-based simpler cashflow tax system. And at the heart 
of that, we would provide for a full and immediate write off of 
all that new business investment. And that investment, by the 
way, not only is the key to middle class and Main Street job 
growth, it is key to making our workers more productive. That 
is what drives wages. That is what drives America to the lead 
pack and having the strongest economy on this planet.
    So I want to start with our witnesses.
    So can you explain how having access to full and immediate 
write off of your business investment will lead you to invest 
more in growth and jobs both for you and for customers, for 
example, and businesses who are making those investments 
themselves?
    Mr. Stephens, we will begin with you.
    Mr. STEPHENS. Thank you, Mr. Chairman.
    Very directly, just as it has with bonus depreciation over 
the last few years for our company, we would invest more with 
immediate expensing. We would take the dollars saved on that 
tax return and invest those in more capital. When we do that, 
we invest in research, we invest in technology, we invest in 
productivity. For us, that means building out more broadband. 
For us, that means building out more fiber optics. Those 
provide jobs: not only the engineers who design and the 
researchers who develop those new 5G-type systems, but our 
proud employees who actually construct those and who build 
those and who maintain those. And so they are going to have 
better jobs. They are going to have higher wages. And, 
therefore, the entire ecosystem is going to be better off.
    I will also tell you it will have a direct impact on our 
property tax liabilities. So the State and local and county 
governments will get more revenues because we do pay property 
taxes----
    Chairman BRADY. Yes, sir.
    Mr. STEPHENS [continuing]. Sales taxes on all that 
investment. So it is a virtual cycle of economic growth that 
comes out of additional business fixed investments.
    Chairman BRADY. Does it also make your customers--many are 
small businesses and other businesses--you know, buying this 
technology, really upgrading your equipment, your computers, 
all your technology can be expensive. So being able to write 
that off immediately, does that help small businesses be able 
to invest more in the types of technologies you are offering?
    Mr. STEPHENS. Certainly. You know, many of our vendors, 
many of the people in our supply chain are small businesses. 
Many of them are diverse businesses. So they would be 
immediately helped. It would help them generate the business. 
And, you know, from a perspective of being what I think most 
would consider a large business, small businesses are some of 
our best, most wonderful customers. We want small business in 
this country to succeed. It is good for the demand on our 
services.
    Chairman BRADY. Absolutely.
    Mr. STEPHENS. So this is a complimentary situation, not one 
that is in different views. We want small business to have that 
opportunity to succeed in this environment.
    Chairman BRADY. Thank you.
    And so that leads to the family-owned business, who both 
invests in your plant, but customers were buying your products 
as well.
    Mr. Mottl, from your standpoint, the ability to write off 
those new investments going forward both for you and your 
customers, what is that impact?
    Mr. MOTTL. Well, that is really important for us, Mr. 
Chairman. Since 2015, my company has invested $3.5 million in 
new equipment and new plant. Right now, we are doubling the 
size of our plant, putting on an addition right now. All of 
those types of things, immediately expensing them, that would 
really help us. You know, for our sales, our sales are just 
under $10 million. So, from a perspective of a percentagewise, 
we are really investing in the future; we believe in it. And I 
think that an accelerated depreciation would certainly help us 
continue to do that.
    Chairman BRADY. Thank you, Mr. Mottl.
    Mr. Farr, manufacturing, if you want to stay competitive, 
you got to reinvest all the time in your business.
    Mr. FARR. Right.
    Chairman BRADY. It is expensive. And your customers are 
reinvesting; they are buying those products. So how, for the 
first time in history, all businesses of all sizes immediately 
being able to write off from their taxes that business expense, 
what impact does that have?
    Mr. FARR. It has a significant impact on our returns, 
obviously drives a higher level return from the standpoint of 
cashflow, gives our cash back to us, which gives us more money 
to invest down the road. We have invested over the last 5 years 
over $3 billion in capital.
    Capital drives growth. Capital drives productivity; it 
drives jobs. But having a return on that, obviously at a higher 
level, and the cash coming back into the corporation gives us 
more money to invest in capital, people, and growth, and that 
will drive faster economic growth overall.
    Chairman BRADY. Thank you, Mr. Farr. And that sort of 
illustrates the power of a simpler cashflow system that really 
focuses on that.
    Mr. Peterson, your insight, sort of looking, you know, at a 
broader range of the economy, but the technologies and services 
that you sell as well, what is the impact of being able to 
immediately write those down and capture that cash, make those 
new investments?
    Mr. PETERSON. What is most important for us is that it 
would allow us to keep those jobs in the U.S. Today, there is a 
competitive environment because other countries around the 
world have such low tax rates. In fact, there are countries 
calling on us. We receive relationship management calls from 
other countries, from Singapore, from Ireland, where they come 
visit us to ask us to move those jobs to those countries. They 
are high-paying jobs that require economists, quants, 
mathematicians, people designing new intellectual property. 
They want that intellectual property overseas. These types of 
tax changes will allow us to continue to develop our products 
and services in the U.S. We will invest in the U.S.
    In the last 2\1/2\ years, we have invested in large 
operations in Charlottesville, in Texas, in Colorado, and in 
New York. And this would ensure that we would continue to do 
those investments in the United States.
    Chairman BRADY. Thank you, Mr. Peterson.
    Mr. Rattner, thank you for bringing your criteria forward 
on pro-growth tax reform. Bringing those solutions and 
principles is extremely helpful. So your viewpoint, you work 
and see many clients, whether they are in manufacturing or 
technology, small or large businesses, investment growth, you 
know, growth that comes from that investment and incentives.
    So your view on unlimited, immediate, all size business 
investment, and those productive investments, what impact do 
you see from this provision?
    Mr. RATTNER. Thank you, Mr. Chairman.
    First, I would certainly concur with others that the rate 
of investment in this country is below what it should be.
    Secondly, I would certainly concur with the notion that if 
you gave someone, for example, immediate write off of all of 
their capital expenditures, that they would invest more. That 
is fairly obvious. If you give somebody money to do something, 
they are likely going to do more of it.
    But I think that the focus on this provision is excessively 
narrow in terms of what is affecting investment in this 
country. When I spend time talking to CEOs in companies, sure, 
if you lower their taxes they might invest more. But they also 
are faced with the fact that demand in this country is quite 
weak because personal incomes have been quite weak because 
wages haven't gone up. And so they are investing more money in 
other parts of the world where they see faster growth and more 
demand, and so I think the question of investment in this 
country has to be viewed more holistically in the context of, 
how do we get growth here? And this may be one piece of the 
final solution, but it is not the Holy Grail. It is not going 
to singlehandedly solve the investment challenges in this 
country.
    Chairman BRADY. Thank you, Mr. Rattner. I agree. We have to 
take tax reform in a comprehensive way and put together a 
number of pro-growth provisions, but the investment part of 
this is key to middle class growth. And the estimates of the 
House blueprint are that it will raise the average after-tax 
wages of a family of four by $5,000, again, helping create the 
demand that helps grow our economy as well.
    So thank you all for those responses.
    Mr. Neal, you are recognized.
    Mr. NEAL. Thank you, Mr. Chairman.
    Mr. Rattner, let me begin by taking a moment to thank you 
for your leadership and to recognize the success of the 
automobile restructuring that took place during the midst of 
the recession.
    I remember having extensive conversations with individuals 
like Mr. Levin at the time. And our greatest fear was that, if 
that industry entirely collapsed, the R&D would have been moved 
offshore permanently and trying to get it back would have been 
near impossible. So I think we begin by thanking you for what 
you were able to do to help turn around that industry and also 
to thank you for your government service.
    And as I noted in my opening statement, Mr. Rattner, my 
priority for tax reform is the middle class. The middle class 
has contracted in the United States over the past two decades, 
while those at the top have done better than ever before. That 
is not a statement that comes from a Democratic manifesto; it 
is from the Pew Foundation and many think tanks across the 
country.
    Working families did send a strong signal last November. 
They are frustrated by stagnant wages. They are tired of a Tax 
Code that favors the big- over the medium-sized incomes across 
the country, and the greater concentration of wealth, again, at 
the top. They are anxious about a very uncertain financial 
future. And the true winners of tax reform must be middle class 
Americans and their families.
    In your testimony, Mr. Rattner, you agreed with the 
position that was offered that it is critical that any tax 
reform plan be focused on helping middle and working families.
    Would you please provide us with some suggestions that you 
might have? And I hope that you will also have a chance to 
touch upon the need for greater retirement savings incentives 
in our Code for the very families that I have just described. 
So addressing income stagnation and retirement savings and 
rising income inequality is a big problem in America. Based on 
your experience, Mr. Rattner, we would like to hear from you.
    Mr. RATTNER. Thank you, Congressman Neal.
    I think any tax reform package needs to be a balance. It 
needs to address a variety of needs. We have talked a lot in 
the first part of this about investment, but you have now 
talked about the situation with the average American.
    I don't believe, in response to Chairman Brady's comment, 
that, while there certainly would be indirect effects on 
average Americans of investment tax benefits, I don't believe 
that that is the most direct way to help them. I think it is, 
frankly, a kind of a form of trickle-down.
    I think when you look at the tax proposal that has been 
made by the Administration, you will see that it is very 
unbalanced. It has not yet been scored, but President Trump's 
campaign proposal was scored, and 83 percent of his tax plan 
would have gone to the top 20 percent of Americans, who would 
have gotten an average of a $25,000 tax cut. The middle class 
average American would have gotten a $1,000 tax cut. That is 
not my view of what a fair and balanced tax plan would look 
like.
    So I think part of the equation is to give middle class 
Americans more of a tax cut so that they can go out and spend 
and they can help get our growth rate up to a higher level.
    With respect to the question of retirement savings, that is 
a whole another subject, but we have a huge problem of 
retirement savings in this country. 401(k)'s and IRAs have 
created some benefits, but they have also led to a vast amount 
of undersaving by Americans, who are facing a really tough time 
in retirement, and I think we need to think about a fairly 
comprehensive restructuring of that whole program.
    Mr. NEAL. Thank you.
    Chairman BRADY. Thank you, Mr. Neal.
    Mr. Nunes, you are recognized.
    Mr. NUNES. Thank you, Mr. Chairman.
    I think it is safe to say that all of you have expressed 
some level of support for moving to a cashflow system. And one 
of the opportunities that we have during hearings like this--
and this being one of the first hearings that we are going to 
have of multiple hearings, I think, over the course of the next 
few months--is having folks like yourselves be able to speak 
before the American people here in Congress, but begin to talk 
about, you know, switching from an accrual system to this 
cashflow system with full expensing and all of the benefits 
that that will do for the American people in terms of not only 
growth in the economy but also wage growth.
    And why don't we just start with you, Mr. Stephens. Having 
a big company, one of the largest companies in the United 
States, the opportunity to go from a complicated accrual 
accounting system, where I am sure you have an army of lawyers 
and tax accountants, switching to a cashflow system like this, 
I think this is going to give your folks that work with you 
some real opportunities to get away from trying to navigate the 
complicated Tax Code and begin to look at where best to invest 
money for your company.
    I don't know if you could expand on that and explain some 
of the opportunities this will give you.
    Mr. STEPHENS. Certainly simplification of the process and 
the simplification that might be required to provide some 
balance to comprehensive tax reform would be very helpful. You 
are right: We file over 250,000 tax filings a year here in the 
United States. And yes, we do have a large collection of 
professionals who work hard to make sure we live up to all 
those laws.
    Quite frankly, from our perspective, the provisions of a 
lower rate and incentive to invest in capital would be the most 
effective way for us to increase our investment and, through 
that, hire more people, generate more jobs through our supply 
chain, and generate more research with technology development 
and, quite frankly, improve the wages of our employees and, 
quite frankly, of their peers who work for other companies. And 
as that goes through the system, it would generate demand for 
our services, and that is the real answer for economic growth.
    As peer companies that are represented today from all sizes 
invest, they would put demand on our services. They would put 
demand for labor and for wages. And you would see growth of a 
significant level, we believe, for all. And then for us, it 
would generate on the top line.
    So, yes, there would be simplification, but we are a large 
company. We have resources. That simplification aspect is 
really much more beneficial, I think, to the small- and medium-
size businesses. And they are very important to our company 
because, you know, they make up some of our best customers.
    Mr. NUNES. I think that is a great transition, because 
sitting next to you is a small-business man from Illinois.
    Mr. Mottl, welcome. I have a district that has a lot of 
small businesses. And I think having you here today sitting 
next to one of the largest companies in the United States 
really shows how we can get big businesses in America and small 
businesses in America to agree that moving to a cashflow system 
like this would be very beneficial.
    And so could you walk us through just kind of the 
opportunities that moving to this system would give a small 
business like yours, Mr. Mottl?
    Mr. MOTTL. Absolutely. Thank you. You pointed to the 
relationship here. I would like to point out AT&T and the 
telecom industry was one of the biggest customers of my company 
for almost a hundred years. You know, we built a lot of the 
components of the phone network. So the supply chain 
relationship that we are talking about is so important. If my 
big customers are healthy and they are buying parts and pieces 
and product from me, I am happy. You know, that is tax reform 
for me, making my big customers competitive and able to do 
business in the U.S.
    I think, in relation to the tax that we are talking about, 
the cashflow tax, you know, I have seen some models that maybe 
have a little concern for small businesses, but I would just 
ask you to consider maybe thinking about a border adjustable 
profit tax as you move through that. It is very similar to what 
you are talking about, but maybe would focus more on profits 
and cashflow. But either one of the models is a great 
improvement. And, again, anything that simplifies, reduces, and 
gets my customers happy and doing business with me, it is a 
great tax reform for me.
    Thank you.
    Mr. NUNES. Thank you, Mr. Mottl.
    I have got a few seconds left, Mr. Farr.
    Mr. FARR. I agree. Having healthy small business is very 
important. They are key suppliers of ours. If I can redirect 
money from tax compliance and doing tax forms to engineering 
and new products and innovation, that will obviously grow the 
economy because that is productive assets which go into growing 
the economy and making new products and helping America be 
competitive. So that really allows us to redeploy where our 
assets go into productive parts of the economy. I am not saying 
tax lawyers aren't productive, but I would rather make a new 
product.
    Chairman BRADY. We know that, Mr. Farr.
    Mr. NUNES. Thank you very much.
    I yield back, Mr. Chairman.
    Chairman BRADY. We would never say that.
    Mr. Levin, you are recognized.
    Mr. LEVIN. Thank you.
    And welcome to all of you lawyers and nonlawyers.
    You know, I think there is general agreement we need to 
look at the corporate tax structure, and the Obama 
Administration did so. And I think the question is, how, and in 
what environment?
    I just want to read from a new report, just a couple months 
old, from the University of Chicago Booth entity, and I quote: 
``I find that the stimulative effects of income tax cuts are 
largely driven by tax cuts for the bottom 90 percent and that 
the empirical link between employment growth and tax changes 
for the top 10 percent is weak to negligible over a business 
cycle frequency.''
    And then I will continue reading: ``If policymakers aim to 
increase economic activity in the short to medium run, this 
paper strongly suggests that tax cuts for top income earners 
will be less effective than tax cuts for lower income 
earners.''
    ``Overall, the results not only suggest some skepticism for 
'trickle down' economics, but they also provide evidence that 
supply-side tax policies should do more to consider the 
relative efficacy of tax cuts targeted lower in the income 
distribution.''
    So I just want to mention that when we talk about 
comprehensiveness, just let's keep in mind whom we are trying 
to benefit. Jobs. There is much talk on the Republican side 
about the middle class. The Trump proposal is the opposite of 
that.
    Also, I just want to make a comment. Mr. Stephens, one of 
your statements: Our current tax system also harms workers; 
they bear up to 75 percent of the corporate tax burden through 
lower wages.
    I just suggest there be some caution because corporate tax 
profits have increased dramatically while wages have stagnated. 
And I think there is much doubt, if I might say so, about that 
reference.
    Let me just say a word about bonus depreciation. We tackled 
that a couple years ago. And CRS made clear that the efficacy 
of bonus depreciation depended on its being temporary. And that 
is why it was enacted in the first place, as a boost during a 
recession. And so when you essentially adopt it in a 
nonrecession period, the CRS casts immense doubt on its 
efficacy over the longer run.
    And I mention this because I think we need, on a bipartisan 
basis, to take a hard look at these issues and not kind of just 
put them out there as if they are some kind of a magic wand 
because CRS essentially says it is not. And, indeed, Dave Camp 
left bonus depreciation out of his proposal all together.
    I want to ask each of you quickly: None of you except Mr. 
Rattner have talked about the impact on the deficit and how we 
pay for a corporate tax reform. Are you concerned about this, 
or are you among those who say, ``Let it flow; if the deficit 
increases, it will essentially bring about economic growth''?
    Just quickly, there is just a minute. Are you worried, each 
of you, about paying for corporate and other tax reform?
    Mr. STEPHENS. Representative Levin, I can start. Certainly, 
we are as a member of the group of companies that operate here 
in the United States and part of our--and this is our home. 
Absolutely. That's why in our comments we talked about trade-
offs.
    Mr. LEVIN. Okay.
    Mr. STEPHENS. In comprehensive reform, there will be 
tradeoffs. We understand that. And that is just something that 
we are going to have to work through so that we come up with a 
complete and workable package.
    Mr. LEVIN. Mr. Mottl, are you concerned?
    Mr. MOTTL. Yes, Representative, but I want you to have your 
cake and eat it too. I have given you the opportunity to, with 
the goods and services tax, to pay for the corporate tax cut 
and give working Americans an immediate boost to their 
paycheck. So I hope that answers your question.
    Mr. LEVIN. All right.
    Mr. FARR. Congressman Levin, I would say, yes, I am 
concerned about the deficit as an individual taxpayer and a 
CEO, and I look for tradeoffs back and forth to make sure we do 
this right for the economy on a balanced basis. So I think it 
is very important.
    Mr. LEVIN. Mr. Peterson.
    Chairman BRADY. Thank you. All time is expired, Mr. Levin.
    Mr. LEVIN. Okay.
    Chairman BRADY. So I would point out the House Republican 
blueprint, as designed, balances in the budget counting on 
economic growth is properly measured.
    Mr. Tiberi, you are recognized.
    Mr. TIBERI. Thank you, Mr. Chairman.
    I want to echo your comments, Chairman, earlier about full 
expensing and how important it is, and that is why I have been 
an advocate of 179, making 179 expensing permanent, bonus 
depreciation. I am not going to take the bait and ask someone 
to respond about bonus depreciation because I think that was 
covered as well.
    Business investment, as all of you know, declined last year 
for the first time since the recovery began. Not a good sign. 
So before I ask my question, I want to thank you all for 
sharing your experiences, but one of the things in Mr. 
Stephens' and Mr. Farr's testimony that struck me as so 
important is the underlying debate in letting the perfect be 
the enemy of the good is the cost of delay.
    You know, we can pick apart any piece of this, but the cost 
of delay is so important. And how do we put a cost to that 
delay? And as the rest of the world has reformed and lowered 
rates and taken our jobs, we continue to let the perfect be the 
enemy of the good.
    I would like each of you to comment, if you could, in terms 
of jobs, in terms of economic growth, in terms of investment, 
what is the cost of delaying? We have been talking about tax 
reform here on this panel for years now, and yet we continue 
like the perfect be the enemy of the good.
    Mr. Stephens, what is the cost of delaying this again?
    Mr. STEPHENS. Lost wages for our working class today. It is 
underemployment. It is participation rates in the workforce 
that are at historically low levels.
    Mr. TIBERI. And middle class workers are probably the bulk 
of your employees.
    Mr. STEPHENS. By far, the bulk. We are the largest, we 
believe we are the largest union employer in the country. We 
have over 120,000 representative workers. We are proud of them. 
They do great work for us. They would be the largest 
beneficiaries of the additional capital investment, because 
they are the ones who do much of that work.
    Mr. TIBERI. So your headline is the cost of delay impacts 
the middle class worker.
    Mr. STEPHENS. Absolutely.
    Mr. TIBERI. Thank you, Mr. Stephens.
    Mr. Mottl.
    Mr. MOTTL. Absolutely. Delay cannot happen. You know, we 
saw what happened with the markets yesterday because they are 
concerned people, we are not going to get things done here. So, 
you know, I have invested all that money in my business, and I 
am expecting to get a return on it and be able to pay back the 
investors, my family, and the bank. So I need my customers to 
be healthy. I need tax reform right now. My employees need it 
as well. They want to start saving and getting ready for the 
future.
    Mr. TIBERI. Mr. Farr, thank you for your investment in 
Ohio, by the way.
    Mr. FARR. Thank you very much. We are moving ahead- because 
I am assuming this body will get true tax reform done- in Ohio, 
with a $100 million investment there right now. But the cost of 
delay means lack of innovation, less new products, less jobs, 
and it is that simple. We just look at how much growth is going 
to be, and we pare it back based on delay. And every time it is 
delayed, we push that investment out. And so it does have a 
real impact on people, how we hire, investment, new products.
    But I firmly believe that we will get tax reform, and that 
is why we are moving forward in Ohio, Wisconsin, and down in 
Texas and Missouri right now, because I think that this body 
understands the importance of getting real tax reform in the 
first time in over 30 years. So we are betting on you that you 
are going to get it done.
    Mr. TIBERI. Mr. Peterson.
    Mr. PETERSON. The cost of delay is also the cost of 
investment. If the delay is to not get a lower rate and not to 
get a territorial system, we are going to see more companies 
looking for some sort of inversion, not bringing their cash 
flow back from offshore.
    Just recently, one of the companies in our industry did a 
$3.3 billion offshore investment with their offshore cash. We 
have no chance of getting any of that cash back to the United 
States.
    Mr. TIBERI. Great point.
    Mr. Rattner, don't ruin the picnic now.
    Mr. RATTNER. I am sorry, I didn't hear.
    Mr. TIBERI. Don't ruin our picnic.
    Mr. RATTNER. I am not going to ruin your picnic on this 
one.
    Chairman BRADY. Thank you.
    Mr. RATTNER. We can all agree on that on your question. I 
don't think there is any--there is a lot of disagreement 
probably on exactly what we should do, but I don't think any 
reasonable person could disagree that sitting where we are 
sitting now, having done nothing really for 30 years in terms 
of comprehensive tax reform has cost us millions of jobs, 
billions of dollars and so on. And every day when I pick up the 
paper and read about another company either moving itself or 
moving its jobs overseas, it really upsets me, because I think 
we could be doing something about that right now.
    Mr. TIBERI. Thank you, sir.
    Mr. Chairman, I yield back.
    Chairman BRADY. With that agreement, we ought probably stop 
the hearing at this point, just so you know. Thank you very 
much.
    Mr. Lewis, you are recognized.
    Mr. LEWIS. Thank you very much, Mr. Chairman.
    Mr. Rattner, I want to join Ranking Member Neal with 
thanking you for your service, for your service to our country.
    Mr. Rattner, I am very concerned about fairness and values 
in comprehensive tax reform. Some have said this is a once-in-
a-generation opportunity. I think we must take our time and we 
must do it right. We must get it right.
    As we consider tax reform, do you think it is important to 
consider the impact on working families and future generations 
when we consider reforming the tax policy?
    Mr. RATTNER. Yes, I do. I think it is important. As I said, 
I think it is just as important as getting comprehensive tax 
reform, removing the loopholes and avoidance techniques, both 
for individuals and for companies, as well as getting the 
corporate tax system fixed. I think it needs to be fair, and I 
think it needs to have a positive impact for the average 
American.
    I think to have a $5\1/2\ trillion tax bill that involves a 
$1,000 tax cut for an average American making $50,000 a year 
doesn't seem fair to me. I think there needs to be fairness.
    As I said earlier, I think the comments on business 
investment, which I understand why they are being made, affect 
the supply side principally of more investment, more factories. 
That is all good. But we also need to do things on the demand 
side of putting people in a position to earn higher wages so 
that they can go out and spend more and get the economy growing 
faster.
    So while I do share the view that we need comprehensive tax 
reform, I am very troubled by the proposals that are on the 
table, both from the Administration and the House blueprint 
that the chairman has referred to a few times in terms of a 
balance of, not just fairness, but also of stimulating every 
part of our economy, not just the investment side of our 
economy.
    Mr. LEWIS. Do you have any recommendation what we should be 
doing?
    Look at the panel. Just look. All White men. Where are the 
women? Where are the minorities? Where are the low people?
    Would you like to respond?
    Mr. STEPHENS. Representative Lewis, from AT&T we take great 
pride in the diversity of our employee base, our customer base. 
We have been recognized by many, many industries for our 
accomplishments. We have a longstanding supplier diversity 
program. We spent close to $15 million----
    Mr. LEWIS. Sir, I appreciate that, but I don't see any 
African American, Latinos, Asian Americans, or Native 
Americans. I don't see any women here speaking up or speaking 
out of what they need, what they want.
    Our country is a very diverse country. Our forefathers and 
our foremothers all came to this great country in different 
ships, but we are all in the same boat now, and we should look 
out for each other and care for each other.
    I yield back.
    Chairman BRADY. Thank you, Mr. Lewis. I think we agree on 
that point and recognize that our Democratic colleagues on the 
Committee have an opportunity to bring witnesses to this table 
as well. I think it is important for us.
    Chairman BRADY. Yes. And made that choice. And I think it 
is important, if I may.
    Mr. LEWIS. Mr. Chairman, would you yield?
    Chairman BRADY. Not at this time.
    Mr. NEAL. Mr. Chairman, would you yield?
    Chairman BRADY. Yes, I will.
    Mr. NEAL. Mr. Chairman, the breakdown of the witnesses, 
which is a pretty good discussion, I think we would all agree 
it is helpful, but the breakdown of the witnesses four-to-one 
is not representative or reflective of the proportions of 
representation on the Committee from the two political parties.
    Chairman BRADY. So it is traditional to take this type of 
approach. My only point is this: I think it is important as we 
talk about middle class workers, as we invite our witnesses 
here, we recognize they represent a diverse group of Americans 
that Mr. Lewis has championed beautifully for over the years.
    Mr. NEAL. Mr. Chairman, does the gentleman yield?
    Chairman BRADY. Not at this time.
    So, Mr. Reichert, you are recognized.
    Mr. REICHERT. Thank you, Mr. Chairman. Thank you for your 
testimony today. Bottom line is we are trying to create a Tax 
Code. You have all touched on it, all the members of the panel, 
that would allow job growth, create jobs, increase paychecks, 
grow our economy, and help hard-working Americans.
    We all agree the Tax Code is broken. It is too complicated. 
So I want to touch on a question that Mr. Tiberi highlighted, 
and I will also tie it back to Mr. Lewis' point, if I could.
    So, Mr. Peterson, you talked about the impact of our 
outdated Code on your business, and I just would like you to 
elaborate just a little bit more on what an updated code would 
mean for you, and more I think importantly, what it would mean 
for your employees, for the hard-working Americans that Mr. 
Lewis has referred to and others prior to my questioning, how 
is it going to impact your employees? And it has been mentioned 
a little bit, but if you can dive into that question for me.
    Mr. PETERSON. Thank you, Congressman. As I described 
before, and let me give a little bit more detail, we have been 
a company that has been around for 150 years. We have developed 
our products and services which create intellectual property. 
We don't produce tangible goods. We produce goods and services. 
Our intellectual property is registered and owned in the United 
States, principally in New York.
    When we export our services, we pay full taxes on those 
goods and services in the United States and in the New York 
State. Our competitors have their intellectual property and 
intellectual capital registered offshore, and they pay very low 
taxes. When they sell those products and services into the 
U.S., they do not pay those same taxes on their products and 
services.
    Second point, new companies that are being developed today, 
in the last 15 or 20 years, they begin their development of 
their company from scratch with a tax policy. And they register 
their intellectual property offshore. Immediately, they set up 
the employees offshore. They put a service center in Dublin or 
in Luxembourg or in Singapore. They own their intellectual 
property offshore, and then they sell it back to the United 
States, and they don't pay taxes on it because the royalties go 
back to an offshore business. We compete against companies----
    Mr. REICHERT. Okay. For Americans today that are watching, 
how is this going to help them with taxes?
    Mr. PETERSON. What it means for Americans today is if we 
reform this tax, the territorial taxes to a low rate, we will 
invest more in the United States.
    Mr. REICHERT. What does that mean for the American worker, 
investing more here in the United States?
    Mr. PETERSON. What that means is that we will create more 
jobs.
    Mr. REICHERT. Creating more jobs. Are they going to be 
higher paid jobs?
    Mr. PETERSON. There are all kinds of jobs. We have jobs all 
the way from lower-end jobs. We need people at all different 
levels----
    Mr. REICHERT. These are not jobs just for White Americans, 
White older male Americans?
    Mr. PETERSON. These are jobs for people from all over the 
country and all backgrounds.
    Mr. REICHERT. Diverse Americans. Every American citizen, 
every American who is working in this country will benefit from 
this Tax Code. Is that correct?
    Mr. PETERSON. Every American----
    Mr. REICHERT. All of you are nodding your heads.
    Mr. PETERSON. Every American----
    Mr. REICHERT. It will be good for all hard-working 
Americans, correct?
    Mr. PETERSON. This is good for all hard-working Americans. 
Every time we start a new operation, we have to build 
facilities, we have to get it organized in that regional 
section. We hire all types of workers, and it is a great 
benefit for the entire spectrum of U.S. workers.
    Mr. REICHERT. Great. All of you agree?
    Mr. Farr, I would like to follow up on your comments about 
the importance of tax reform as it relates to U.S. 
competitiveness and economic growth. In your view, and I know 
we have had, you know, lower corporate rates, permanent, 
territorial, simplified, a little expensive, comprehensive. 
What is your, in your opinion, the best thing that we can do, 
the most important thing we can do when it comes to tax reform?
    Mr. FARR. From my perspective, the lower tax rate is the 
most important thing. And I know there is going to be a lot of 
tradeoffs pluses and minus relative to that lower tax rate, but 
I think it is very, very important to have the lowest tax rate. 
That will help all employees.
    In the last 10 years, we have increased our wages year by 
year by year, but my employee base has lost a lot from higher 
taxes, higher cost of benefits, and so that is eaten away. So a 
lower tax rate will help them.
    Mr. REICHERT. In 20 seconds, the importance of permanence.
    Mr. FARR. Permanence is critical because I make decisions 
over 3 years, 5 years, and 10 years. I don't make a decision by 
a quarter. It is a 10-year horizon.
    Mr. REICHERT. You need certainty to help American workers 
keep their jobs, right?
    Mr. FARR. That makes a big difference. That is why I am 
betting to making those investments in Ohio right now, because 
I am certain you are going to do it.
    Mr. REICHERT. Great. I yield back.
    Chairman BRADY. Thank you.
    Mr. Doggett, you are recognized.
    Mr. DOGGETT. Thank you, Mr. Chairman, and thank you to our 
witnesses.
    This is a very troubling time in American history. Our 
national security has been jeopardized. Our democracy is 
threatened, while so many have remained silent about it. 
Hopefully, the appointment of a special counsel is a first step 
to seeking justice and to assuring Americans that our system of 
checks and balances is not entirely broken.
    The subject of today's hearing is directly related to the 
willingness of so many to ignore a growing tower of Trump 
travesties. Some see Trump as the only ticket to more tax 
breaks, and they are willing to pay almost any price to get 
them. Today is also noteworthy as the first time ever, after 
almost an entire year, that anyone has come forward in a public 
hearing anywhere to justify this self-styled Better Way tax 
plan.
    Now, I certainly favor public policies, including tax 
policies, that are designed to encourage entrepreneurship and 
grow jobs here in America. And we know what some of those 
public policies are: that if we invest in our workforce where 
there are growing workforce shortages, in education, and job 
training for jobs that are going unfilled, we can become more 
competitive. Those are the very programs that President Trump 
proposes to slash.
    We know that if we have a competitive infrastructure 
instead of trucks backed up on our highways and trains on 
outdated systems like our competitors in Europe and Asia, we 
can be more competitive and grow our economy. But some of those 
are programs that President Trump proposes to cut and the rest 
of the ones that he has never gotten around to making a 
proposal on.
    And, of course, the best way to grow our economy at the 
least cost is comprehensive immigration reform, according to 
economists and business groups across the spectrum. But that 
doesn't fit the ideological structure of this Administration.
    As for tax policies, well, apparently our Tax Code is 
outdated. It is full of loopholes. It doesn't work very well, 
but the witnesses that are before us today are from companies 
that seem to have done pretty well under that system. And they 
tell us today that if they pay less or no taxes every time they 
invest a dollar at home, they will begin investing more at 
home. Well, I question the logic of that. I think they offer 
many valuable insights, a number of which I agree with.
    I think that we need a tax policy that encourages jobs at 
home. And when the Chairman of our Committee tells us there are 
proven ways to grow our economy, I think what these hearings 
have to be about is to show us the proof that this particular 
Better Way tax plan will actually grow jobs. And that proof has 
to come from some people who come before this Committee who are 
not telling us basically that they think giving themselves a 
tax break is a good thing, because I think everybody will agree 
to that kind of conclusion.
    As far as what has been testified to here today, we do need 
a tax rate for corporations that is lower than it is today. Of 
course, if we lower the tax rate into the 20 percentile, that 
will be much more than many corporations are actually paying 
today. We need comprehensive tax reform that involves 
tradeoffs. The Tax Code is replete with tax loopholes, but we 
don't have really a list of tax loopholes that would be close 
today, only vague talk of tradeoffs. And certainly, we don't 
just need tax cuts, we need comprehensive reform.
    This is not the first tax cut that this Committee has 
considered. We have already approved in the House an almost 
trillion-dollar tax cut that will provide most of its benefits 
to the super rich and a few corporate interests like the 
pharmaceutical industry.
    Before his confirmation, Treasury Secretary Mnuchin 
promised that there would be no absolute tax cut for the upper 
class, but the one page, I guess it is shorter than a grocery 
list, that has been presented more recently by Mr. Mnuchin is 
chock-full of candy for those at the top and very vague 
promises for the middle class. One analysis of it suggests that 
the top 400 taxpayers will get $15 million each.
    We need to be working on a comprehensive tax reform that 
provides benefits to the middle class and that does not raise 
the national debt. The Committee has said that is their 
position. That has not been Mr. Trump's position. And coming 
together on that will be critical as we move forward.
    I yield back.
    Chairman BRADY. All time has expired. Thank you.
    Mr. Roskam, you are recognized.
    Mr. ROSKAM. Thank you, Mr. Chairman. My friend from Texas 
just argued essentially that we needed a lower tax rate, and 
then implicitly criticizes the people that are coming 
advocating for a lower tax rate, but I digress.
    There is an old phrase that says this, that when the bulls 
fight, the grass loses. So who loses as we dither under the 
current Tax Code? The wealthy are not suffering today. Wealthy 
are doing well. It is the folks who are at the lower end of the 
economic spectrum who suffer if we wring our hands and lose a 
once-in-a-generation opportunity by pursuing a perfect Tax 
Code, which is a complete illusion. Perfect Tax Code is the 
unicorn of 2017. What we want is a good Tax Code. What we want 
is a Tax Code that Mr. Lewis can celebrate when he says, 
``Let's get it right.'' Okay. Let's get it right.
    So one of the things that we need to discuss and really 
litigate, publicly understand what it means to get it right, 
two of you, Mr. Mottl and Mr. Farr, mentioned in your 
testimony, and I am interested in exploring this, what is the 
value of permanence? What is the value of permanence?
    So we often talk in terms of, you know, renting things 
versus buying things. We put a premium on owning something. And 
it would seem to me that there is a real premium on permanence. 
All of you have been, you know, been exposed in terms of market 
places and so forth.
    So, Mr. Stephens, let's start with you. A permanent tax 
policy versus a temporary tax policy, and put this in the 
context of all the anxiety that we feel and the debate around 
this place where we have these tax extenders and temporary 
policy that, you know, that fade off in 24, 36, 48, pick it, 
number of months. What is the value to you? And then further on 
down the line, because you told Mr. Reichert what happens down 
completely throughout the whole chain, how important is 
permanence? You got a minute on it?
    Mr. STEPHENS. Permanence is extremely important. The 
ability to look at, not as Mr. Farr said, a quarter or a year, 
but looking at 3- and 5- and 10-year plans, particularly in the 
investments that a company like ours make that are in 
infrastructure investments that provide benefits literally over 
decades. And so having that ability of permanence, knowing what 
the rules are, tell us what the rules are and we will abide by 
them, but knowing that and having that allows us to make 
consistent, significant, material capital investments that 
allow for the demand for jobs, demand on our suppliers, and, 
quite frankly, with the demand on those jobs, as you put more 
demand for more labor, wages go up. It is simple supply and 
demand.
    It is a consistent, it is a cycle that continues to repeat 
itself as they come back and buy more mobile services, as they 
buy more----
    Mr. ROSKAM. Thank you.
    Mr. STEPHENS. So it is very important to have consistency 
and permanence with regard to the rules.
    Mr. ROSKAM. Mr. Mottl.
    Mr. MOTTL. Yes. Well, you know, I can't speak enough about 
permanence. You know, businesses vote with their feet, right? 
You have to answer to your constituents. Most of them have a 
job. But a business doesn't vote. It just leaves and takes its 
jobs. And, you know, you talked about the success of 
businesses. I have been fighting for my life, my business, for 
the past decade as my customers keep leaving this country. I 
get one industry figured out and we are doing great with them, 
and then they leave, and now I have got to find another and 
another. And it has been a tough battle for the last decade or 
longer.
    So I think a permanent Tax Code is so important to get my 
customers back in this country buying product from businesses 
like mine.
    Mr. ROSKAM. Mr. Farr, what would it mean for you and 
Emerson Electric if this Congress were to give a Tax Code that 
you could rely on beyond a decade, so----
    Mr. FARR. It means a lot to us because we make investments. 
The new facility we are putting in Ohio, we are replacing a 
facility that was built in the 1960s. So we are making a 
facility investment of $100 million that is going to last for 
20 and 30 years.
    I have the world to invest in, and I have the choice to 
look at who offers the best incentives, who gives the most 
consistent tax rates. And from that perspective I look at this 
world.
    If you do a short-term, one-time accelerated depreciation 
impact, you will have a surge 1 year of capital and then it 
dies. That is not a long-term strategy relative to investing, 
and that is why, from my perspective, I need to think about 2, 
3, 4 years. I am thinking about capital investments, right now, 
3 years out and where I am going put that money. Where am I 
going to build that next facility for $100 million, $200 
million? That is why I need a permanent tax rate, and I need it 
for at least 10 years, for my thought process.
    Mr. ROSKAM. Mr. Peterson, just quickly.
    Mr. PETERSON. Permanence creates certainty. Certainty 
reduces risk.
    Mr. ROSKAM. Mr. Rattner, even quicker.
    Mr. RATTNER. I agree.
    Mr. ROSKAM. Amen to that. I yield back.
    Chairman BRADY. And you got in under the wire. Well done.
    Mr. Thompson, you are recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman. Thanks to all the 
witnesses for being here. I am glad that we are looking at 
doing comprehensive tax reform. I think it is extremely 
important.
    And this morning, I was just making some notes to myself, 
the things that I think are real important, and number one is 
comprehensive reform, and that is what this bill needs to be, 
not simply a tax cut bill. If we do a tax cut bill and we 
ignore the reform, we lose, and the American people lose.
    I think it needs to be paid for. And I think all the 
witnesses recognize the importance of that, but I think we need 
to pay for it in real terms, not just with there needs to be 
tradeoffs. We need to specifically pay for this. We can't add 
to our national debt. And I think it is important that it is 
bipartisan. Big things that happen in Congress aren't good 
unless they are bipartisan. And we have all experienced what 
happens when we try and do it some other way.
    And we need to make sure, as a lot of my colleagues have 
already mentioned, that we really hone in on, focus in on the 
middle class. That is extremely important.
    And then I added one bullet to my notes when I heard you, 
Mr. Mottl, speak, and your mention that the desire to lower the 
payroll tax. I wrote down that it shouldn't hurt the middle 
class. And I think we need to remember that the payroll tax is 
how we finance Social Security. And unless you have got some 
way or the Committee has some way to ensure that Social 
Security stays strong, if we do tax reform that takes away the 
funding for Social Security that hurts all of our constituents, 
and I would hope that we all recognize how important the Social 
Security system is for all Americans.
    You know, the middle class have been struggling. Incomes 
haven't kept up with expenses. We all know that. I reference a 
recent study that was done by the University of Minnesota, the 
University of Chicago, Princeton, and the Federal Government, 
and they found that a 27-year-old man today is making 31 
percent less than he would have made in 1969. They go on to say 
that he is unlikely to make up the difference in his lifetime.
    So as we turn to tax reform, we really have to focus on 
those middle class folks. These numbers, these numbers don't 
jive, and especially if you juxtapose that with some of the 
numbers that many of our corporate leaders are bringing home. 
It is not equitable, it is not fair, and it needs to be 
addressed in our bill.
    And tax cuts that are not tax reform are wrong. And tax 
cuts that aren't paid for don't generate this panacea that some 
think that it does. We know from the 1980s, we know from the 
early 2000s, and we know what is happening right now in Kansas 
that tax cuts don't automatically pay for themselves, and we 
have to recognize that.
    Mr. Rattner, I have a question for you. Can you explain how 
these large increases to the debt, even for policy that we 
might otherwise all agree that is good policy, can become a 
drag on the economy as a whole?
    Mr. RATTNER. Sure. There have been many, many studies of 
this done that as the size of the Federal debt goes up and the 
interest burden on the Federal Government goes up and the 
crowding out of private capital occurs, because interest rates 
rise as the Federal Government borrows more and more, all of 
that is absolutely a drag on economic growth in this country.
    It seems like the whole panel agrees that whatever this 
Committee does on taxes needs to take account of its impact on 
the deficit, and that is where honestly I have a little bit of 
a problem with what I have been hearing, because I hear we 
would like to do this, this, and this, but I haven't really 
heard how we are going pay for all of that.
    And the second thing, if I can just make one other comment, 
that I was struck by Congressman Doggett's comment. I think 
that we are looking at this in a little bit of isolation. Of 
course, as I said in my opening remarks, if you cut 
depreciation, there will be more investment. How much more? We 
don't know. Will it be enough to pay for it or will it justify 
it? We don't know. But we also really need to think about this 
compared to other ways we could, in effect, spend this money. 
Would the money be better spent on infrastructure? Would it be 
better spent on job training? Would it be better spent on 
education? Because the amount of money the Federal Government 
has for any of these things is limited, and we need to make 
sure it is spent effectively and look at it across the entire 
continuum.
    Mr. THOMPSON. Mr. Rattner, can you just further explain, if 
we cut taxes for the rich and for corporations and we pay for 
that by adding to the national debt, what does that mean to the 
middle class families that we represent?
    Mr. RATTNER. Well, first of all, it is a matter of 
immediate fairness that you would be giving a benefit to the 
upper class and to business and very little, as I said earlier, 
to the middle class. But secondly, we do, as I said in my 
testimony, have a problem of rising debt, and the middle class 
will simply have to end up bearing a greater burden of paying 
for that somewhere down the road in the form of higher taxes if 
we don't keep our debt under control.
    Mr. THOMPSON. It would cost them money.
    Mr. RATTNER. It will eventually cost them money.
    Chairman BRADY. Thank you very much. All time is expired.
    Mr. Buchanan, you are recognized.
    Mr. BUCHANAN. Thank you, Mr. Chairman. I want to thank all 
of our witnesses. All of us have a diverse background that come 
on this Committee. I was in business for 30 years. I built two 
pretty good-sized companies.
    I did want to touch on--I think we all agree we need to be 
more competitive on the corporate rate, but I want to touch on 
passthrough entities and make sure they don't get lost in the 
mix. You know, I have got a bill that I would like to see close 
to parity. When you look at corporate rates, at 35, they are 
not competitive, but on passthroughs it is as high as 44. If 
you add State income tax in States like California, another 12, 
13 percent, it could be 57 percent. It makes absolutely no 
sense.
    So I guess I would like to ask some of the panelists just 
your thoughts on lowering those rates where they are more 
competitive, getting it down to somewhat near the corporate 
rate, I don't necessarily agree with 15 percent, but the 
difference that would make in terms of growth, in terms of 
jobs, and also in terms of raising wages. So I will start with 
the gentleman, Mr. Mottl.
    Mr. MOTTL. Well, yeah, absolutely. The passthrough issue is 
big, you know, and I think right now a lot of them are paying 
around 44 percent. And so, you know, if we go to 20, 25, you 
know, I think it is just important that it gets lower and 
closer to the corporate rate, that they are more similar and 
not so dissimilar and not so penalizing to the small business.
    But, you know, of course, on jobs, you know, the more we
    can invest, the more we can grow, the more we can hire. You 
know, I am involved in some training programs in the 
Chicagoland area, bringing folks out of the inner city, 
training them for good jobs. And we need this kind of growth. 
We need this kind of opportunity. And I think if you do the tax 
reform, you will see that.
    Mr. BUCHANAN. And one of the things that is always 
concerning to me, especially on passthroughs, a lot of people 
think maybe you have got 150 employees, you happen to make 
$800,000. The owners don't take all that money out. They might 
take 150 out. The balance of the money goes in to grow and 
expand the business.
    Mr. Farr, you represent a large industry. A lot of these 
entities are passthrough entities, subchapter S, LLCs. What is 
your thoughts by the fact that they can keep a little bit more 
of what they earned in the business, what difference is that 
going to make, from your experience?
    Mr. FARR. It makes a big difference. We have 30,000 people 
in the United States, across all the States, both Democrat, 
Republican, plants everywhere. We are very small business 
oriented. And we use small businesses supplied to us. If they 
are not healthy and they don't have the money to invest, they 
are not going to have the most productive equipment, their 
technology, their quality, and they will lose business as we 
take it elsewhere. So the small business tax rate needs to come 
down closer to the corporate tax rate so they have more money 
to invest to support us as we grow. And that has been one of 
the big issues the last couple years. They have not had the 
money to invest to keep up with us, so we are moving and 
looking for other people to supply us. And that is a big issue 
for these people.
    And I also want to agree that, you know, make a comment 
that we employ not only high-priced people, we employ low-
priced people. We have all different levels of people employed 
across this company.
    Mr. BUCHANAN. Well, I know in the State of Florida, I think 
93 percent of the enterprises are passthroughs type entities.
    Mr. Stephens, would you like to add to that?
    Mr. STEPHENS. I think, quite frankly, the competitiveness 
issue applies across the board. High tax rates makes them less 
competitive, gives them less money to invest, gives them less 
opportunity to generate jobs. All that is good for the overall 
economy and for a large company. It is good for the small 
business vendors, suppliers, and customers to be very healthy.
    Mr. BUCHANAN. There is actually something out, I think, in 
the last 10 years or lately, we have got more businesses 
closing than opening, so we have got to have a Tax Code that 
doesn't penalize people.
    Mr. Rattner, would you like to add? Again, if you disagree 
with it, my thought is it is 44 percent, can be up to 44 for a 
lot of passthroughs, and if you put State income tax, New York, 
or I am sure Illinois has got a substantial tax, it is a big 
number. What are your thoughts?
    Mr. RATTNER. Respectfully, Congressman, I would make a 
couple of other points. Certainly, lower taxes are good for 
everybody, if we can find a way to pay for it and if it can be 
fair. But with respect to passthroughs, let's remember a couple 
of things.
    First, they chose to become passthroughs. They could have 
been become subchapter C corporations, but they felt that being 
a passthrough with a single level of tax was advantageous.
    Secondly, while by number the passthroughs are vastly small 
businesses, in terms of where the income is generated, I have 
seen studies that between 40 and 50 percent of the income is 
actually generated by either larger businesses or very wealthy 
individuals. I can tell you anecdotally that I have many 
friends in the hedge fund world, in the private equity world, 
in the investment management world who are structured as 
passthroughs for the reasons I said, and they certainly do not 
need a tax cut or deserve one.
    So I think, while I am sympathetic to the genuine 
passthroughs, I think the devil will be in the details of you 
structuring something that actually helps the people who need 
help without benefiting a lot of rich people.
    Chairman BRADY. Thank you.
    Mr. Peterson, just real quick.
    Mr. PETERSON. What I would add is it also makes the 
businesses much more attractive from a credit point of view. 
Small banks providing credit to small businesses is critical, 
and that kind of cash being available and capital in the 
business helps that very much as well.
    Mr. BUCHANAN. Thank you. I yield back.
    Chairman BRADY. Thank you.
    Mr. Larson, you are recognized.
    Mr. LARSON. Thank you, Mr. Chairman. And I want to thank 
all the witnesses as well for your expert testimony.
    As Rich Neal has spoken, we are very concerned about what 
is happening to the middle class. As the chairman points out, 
this is a generational opportunity for all of us. And as Mr. 
Roskam said, so we want to make sure that we get this right.
    In fact, the last time generationally we took this up, and 
if you look out into the audience, it was labeled by one 
author, the battle at Gucci Gulch. And we don't want to see a 
return to that. And so my first question--I have two--relates 
to all of you, and that is a commitment. Our most recent 
history in the Committee with respect to a major reform had to 
deal with health care. And we believe on this side strongly 
that we need to return to regular order and that we need to 
have witnesses like you and an open process throughout where 
both sides actually participate in the drafting. Because I 
think as many people have pointed out, without that, we are not 
going to get the permanency or the long-term consistency that 
you would like.
    And so I would ask you, all of you, and if you give just a 
yes or no answer, would you be in favor of more hearings open 
where we get in this arena of the vitality of ideas where we 
can exchange and work through these or do you think that this 
should end up in some closed-door process? It is a pretty easy 
answer.
    Mr. Stephens, we will start with you.
    Mr. STEPHENS. Respectfully, Congressman, my expertise isn't 
in taxes and financial matters, so I will respectfully leave 
that to those to talk about the health care process.
    Mr. LARSON. But given that is your expertise, wouldn't you 
like to see the open exchange of ideas?
    Mr. STEPHENS. I think I would hope that that is going on 
today and everyone appreciates open ideas.
    Mr. LARSON. Don't you think we need more of that--it is 
going on today--Mr. Mottl?
    Mr. MOTTL. Mr. Larson, I couldn't agree with you more. More 
information is always better, but I hope that is what we are 
having today.
    Mr. LARSON. Thank you. Thank you very much.
    Mr. Farr.
    Mr. FARR. I like more dialogue and, hopefully, I don't have 
to be on another panel and be harassed, but thank you.
    Mr. LARSON. Well, hopefully, you don't consider this 
harassment, but I do think----
    Mr. FARR. It is special love, let's put it that way. 
Special love.
    Mr. LARSON. Mr. Peterson.
    Mr. PETERSON. I am very pleased that today you have opened 
the process of starting hearings. I think getting more and more 
data and analytics out about the impact of the different tax 
proposals is critical, and how you do that is also valuable and 
more transparency on the process.
    Mr. LARSON. Mr. Rattner, let me give you a special thanks. 
Not only as others have mentioned with respect to the 
automobile industry, but your charts and graphs, which have 
been very illustrative in townhalls that I have had, and in 
your arguments, because I can anticipate that you would also be 
in agreement about the openness. You did say in your remarks, 
and you mentioned three things that if you could, in the short 
time that you have, dwell on. One of them, you talked about how 
excessively narrow this proposal was, and if you could 
elaborate on that. The other was you said the need for this to 
be more holistic, and as in the embrace with the number of the 
questions from Mr. Lewis to Mr. Thompson about making sure that 
the Code has got to be more distributionally neutral.
    Mr. RATTNER. Thank you, Congressman. Yeah, I think those 
three points are all interrelated in the sense that I think 
that to simply focus on one or two provisions affecting 
business as the centerpiece of tax reform is excessively 
narrow, and that, as I said a few minutes ago, I think that the 
Committee should be--and I think this gets to your point about 
openness--I think having more hearings would be great. And to 
Congressman Lewis' point, hearing from a wider variety of 
people would be great.
    We are, all five, we may not agree on everything, but we 
are all businessmen, and there are a lot of other people out 
there who will have useful views for you as you think about 
this, but I do think you have to--I think each of these 
provisions or pieces of this are just a piece, and I think that 
as part of the effort, if I were in your shoes, I would be 
trying to look across the whole spectrum of tax possibilities 
and things that are within the jurisdiction of this Committee 
and come up with a package that is balanced and fair and that 
in its entirety addresses the issues we have talked about, 
which are the complexity and the loopholes in the Tax Code, the 
disincentives, and the fairness issues.
    Mr. LARSON. And that is why you said in its current form it 
is excessively narrow.
    Mr. RATTNER. It is excessively narrow.
    Mr. LARSON. And any thoughts on expanding that beyond--and 
I commend the chairman, and I know the people on the other side 
of the aisle want to get to this. There is broad agreement, but 
I think, and we had great precedent set by Dave Kemp, which I 
know people on both sides of the aisle admire his work. I think 
if we are able to sit down in that manner in this exchange of 
ideas, in providing as much love as Mr. Farr would like, that 
we are able to create an opportunity to move the country 
forward.
    Chairman BRADY. Thank you. All time is expired.
    Mr. Smith, you are recognized.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman, and thank 
you to our witnesses here today. I think this is an important 
discussion, important conversation that we have. I appreciate 
the perspectives that you bring, multiple perspectives, I will 
add, and I think this panel represents multiple perspectives, 
as well.
    I think that as we sift through this, I hear from 
Nebraskans, as a representative of rural and remote Nebraska, 
there is a frustration that, you know, perhaps just waiting, 
and to punt perhaps is not the solution, whether it is fixing 
our health care system, whether it is reforming our Tax Code.
    There is an understanding that, and I would say a 
bipartisan understanding and even consensus, that our country 
is uncompetitive in the world as it relates to our tax policy. 
I think it is very important that we come to that realization 
and move on it in a permanent way as we have already heard.
    I know that I hear from constituents who find the death 
tax, for example, an unfair tax, inherently unfair, double 
taxation. And there seems to be an idea in Washington that, 
well, you know, if you narrow that down to few enough people, 
then that makes it fair. I disagree with that. There will still 
be people harmed, individuals harmed, certainly family 
businesses harmed. And I think of family businesses, 
particularly in agriculture, that are not awash in cash and 
liquidity. And I would imagine there are many family-owned 
businesses that would fall into that category as well.
    So I think if we focus enough on doing the right thing for 
the right reasons, we can get this done. But I can tell you it 
can frustrate me when I hear various arguments of why not to do 
it, that I don't think are certainly as important reasons why 
we need to do this, move forward, involve as many people as we 
can, and that is what we have been doing. I know the working 
groups that we have had over time have been instructive. I 
speak personally on that front of how instructive that was to 
hear people out in various sectors of our economy. So I am 
anxious to move forward here. And I think that this time and 
this conversation is important.
    I am wondering if our panelists could perhaps explain to 
me, I know that Emerson points to Ohio for some expansions. We 
have facilities in Nebraska, not in my district, that aren't 
necessarily headquarters for large companies, but we have 
manufacturing plants. We have various locations of larger 
companies perhaps.
    I was wondering if our panelists, in terms of manufacturing 
or services, could elaborate on what tax reform might do for 
individual locations, satellite locations or facilities, and 
their employees around the country, perhaps starting with Mr. 
Stephens.
    Mr. STEPHENS. I will give you just a personal experience. I 
sit on the Chamber of Commerce in Dallas overseeing an 
extensive number of businesses moving into Texas because of a 
favorable income tax rate compared to other States.
    So what we are talking about here today from a Federal 
policy is happening every day amongst our States. So I would 
suggest to you that this overall tax reform, bringing down the 
top tax rate, providing an incentive for investment will 
generate jobs across the country as it will allow all States to 
be much more competitive with their foreign competitors as they 
exist today.
    Mr. MOTTL. I am from Illinois, and we have the unique 
example in Illinois, some budget issues there, and businesses 
are leaving our State as a result of that, and they are 
concerned. So I think it speaks to, it is a great example that 
when you do tax reform, you know, if we can get it done in the 
U.S., you will bring businesses all back to the U.S. to all 
States.
    And I wanted to make a comment. There was a comment made 
about switching our tax structure. You know, I would love to do 
that. It would trigger a huge tax liability to do that. We have 
a C corp, an S corp, two S corps, an LLC. I would love to get 
them all aligned so we can even have the fiscal year end on the 
same date, but to do that, I trigger a tax liability for cash 
that I don't have.
    And there was a comment made, you know, we have had to pay 
taxes some years, we have triggered a tax liability in unusual 
years where we didn't really make a profit, but we triggered a 
tax liability. And these are these crazy quirks in the Code 
that we really need to address, and it is particularly onerous 
on small business.
    Mr. FARR. So my comment, as I look at AT&T, if they 
increase their investment, increase their infrastructure of the 
internet and the uses that we use over the technology of their 
services, that will increase my investments in those particular 
areas. So as they invest in Texas, I invest in Texas. They 
invest in Minneapolis, I invest in Minnesota.
    So from my perspective, what I look at is, you know, the 
tax structure of each State. Would I go to Illinois right now? 
I get concerned about the health of Illinois right now. So as I 
look at the various States and where I want to invest, it is 
around the policies relative to the State, the tax structures, 
the benefit of the local governments and how they help and work 
with you. And so that is why we make those investments.
    But it also pays off of what AT&T does or what we do. We 
help each other for those infrastructure investments.
    Mr. SMITH. Mr. Peterson.
    Mr. PETERSON. At the base of your questions about the 
competitiveness of the U.S. economy, we have the best 
university system, we have the most innovative people in the 
world. We have a rule of law. We have an energy boom, which 
attracts many new companies around the world looking at that 
competitive advantage, but we have a tax system that 
disadvantages us. Each State obviously has their own 
competitive advantages and they are clearly going to be looking 
at that, but there is so many different advantages we have 
today, but we lose out on many of them because of the broken 
tax system.
    Mr. SMITH. Thank you. I yield back.
    Chairman BRADY. Thank you.
    Mr. Blumenauer, you are recognized.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Mr. Peterson, you talked about many of the advantages we 
have in the United States in terms of our economy. I am struck 
that when we were talking about the various infrastructure 
investments, one of the problems we have is we have a country 
that is falling apart, and we are falling behind. Those of you 
who are involved in the international economy realize, in terms 
of roads, transit, air investments, the United States is sadly 
lacking. Sadly lacking.
    We just had another report from the American Society of 
Civil Engineers that suggests that in 5 years we haven't 
improved the ratings of all the things, it is just the price 
tag got higher. In the past, we have approached both the 
previous Administration and previous proposals for tax reform, 
had a little bit of infrastructure stuck in, or some people 
think repatriation can be sweetened by maybe moving that back 
into our woefully inadequate infrastructure spending. There is 
admittedly a little disagreement about repatriated dollars and 
who benefits, and some people think they have different ideas 
for it.
    But one of the things and, Mr. Farr, I would start with you 
because Governor Engler and the National Association of 
Manufacturers supported legislation I had to finally raise the 
gas tax after 24 years, which wouldn't add to the deficit, 
which would put millions of people to work from coast to coast, 
creating jobs in every single State, every single city, and 
maybe we would be in the process of learning how to legislate 
again. Do this, you know, kind of flex those legislative 
muscles. We could have panels like this for a week and listen 
to the president of the AFL-CIO, the president of the U.S. 
Chamber of Commerce, the president of the contractors, 
Governors, South Carolina where the legislature just overrode a 
veto of their Governor for raising the gas tax, joining 23 
other States that figured out how to do this, which we used to 
do on a bipartisan basis.
    Now, I would start with you, Mr. Farr. Do you think there 
would be any advantage to maybe our taking a little simple tax 
that anybody could understand, and, in fact, it could be even 
shorter than the President's tax proposal, that would get the 
trillion dollars that he wants to spend and that the Senate 
Democrats agree on that number and get started?
    Mr. FARR. As a manufacturer in the United States and a 
manufacturer across this country, I have three things. I would 
like to simplify our tax structure to make it more competitive 
globally. Infrastructure investment is critical. We move stuff 
by roads, by rails, by ports, by airports. We have been pushing 
this for many, many years, and we have not gotten it done. We 
clearly need to find investments. You will find very few CEOs 
of companies in the United States that would not say find the 
money to invest in infrastructure.
    And I think those three things, around regulation, around 
infrastructure, around tax policies to make this country 
competitive. We compete with all those things hurting us today. 
We can be better.
    Mr. BLUMENAUER. And my question was do you still support 
raising the gas tax like we need to do?
    Mr. FARR. I still support finding the funds to pay for 
infrastructure. I mean, I can't----
    Mr. BLUMENAUER. Mr. Rattner, do you have an answer to that?
    Mr. RATTNER. I certainly support raising the gas tax, and I 
was like in the car business for a little while. Look, I think 
the gas tax hasn't been raised in decades, and I think----
    Mr. BLUMENAUER. 24 years.
    Mr. RATTNER. And you made all the right points, 
Congressman. And I think as a matter of both infrastructure 
policy and energy policy, it is crazy for us to have a gas tax 
at this level and to allow our infrastructure to deteriorate.
    Mr. BLUMENAUER. Mr. Chairman, I appreciate your courtesy 
having this hearing. I appreciate our panelists raising 
important issues. I would respectfully suggest that the 
Committee think about a simple subject that we can deal with, 
have 3 or 4 days of listening to experts who are in local 
government, State government, the various industries, hear from 
UPS that they lose $50 million for each 5 minutes' delay in 
traffic, invite in some of the Republican legislators from the 
23 States that have raised the gas tax to find out why they did 
it in Wyoming or South Carolina.
    I think this is an area that we can actually find 
bipartisan agreement. We could actually do something, not 
increase the deficit. Just having a week's hearing from the 
Trucking Association and AAA. Why do these people agree, raise 
our taxes? I think it would be good for the Committee. I think 
it would be good for the country, and, who knows, this might be 
something we could break the logjam, do something to jump-start 
the economy, and that would help ease some of the other issues 
that we are talking about, because it would certainly increase 
productivity, and it might be fun.
    Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Ms. Jenkins, you are recognized.
    Ms. JENKINS. Thank you, Mr. Chairman. This has been a very 
informative hearing. And I thank all of you on the panel for 
giving us your time today.
    Mr. Mottl, I know you are from Illinois, but when I was 
hearing your testimony, I felt like I could be listening to a 
story of a small business owner in any small town in my 
congressional district in Kansas.
    You just mentioned in response to my seatmate's question, 
that for tax purposes your company that simply employs about 80 
people has divided the company into one C corporation, two S 
corporations, and an LLC? And as a CPA who did tax planning, I 
would just want to applaud you for the creativity for your back 
office folks and your tax team.
    However, I think it begs the question: Should our Tax Code 
be so administratively complicated that a business like yours 
should have to engage in so much work in order to achieve just 
a workable tax rate at the expense of simply growing your 
business? And to be more pointed, would you trade this highly 
complex system full of loopholes and surprises at every turn 
for the certainty of permanent, modern, simple, and a fairer 
tax system that allows you to grow your business?
    Mr. MOTTL. Well, thank you for that question. I couldn't 
appreciate it more. You know, like I said, the reason we have 
those complex structures--and, yes, in some cases it works for 
us; in other cases it is hindering us, and I cannot change it. 
I have inherited this. We are a 100-year-old business, right? 
The C corp came from the 1970s. The S corps came from the 
1990s, and they were all done during the time that there was 
tax changes going on all the time and reasons to do these 
things, but I would love to simplify it.
    Like I said, I would love to have one fiscal year end, but 
I would trigger--I am a 100-year-old company. We have retained 
earnings on the balance sheet, not necessarily cash, but it 
would trigger a huge tax liability to do that. In fact, I am 
also--you know, in the business I am here talking today we 
talked about women and minorities. You know, my sisters both 
help me run the business, and we would like to transfer 
ownership to myself and my sisters so we would become a woman-
owned business. In order to do that, we would trigger, again, a 
huge tax liability. So we can't afford to do this.
    I would love to make these changes. So I would trade in a 
second all this mess, all this complexity, and all the time we 
spend on it for a simple reduced system. And, again, businesses 
are not opposed to paying taxes. The transportation tax is a 
great example. You know, I think consumption taxes is an 
important focus. Why are we taxing income? We want income. 
Let's tax other things. You should tax the things you don't 
necessarily want to have, not the things you do want to have. 
Thank you, ma'am.
    Ms. JENKINS. Excellent. Thank you.
    And maybe for some of the us rest of you, I think it has 
been reported that American businesses spend about 3 billion 
hours and $150 billion complying with this outdated burdensome 
Tax Code that is on the books.
    Could each of you just comment quickly about the costs 
associated with filing your returns and about the opportunity 
cost, what does it mean to your business to lose that kind of 
time and resources? Mr. Stephens?
    Mr. STEPHENS. So to put it in reference, our shareholders 
put up about $240 billion of capital for us to run the company, 
and they get about $12 billion or about $2 a share in 
dividends. And we pay about $4 a share or $24 billion in taxes 
in the United States every year. It is a number that is 
disclosed in our annual report. So our shareholders get half of 
what Federal, State, and local governments do here in the 
United States, even though they are putting up all the capital 
for the business.
    We have about 300 people who work full time in our tax 
department. We have a budget of about $100 million a year for 
that tax department, and we file over 250,000 tax returns in 
the U.S. So it is an extremely complex system that causes a 
diversion of funds that would otherwise be available to invest 
into complying, and we take pride in our compliance in 
complying with the law.
    Ms. JENKINS. Thank you.
    Mr. Farr.
    Mr. FARR. I don't have the specific numbers, but I know how 
many people operate doing these taxes, and we have hundreds of 
people in the United States and around the world operating to 
fill out the tax reforms and compliances and making sure we are 
doing it right. And therefore, as I said earlier, I would love 
to take that money and reinvest it in another part of the 
company. I mean, from my perspective, what we look at is we are 
trying to invest to grow, and I have to allocate those 
resources. One of the allocations is tax compliance and paying 
the taxes and all the forms we fill out. So clearly, you could 
take that and put it somewhere else, invest in the company for 
growth or technology for new products. So it is a huge burden 
for us and something we have to do by law, and I sign it by 
law.
    Ms. JENKINS. Okay. Thank you.
    Chairman BRADY. Thank you. Is expired.
    Mr. Kind, you are recognized.
    Mr. KIND. Thank you, Mr. Chairman. I want to thank the 
witnesses for your testimony today. Very helpful. And 
hopefully, Mr. Chairman, this will be the one of many hearings 
that we have moving forward on the complexity of taking a 
serious run at this Code for the first time in over 30 years.
    But first, Mr. Peterson and Mr. Rattner, let me start with 
you. I don't think you had an opportunity to answer Mr. Levin's 
question about whether you think it is important for us, if we 
do take a run at comprehensive reform, that we do it in a 
fiscally responsible manner, that we look at certain 
expenditures that we can close down in order to help pay for a 
simplification and a lowering of rates at the end of the day.
    Mr. Peterson.
    Mr. PETERSON. Yes, thank you. First of all, I am looking 
now at the different tax plans in a way that, as you work 
through them yourselves, you will find ways to ensure that we 
can pay for them, that they are in addition to being permanent 
and comprehensive, that they are also fair and find a way to 
ensure that we have paid for it through them, right?
    Mr. KIND. Mr. Rattner.
    Mr. RATTNER. Yes. I think I have made clear my view about 
the fact that we should not have a tax proposal or a tax bill 
that increases the deficit when it is scored using conventional 
means. We can have a debate about dynamic scoring, but I would 
not want to see that be part of the equation to come up with a 
tax plan that doesn't increase the deficit.
    Mr. KIND. You know, there is, I think, great consensus in 
Congress, and perhaps throughout the Nation, that it is long 
past due for us to take a run at the Code, over 30 years, 
because it is antiquated, it is outdated, it is too 
complicated, it is less competitive right now. The compliance 
costs are ridiculous. And this is an opportunity for us to do 
it.
    My fear, quite frankly, though, as we approach this is the 
easy default position. When we get into the complexities and 
how difficult the tradeoffs have to be made, is that Congress 
oftentimes lapses at the end of the year with a need to try to 
get something done and just cut rates, don't pay for it, 
declare victory, go home. If that is where we ultimately end 
down on this, what would each of you think, would that be a 
success for this Congress or a failure of missed opportunity?
    Mr. Stephens.
    Mr. STEPHENS. A comprehensive plan that lowers rates and 
encourages investment would be a win with a prudent tradeoff 
for all financial considerations. That would be a win, yes.
    Mr. KIND. Mr. Mottl, again, if we end up, though, just 
cutting rates, not paying for it, declaring victory, is that a 
success or a missed opportunity, in your mind?
    Mr. MOTTL. I agree with you, Mr. Kind. And, again, that is 
why I am proposing that we also do a goods and services or some 
other type of board or adjustable VAT tax. That is how you pay 
for it. You broaden your base. And, again, I am proposing this 
offsetting credit on the people's income--the taxes that they 
pay on their wages. You know, it is 15 percent for the average 
American worker that they pay in Federal taxes.
    And I know there is some concern about Social Security. You 
know, the first year that--it is on the bottom of the 
statement. I read it every year. The first year that there is 
not going to be enough funds to pay benefits is the first year 
I am eligible for benefits, so I share your concern about 
funding Social Security, and that is why my proposal is an 
offsetting credit.
    You keep the Social Security taxes on the payroll and those 
go into a bucket, but from another bucket from the goods and 
services tax there's a plus, there's a credit. So you protect 
that dedicated cash flow that is so important, so important for 
Social Security.
    Mr. KIND. I appreciate it.
    Let me just move on with another question since I'm running 
out of time. One way of building bipartisan support I think in 
this place is something that Mr. Blumenauer touched upon, is 
tying tax reform into a major infrastructure reinvestment plan. 
As one of the leaders in the New Dem Coalition in this House, 
we are 61 strong right now, just yesterday, we sent a letter to 
President Trump asking him to consider doing--approaching tax 
reform with a tie-in with infrastructure investment.
    And, Mr. Chairman, I would ask for unanimous consent to 
have our letter submitted for the record at this time.
    Chairman BRADY. Without objection.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Mr. KIND. Mr. Rattner, I know you haven't been the biggest 
fan of deemed repatriation in the past, but we do have a ton of 
money that is parked overseas not being utilized or being used 
efficiently. And one of the ideas that we have been focusing on 
within the New Dem Coalition is having a fixed rate deemed 
repatriation dedicated for infrastructures. Part of the revenue 
stream that we need to get going on this. Do you have any 
opinion about that?
    Mr. RATTNER. Sure. I have not been the biggest fan of 
deemed repatriation because the evidence doesn't suggest it 
would make much of a difference. We tried in 2004. It didn't 
really make a difference. There is a lot of cash on companies' 
balance sheets here now that they are not investing. But in 
return for getting critical money for infrastructure, I would 
support either deemed repatriation or actual repatriation tax 
if that money were channeled for useful purpose simply to be 
able to get going on the infrastructure issues.
    Mr. KIND. Yes, Mr. Farr.
    Mr. FARR. I think, you know, the reason why it didn't have 
much impact, it is a one-time impact. It goes back to 
permanence. And so I fundamentally believe if you have a policy 
just like our European policy is--so they--everyone brings the 
money back; you pay a simple tax on that--that money will come 
back to the United States, and it will be invested in the 
United States. My perspective: Having that money here is a good 
thing.
    Mr. KIND. Hopefully, we will end up at the end of this 
process with a much more simplified, more competitive Tax Code, 
but also fair for working families, for small businesses, 
family farmers back home too. And that is the goal at least, 
Mr. Chairman.
    Thank you. I yield back.
    Chairman BRADY. Thank you.
    Mr. Paulsen, you are recognized.
    Mr. PAULSEN. Thank you, Mr. Chairman.
    I want to thank, also, all the testifiers today. This has 
actually been very enlightening testimony.
    Look, from my perspective, I continuously hear from 
Minnesota companies about the importance of having major tax 
reform that is permanent, that promotes investment, that lowers 
rates. And it will boost paychecks. It will increase jobs. It 
will help the economy. I hear that all the time.
    We know the larger companies that I have in my area: It is 
the three Ms of the world, the General Mills, the Cargills, the 
larger institutions that employ so many people. But it is also 
these small businesses, these Main Street businesses that 
people have never heard of, but they are so important as the 
engine of the economy. I think of Steinwall company, which is a 
plastic injection manufacturer that I recently had a chance to 
tour in my district, or the Baldinger Bakery that produces the 
buns for McDonald's looking for a more simplified Tax Code, or 
even the more recent example of a letter I received from Dawn, 
a small business owner in Loretto, Minnesota, who writes in, 
saying: We have a once-in-a-lifetime/generation window of 
opportunity to unleash a strong economy and to repair and 
simplify the Tax Code that is helping hold back our small-
business economy right now.
    What I think is really striking about these messages and 
what you shared today is there is an acknowledgment that all of 
our job creators, both big and small, are in this together. And 
so, simply put, regardless of whether you work at a large or a 
small company, these businesses and the men and women who are 
working alongside them each day will benefit from fixing a 
broken Tax Code. We are talking about lowering the rates, 
having permanent reforms so you can plow more money into their 
paychecks and more money into their investments and higher 
wages.
    And so, Mr. Stephens, you had mentioned right off the bat, 
this is about unleashing economic growth. It is about--it is a 
key driver in investment.
    Mr. Mottl, you had mentioned three different types of tax 
filings you have to do and the importance of leveling the 
playing field.
    And, Mr. Farr, you have talked about the importance of 
manufacturing with two-thirds of manufacturers particularly 
paying under that high individual tax rate.
    I will just start here. And we have all shared the 
perspective already. But it is well documented, Mr. Stephens, 
that our current high corporate income tax rates really does 
reduce domestic investment and entrepreneurship as well. And 
how would new investments made as a result of a 20-percent rate 
affect communities? How would that help communities? What might 
it mean to the local suppliers, again, which I think Mr. Farr 
talked about, the contractors, the vendors, that you partner 
with in your operations? Or, more importantly, what might that 
20 percent rate mean to those individuals you currently employ 
or might look to hire in the future?
    Mr. STEPHENS. Thank you for the question. Quite frankly, it 
would have a very direct, immediate, positive effect on our 
vendors, on our suppliers, and, quite frankly, on our 
employees. As you put more dollars to work in capital 
investments, you generate demand for jobs. Whether you generate 
demand for technical work in engineering design, architectural 
work, you put to work demands on research for new technologies 
and new services.
    All of those items would have additional demand so that the 
supply that is out there would go to work. So more people would 
go to work, and in the cases of many of the people, their wages 
would go up because there is more demand for their services.
    This, then, would start that cycle that comes back to 
demand for our services, demand for mobile phone services, 
television services, broadband services. So it has a virtual 
cycle. But by the same token--I think this is really 
important--State and local governments would see an immediate 
uplift in their prosperity because it would generate jobs. It 
would generate payroll taxes. It would generate sales. It would 
generate sales taxes. It would generate investments in assets 
that generate property taxes. And, once again, that generates 
additional demand for our services and other large companies' 
services. So it would have this cycle of continual growth.
    That is what is so important. As we have this extremely 
high rate and investments are moving offshore and they will 
stay there for the longer term, we are missing out on that 
opportunity. So acting quickly to get that done now will be an 
important answer.
    Mr. PAULSEN. So keeping headquarters here, keeping 
innovation here, lifting our economy for everyone is going to 
be a long-term boost with permanency, right?
    Mr. Mottl. I will just keep going right down the line.
    Mr. MOTTL. Just briefly, you know, you mentioned the 
business in your district that makes the buns and the one that 
does the plastic. You know, the purpose of those businesses is 
to bake the buns and make the plastic parts. The secondary 
effect is, hopefully, they make a profit, right? And so I 
believe that if we help these businesses be better at what they 
are doing, have more capital to do that, they will invest in 
making more buns, making more parts. Hopefully, as an offset, 
they make a profit as well. But, keep in mind, the primary 
purpose is to do what they do, and if you give them the 
resources to do it, they will do more of that.
    Mr. PAULSEN. Mr. Farr.
    Mr. FARR. Three comments. We have two facilities in Eden 
Prairie, one in Shakopee, one in Chanhassen. We are investing 
right now in Shakopee. We are moving jobs back into the 
country. And it will help, obviously, from a technology jobs 
standpoint. It helps with education. It helps employment. It 
helps everything around that area.
    So, from my perspective, it really spreads out and helps 
the community in a big way, just like it hurts the community 
when we leave.
    Mr. PAULSEN. Mr. Farr, I visited both those facilities, and 
I heard the same message there.
    Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    So, Mr. Pascrell, just a note to Members, so after your 
questioning, we will move to 2-to-1 ratios going forward.
    Mr. Pascrell, you are recognized.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Good afternoon. I want to thank all the members of the 
panel.
    Each of you are CEOs or senior vice presidents. I want you 
to think about something I am going to say now: You know what 
your effective tax rate is now. And I am sure you have done the 
numbers. If the Ryan-Brady plan becomes the law, what will your 
effective tax rate be?
    You see, we have a problem. I listened to the chairman open 
up this meeting today, this hearing. And I listened very 
carefully, as I usually do, to the chairman. He mentioned three 
things in his introduction. He mentioned the corporate tax 
rate. Ten years ago, Democrats on this Committee pushed for a 
lowering of the corporate tax rate to 25 percent. Secondly, he 
mentioned the immediate expensing, write it off. That is the 
second thing he mentioned. And the third thing you mentioned, 
Mr. Chairman, is that businesses are eager for tax reform.
    The problem with what you said, Mr. Chairman, is tax reform 
does not only pertain to the businesses of this country. Tax 
reform refers to everybody who pays, in some manner, shape, or 
form, Federal taxes in some form or other.
    We have a problem here, because in the last 30 years, we 
have moved--and I want Mr. Rattner to respond to this, if he 
would, in terms of something he said before--we have moved from 
an even tax system of taxing assets and taxing incomes. That is 
not the case anymore.
    I believe it is somewhere in the high 30s, 30 percent, of 
taxing income and down into the 20 percent of taxing assets.
    And I want Mr. Rattner to tell all of us assembled here 
what that actually means in terms of what someone takes home in 
their pocket, whether they are poor or middle class or on top 
of the mountain.
    Mr. RATTNER. Well, Congressman, I think what you are 
referring to is that the 1986 Tax Act made taxes on investment 
income and taxes on earned income the same, at 28 percent. And 
since then, they have diverged, and they are obviously 39.6 on 
earned and 23.8 if you include the ObamaCare tax.
    Mr. PASCRELL. Would you repeat those numbers, the final 
numbers, the last two numbers?
    Mr. RATTNER. I believe it is 39.6 is the top rate on earned 
income and 23.8 on investment income.
    Mr. PASCRELL. What do you think of that?
    Mr. RATTNER. I have a rather heretical view of it. And I am 
actually a huge beneficiary of it, because I am in the 
investment business and so----
    Mr. PASCRELL. Well, all of you are.
    Mr. RATTNER. Well, some of them are--they may actually work 
and earn money. I am an investor.
    And so I am a substantial beneficiary of the 23.8-percent 
rate, which, as you know, the proposal now is to eliminate the 
3.8 and make it 20.
    Mr. PASCRELL. That is right.
    Mr. RATTNER. I personally think it is a mistake. I have 
been in business investing for 35 years. I have had tax rates, 
as we talked about before, at 28. I have had tax rates over 40. 
I have had tax rates at 15 on investment income at one point. 
None of it has affected by one iota how I conducted my life or 
my business. I see no reason why I should be paying 23.8 on my 
so-called unearned income whereas I am paying 39.6 on my earned 
income.
    I think I would actually support raising all of the taxes 
on unearned income as part of a way to pay for some of the 
things that we have been talking about today.
    Mr. PASCRELL. Mr. Chairman, I hope you listened to what he 
just said. Because this tax reform that is put before us is 
phony and hypocritical, worse. It sends the wrong message to 
the poor--if I am bold to use that term here--and the middle 
class at the same time.
    What we are doing is saying to the American people: We are 
going to make your lives better. We are going to increase your 
income and your salaries. You are going to be in a better 
position now if we help the business community primarily.
    I want to help the business community, by the way. But I 
will not vote for tax reform that simply is directed and 
targeted at those who are at the engine. I want to take care of 
the people, also, that are in the back cars and maybe the 
caboose.
    And that is the problem we have in our tax system right 
now. Yes, we need a change. But it has got to cover everybody, 
period.
    I yield back.
    Chairman BRADY. Thank you.
    Mr. Marchant, you are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    I appreciate the witnesses being here today.
    Mr. Stephens, your company, AT&T, has a huge facility in my 
district. And we appreciate the fact that Texas is the 
headquarters for AT&T.
    At the end of the day, it is going to be the job of every 
Member of this Committee to go back to its constituency and say 
to it: This is a major tax reform plan, please support it, and 
have me convince them that it is a good thing for them.
    Let's take a situation where you three or four companies 
call your employees and call your vendors into a big auditorium 
and you get up in front of them and say: This is why the tax 
reform plan in Better Way is a better thing for this company, 
and it is also a better thing for you as the employee or the 
vendor.
    And I would like to know how you would go about doing that?
    Mr. Stephens.
    Mr. STEPHENS. Congressman, we are here to support the 
comprehensive tax reform. We are for it because it will 
increase investment. Increasing investment increases jobs. When 
you increase jobs, you increase wages. You give people--what 
they care about is their net take-home pay and it will go up 
because it will be demand, higher demand, for their services.
    And the reason we are for it is because, as those working 
class individuals are fully employed and employed in greater 
numbers, the demand for our services will grow. And if our 
revenue lines grow and we have to pay additional income taxes 
on that, we will be glad to do it. But it is a cycle that helps 
everyone, as well as their local school district, as well as 
their local police department.
    It also helps those with getting broadband and other 
services out because those additional investment dollars will 
go into those infrastructure investments, certainly for our 
company.
    So this is a benefit for all to make us more competitive 
with the rest of the world because we are not today.
    Mr. MARCHANT. Thank you.
    Mr. Mottl.
    Mr. MOTTL. I couldn't agree more with that. You know, I was 
reminded that this room seals when the doors close. This is a 
secure room. So we are kind of in a bubble here. And I think 
that we are talking, in general, about being in a bubble. You 
know, the rest of the world has gotten competitive, has changed 
the way they do taxes. And if we don't change the way we do 
taxes, we are not competitive. And that is what it is about, 
getting the people at the back of the train on board, bringing 
the jobs back here, bringing the businesses back here so small 
businesses, large businesses, can be profitable and can do it 
here in America. So I hope we can do this and get globally 
competitive and look out of the bubble.
    Mr. FARR. I agree a hundred percent with the first two 
statements.
    I would add that I would say: Look, if we make investments 
around the world; if we have a competitive tax rate here in the 
United States, it will increase our investment right here in 
the United States. It will come into the calculation of making 
those investments right here in the United States.
    I also agree you can't just do business taxes- to our 
Congressman over here- you have to do individuals. Individuals 
have to see a benefit from this. You can't just make this for 
wealthy and for business people. You have to make this across 
the board. This is our chance.
    But if we have more money from a lower tax rate as a 
company, we will invest more money, because our job is to grow 
and invest, not to collect cash, but to grow and invest. And 
that is what we would do.
    Mr. PETERSON. When I talk to our employees about the 
comprehensive tax reform that I know all of you are going to 
do, I am going to tell them we just got a raise, our company 
just got a raise. Instead of spending $560 million a year on 
taxes, we are going to pay less. And what are we going to do 
that? With that raise, we are going to spend it, and we are 
going to invest it. It is like being in a 100-yard dash, and 
right now, we are starting 20 yards behind. We are running a 
120-yard dash against the rest of the world who is running a 
hundred yard dash. And this is going to put us back at the 
start line at a hundred yard dash.
    Mr. RATTNER. I would agree with everything that has been 
said before. So I won't repeat it. But I would just say this 
one other piece, which is I think there is enormous urgency 
around this. We all understand the political calendar. This is 
the beginning of a new Administration. There is a window in 
which things, hopefully, normally get done. Then we are into 
midterms, and then we are into reelection cycles and the pace 
tends to fall off. And I think if we miss this opportunity, if 
we don't come together and find common ground, and all of us 
are willing to make compromises, we will all regret this later.
    Mr. MARCHANT. I agree with that. And I would say to all of 
the businesses that are listening to this, that are watching 
this very closely, we intend to do tax reform. It is our number 
one goal.
    And we are going to need your help at the end of the day to 
communicate with your employees that this is a good thing to 
do, and they need to pick up the phone and call their 
Congressman and say: Please vote for this.
    Thank you.
    Chairman BRADY. Thank you.
    Dr. Davis, you are recognized.
    Mr. DAVIS. Thank you very much, Mr. Chairman.
    And I, too, want to thank all of our witnesses.
    As I have listened to a very intense and some would 
probably say one-sided kind of conversation--not by intent--
but, you know, there is an old saying in Illinois where I come 
from. It says: If you fool me once, shame on you; fool me 
twice, shame on me.
    I have been listening to theories about trickle-down 
economics ever since I have been able to read and ever since I 
have been able to hear. And I have never found a way yet where 
the trickle trickled enough to really assure that the middle 
class was being protected in the same way that one would expect 
anybody from a different class or another class trying to 
protect that interest entity.
    I think the information that we have heard sounds great. 
But it also comes from not enough diversity. It just keeps 
coming back to what John said earlier. And I was wondering, if 
there were other individuals being asked the same question, 
what kind of answer would we get? It is kind of like asking the 
question: Is it fair for birds to eat worms? You ask the bird, 
you get one answer. You ask the worm, you get a different 
answer. Now you have got to determine which one is right, which 
one is correct. Whose interests are being protected? Or is 
there a way to protect both? Is there a way to prevent there 
being losers and winners? Is there a way for the middle class 
to look at the proposals that we have seen and say, ``Yes, this 
will give me the assurance that my status in life is going to 
be protected''?
    And so, Mr. Rattner, let me ask you, the tax cuts--and we 
haven't heard much about how to pay for them. And I believe 
that everything that you get, you got to pay for one way or the 
other.
    But how do the middle and working classes benefit from 
basically the Republican tax plans and proposals that we have 
heard about?
    Mr. RATTNER. Congressman, I think, first, as I said 
earlier, in terms of direct benefit, it is de minimis. For an 
American making $50,000, a family, an average American, it 
would be a $1,000 tax cut compared to a $25,000 tax cut for 
someone in the top 1 percent. So there is no real meaningful 
direct benefit.
    You would have to believe that all of the business cuts 
that have been discussed here would have secondary and tertiary 
effects that would benefit those people. And I would certainly 
agree there would be some benefit. I think it is very, very 
indirect. And I think that, before this Committee should 
recommend such a package and make the contention that it helps 
the average American, I think a good bit more study would have 
to be done to actually document what we are talking about in 
terms of dollars. Because I think you would find that the cost 
of those tax cuts--which, again, as we have discussed, have yet 
to be paid for, relative to the benefit to the average worker 
may not line up properly.
    Mr. MOTTL. Congressman, you and I are neighbors in 
Illinois. And I am not sure if I am the robin or the worm or 
the dirt there underneath it all, but I would welcome you to 
come to my business anytime. We have hired quite a few folks 
out of your district. We have put them through training 
programs. And we are hopefully giving them that better life. I 
couldn't believe more in what you are talking about, and I 
would love you to come and ask those folks yourself. Any time 
you are welcome.
    Mr. DAVIS. Thank you very much. And I will look forward to 
doing that. We are appreciative of every effort that is made to 
try and help even the playing field.
    Thank you very much. And I yield back.
    Chairman BRADY. Thank you.
    Mrs. Black, you are recognized.
    Mrs. BLACK. Thank you, Mr. Chairman.
    And I want to thank all the panelists for being here today. 
This is a very interesting conversation.
    The way I break this down is there are four factors that 
actually drive growth. One is the labor supply. The other is 
the physical capital. The other is human capital. And then 
fourth is innovation. So when we look at economic growth here 
in the United States, it really has been held back. It is been 
held back over the last several years.
    And part of that is because of the size and the complexity 
of our Tax Code. That is one reason.
    Regulations, onerous regulations, that are put in place, 
certainly do help or do work a part of holding back that 
success.
    And for years, we have seen a low labor force participation 
rate. I know we will read the newspaper, and it will say, well, 
unemployment is down. But we know that only about 62 to 63 
percent of those able-bodied workers that could be in the 
workplace are actually in the workplace. So we have seen low 
participation rates. And that certainly isn't helping people at 
the lower or the middle income, to not have that.
    We have seen weak capital investment. Why is it that people 
aren't investing so that we can see a growth in manufacturing 
and other industries and sectors?
    And, essentially, no wage growth.
    So these are pieces and parts that actually are affected by 
the Tax Code and would be affected as we make those changes.
    I do want to focus on, as many of the others here have, is 
the real reason for this, in my opinion, is that we need to 
unlock the opportunity and the prosperity for the American 
workers. That should be the goal at the end of the day. And I 
know from my own experience--I am a small-business owner--that 
human capital is the most important part of my business 
enterprise, having good employees that we pay good wages to, 
both to help our business succeed but also to make sure that 
our employees prosper. That is very important in our model, and 
I hear that from you all as well.
    And so we have got to look at ways to strengthen our people 
so that they have the skills and the training so they can 
compete and succeed in the global economy and ultimately to 
enjoy the benefits of their hard work.
    Mr. Farr, I want to turn to you. Your testimony speaks to 
the vital role of manufacturing and what it plays in our 
economy. I have a lot of manufacturing in my district, and I 
say amen to that. What are the kinds of tax policies that 
create not just more manufacturing jobs but better jobs and 
higher paying jobs?
    Mr. FARR. I think one of the key issues I talked about is 
the research and development tax benefit, because that is going 
to be our lifeblood of the future. And manufacturing is 
changing, and we are----
    Mrs. BLACK. Uh-huh.
    Mr. FARR [continuing]. Going to have to reeducate all of 
our workforce.
    Mrs. BLACK. Amen.
    Mr. FARR. And we are spending millions of dollars right 
now, because without them, we won't have a manufacturing 
facility. The research and development credits are very 
important.
    American companies are very innovative. We are the most 
innovative in the world. And by having that ability to stay 
ahead of that foreign competition, it allows us to compete even 
though we have the highest tax rate, some of the highest 
regulations, and some of the weakening infrastructure we talk 
about. So innovation around R&D tax credit would really make a 
big difference for us. We are willing to give up other things. 
But that, from my perspective, is the lifeblood of what makes 
American manufacturers competitive.
    Mrs. BLACK. And if you do better, do your employees do 
better?
    Mr. FARR. Our employees do a lot better.
    Mrs. BLACK. And why is that? Because you need good 
employees to run your business. Without them----
    Mr. FARR. Because we invest in education.
    Mrs. BLACK. That is right.
    Mr. FARR. We invest in our employees. We invest in local 
education----
    Mrs. BLACK. All works together.
    Mr. FARR [continuing]. The money back in.
    Mrs. BLACK. So, Mr. Peterson, just really quickly, on a 
similar note, you described the increasingly important role of 
the service sector. Are there tax policies that you have 
thought of that would, again, create not just more service 
industry jobs but also high-quality jobs with better pay?
    Mr. PETERSON. We would definitely look at the service 
industry creating high-paying American jobs for all Americans. 
And one of the ways that we look at this is related to the 
territorial system specifically.
    The way intellectual property and intellectual capital is 
developed, it can move anywhere. It is not like a manufacturing 
plant. Manufacturing plants take a lot more of what you talked 
about, physical capital as well as financial capital, to make a 
decision on. But it is very easy to move people and to move 
intellectual property. Our tax laws today incentivize people to 
develop intellectual property probably in the United States but 
then move the ownership of it offshore.
    The territorial system is one that is most important to get 
the benefit of that intellectual property, that ownership, and 
the tax back in the United States.
    Mrs. BLACK. So what I hear you saying is that, as we have 
in our business experienced, that the better we are able to do, 
the better we are able to treat our employees, which that boat 
that rises is rising for both the employer and the employee. So 
this Tax Code is here so that we can make sure that they both 
get married together and that we see that the Americans, all 
the way across the board, are doing better because our Tax Code 
has released those dollars and the energy to have the economy 
move ahead.
    So thank you so much. I yield back.
    Chairman BRADY. Thank you.
    Mr. Kelly, you are recognized.
    Mr. KELLY. Thank you, Chairman. And thank you all for being 
here.
    First of all, I would not be here today if it weren't for 
actions that took place in 2009 where one of the dealerships, 
one of our franchises, actually, under the car czar--by the 
way, Mr. Rattner, you are not a car guy. I am a car guy. You 
are a hedge fund guy. To me, a hedge fund is the guy who plants 
shrubs. That is what I save money for at home.
    Don't take that the wrong way. No, don't take it the wrong 
way. I mean this sincerely because. I have never done your job. 
You have never done mine. But I know the reason that I am here 
today is because one of my franchises was taken away because of 
the United States Government, not because of something I did 
wrong. It is that simple.
    All of you that actually come from the private world, when 
I look at what is going on--and there is not one person--
because all we are talking about today, is there a need for 
pro-growth tax reform? And, without a doubt, everybody says: 
Yes, there is. There is. It is unquestionable.
    Then, the next thing is: So what is fair, and how do we 
address fairness, and how do we define fairness, and is it 
really the best for everybody?
    I have got to tell you. I have looked at this every which 
way we can, from death taxes. We are third generation right 
now. I want to see it go to a fourth generation. And I don't 
know that we can.
    And, Mr. Mottl, I am with you. We are a C corp. We are also 
an S corp. That wasn't a decision we made on our own. The 
government helped us make it. So as we look at all these 
things--and when it comes to pro-growth, it better be pro-
growth. I am just really concerned that a country that is going 
to have record revenue still can't come close, can't come 
close, to paying its spendings. You couldn't do it in your 
business, and none of us could do it at all.
    And, Mr. Rattner, you are concerned about deficits. I am 
greatly concerned. I know that what when President Bush left 
office it was almost $10 trillion and when President Obama left 
office it was almost $20 trillion. So the concern with that is 
immeasurable. I don't know how it grew that fast, but it did.
    Pro-growth. Pro-growth. In your estimation of where you 
sit--and I know we compete globally now. So it is kind of 
foolish to think we can do this on our own. We have to look at 
the model we now exist in. All of these different items that we 
are talking about today, is there any of them that you disagree 
with as far as growing our economy and making sure that all of 
you folks--that pay every penny, by the way, of what this 
government uses to run these wonderful programs comes from you. 
I have told the chairman many times there has been years I have 
not paid a penny in taxes. It is not because I understood the 
Tax Code. It was because I didn't make any money. And one of 
those years was in 2009 when the annual sales rate for 
automobiles, by the way, went from $16 million to $9.5 million. 
That is a hell of a hit. So it wasn't a matter of policy at 
that time. It was a matter that the world was upside-down.
    So anything that you disagree with what we are doing or 
what we are attempting to do--because we all agree that if you 
are healthy, the country is healthy. You are able to hire 
people. You are able to educate people. You are able to 
participate in your communities. And, more importantly, you are 
able to fund every single government spend that we have out 
there. Anything that you disagree with? Anything that you say 
we should be doing faster other than getting this to an end?
    Mr. Farr.
    Mr. FARR. The only thing I would say you got to do faster 
is we need to get our global competitive tax rates equal to our 
competitors around the world. We are losing jobs every day the 
more we sit here with this big difference. This is a big issue. 
I will tell you right now, I invest constantly around the 
world, and these changes are really big issues to us as a 
company. And if we don't get this back in line, we are going to 
continue to lose jobs, and we are going to fall further and 
further behind. This is very important to us in this country. I 
am an American. I manufacture in America, and I live in St. 
Louis, Missouri.
    Mr. KELLY. Perfect.
    Yes, Mr. Stephens. Or Mr. Mottl. It doesn't matter. You are 
all doing the same thing----
    Mr. STEPHENS. Congressman, the only thing I would add is 
urgency is important. And let's not let perfect be the enemy of 
the good. We are willing to make tradeoffs. We understand that 
there are tradeoffs to be made, that this is--there are 
multiple interests that have to be accounted for, and we all 
accept that. Please, with urgency, don't let the perfect be the 
enemy of the good.
    Mr. KELLY. Thank you.
    Mr. Mottl.
    Mr. MOTTL. One quick thing, just, you know, how important 
it is to make this easy for small business. You clearly get 
that.
    But, you know, we talked about deficits also. These other 
countries that are being very competitive, they are not so 
worried about deficits. They are worried about getting the 
jobs, getting the industry, and getting the stuff there. So it 
is a tough problem. I am on this side. But it needs to be dealt 
with.
    Mr. KELLY. Mr. Peterson.
    Mr. PETERSON. I am encouraged that we have begun this 
process and that we are having this hearing. And this is going 
to be hard. But because it is hard doesn't mean we shouldn't do 
it.
    Mr. KELLY. Mr. Rattner.
    Mr. RATTNER. I am a shrub. So I don't know if shrubs are 
allowed to talk.
    Mr. KELLY. You and I have been together before. But I got 
to tell you: I wish I could have sent you the letter I got 
taking away a family-owned businesses because of somebody's 
whims. Okay? So I don't want to get into that right now, 
although we are.
    But I am going to say this--I am reclaiming my time. Thank 
you all for being here. And this is the first step in you being 
here before--you are the revenue producers. We are the 
spenders. You are the producers. Thank God we are finally 
getting the private sector in front of us right now to let 
everybody in the world know how we do improve our country. So 
thank you for being here.
    We can talk later, Mr. Rattner.
    Chairman BRADY. Thank you.
    Ms. Sanchez, you are recognized.
    Ms. SANCHEZ. Thank you, Mr. Chairman, for holding our very 
first hearing this Congress to discuss what I consider to be 
the most pressing legislative issue, and that is our severely 
overdue tax reform effort.
    And I want to echo our Ranking Member's statement that 
lasting, comprehensive tax reform means absolutely nothing if 
it doesn't put the middle class first. And I would really urge 
that this be a bipartisan effort.
    I continue to hope that we can work on a bipartisan package 
unlike the recent health care reform attempt, because it is 
very frustrating to sit and find areas of common belief but not 
have your voice or your opinions heard.
    And while it is impossible to highlight everything that I 
think should be a priority for this Committee as we continue on 
this path toward tax reform, I am going to try to hit on a 
couple of key notions. First of all, I want to reiterate a 
point that I have made many, many times. Tax reform needs to be 
comprehensive and not piecemeal. We cannot fix the Code for one 
group of people, leaving countless others worse off because of 
it.
    We also can't cut taxes for the richest of the rich and 
assume that somehow that will magically grow the economy. You 
cannot cut your way to growth. That has been tried, and it has 
failed miserably.
    My biggest fear in this process has always been a final tax 
reform package that puts American workers and the domestic 
businesses that employ them on an even more unequal footing in 
our Tax Code. Our Tax Code is woefully out of date. But how we 
get from here to a revamped Tax Code really deserves some 
thoughtful deliberation. And we really need to roll up our 
sleeves and get our hands into the nitty-gritty of what is good 
policy.
    The process also requires some thoughtful feedback from 
those who are going to be most affected by the changes that we 
will eventually make, which is why I hope that we won't 
continue to have hearings where we only have panelists who 
represent a narrow set of interests.
    And I would love to ask the panel, rhetorically, how many 
of you are the sole or primary caregiver for an aging parent or 
a dependent child? How many of you are single heads of 
households? How many of you struggle at the end of the month 
with whether or not to pay your utility bill or go by groceries 
for your children?
    I think that those perspectives deserve their time in the 
sun here to have their perspectives voiced as well. When we get 
one narrow swath of perspectives, I don't think that that does 
anything good for a thoughtful and robust discussion about how 
tax reform should move forward in a way that is fair.
    I have often said that our Tax Code reflects our priorities 
as a country, and we need to create an environment for good-
paying jobs to flourish and allow families to be able to save 
and have some financial security.
    You want to talk about uncertainty. Many American families 
face an existential uncertainty from day to day, which is very 
different than business planning uncertainty.
    Now, during my time on this Committee I have been proud to 
work on legislation in a bipartisan fashion to try to help ease 
the burden of child- and eldercare costs. And it is my hope 
that the Committee will consider those financial 
responsibilities and strains on families, and the nuts and 
bolts of those proposals, as we work to update our Federal 
code.
    Beyond that, working families are only able to meet their 
needs at home when they are able to earn a decent wage at work. 
And while this panel seems to focus on the competitiveness of 
our countries--and I am not taking that away. That is an 
important priority. I don't disagree that we shouldn't focus on 
how to make our companies competitive. But we also have to keep 
in mind: How do we help working families be successful as well? 
And it is not just about cutting the corporate tax rate. We 
need to look at what policies really help those struggling 
working families.
    Questions that working families deal with, the ability to 
afford quality childcare or to purchase a home or to save for 
retirement, those should be a focus of this Committee right 
now.
    Right now, we are forcing families to make impossible 
choices, and I believe that by highlighting those tough issues, 
we will force this Committee to be a little bit more thoughtful 
in its approach to tax reform.
    With that, I have one question. Mr. Rattner, I want to know 
if you could speak to how addressing the problems that middle 
class and working class Americans face, how could that benefit 
the economic impact across the board?
    Mr. RATTNER. I think, Congressman, that would be a huge 
plus, because, as I have said before, there is a supply side to 
the economy, which is what a lot of the investment issues we 
have been talking about focus on, and there is the demand side. 
And to the extent that middle class people have more resources, 
are more able to go out and buy things, then that is obviously 
a big plus for economic growth.
    Chairman BRADY. Thank you. All time is expired.
    Mr. Renacci, you are recognized.
    Mr. RENACCI. Thank you, Mr. Chairman.
    And I want to thank all the witnesses for being here as 
well.
    It wasn't that long ago that I probably could have been 
sitting on the other side there with you as a businessman for 
almost 30 years.
    Mr. Rattner, I also have to say that the only reason I am 
here is my profitable business, my car dealership, one of them, 
was taken away from me during the car czar days. And, by the 
way, there were 53 employees in that business--it was 
profitable--who were hard-working, struggling Americans, like 
some of my colleagues want to talk about, that I had to let go 
when the business was shut down. So we have to remember, when 
government interferes, people get affected. And the Tax Code is 
affected.
    And the one thing I want to talk to you about, I want to 
talk to you about another person that I represent. It is that 
24 year old that starts out his first business. He or she 
starts out, and they don't have any money. So they borrow some 
money. They write off the interest. They start hiring people. 
They don't take a paycheck. They don't take a paycheck. And 
they hire those hard-working, middle class Americans. And they 
start to grow it, and then they have to look at their business, 
and they say: Wait a minute. I can't hire any more people, 
because I have got this tax burden. So I slow down on my 
hiring, and I have got to pay my tax burden to the Federal 
Government. So you can't grow and you can't bring more people 
on. That is a business that is not represented in the panel.
    But the truth of it is that is the hard-working American 
that needs to be talked about as well. And, by the way, 34 
years ago, that was me. I started my first business with 
nothing. I was a hard-working, middle class person, barely 
making ends meet. But I was able to live the American dream, 
and the Tax Code did get in the way. So the good thing about 
today is I heard agreement from everyone.
    Here are the things I heard agreement about: We need to 
lower taxes. We need a territorial system. We need to make sure 
the U.S. is more competitive. And there is a cost to doing 
nothing in the form of businesses and jobs leaving. That is so 
important.
    Now, the burden of the Tax Code, as I am aware of, 
corporations don't pay taxes. You all know that. Corporations 
pass it on.
    So the more taxes you pay, you are passing it on to the 
individual. It is the consumer. And we have to look at that 
because that is higher prices to the consumer.
    So here is what I really want to do. I want to get to the 
bottom of this. The real relief from the corporate rates going 
down will be to wage earners, consumers, and shareholders.
    We do have the highest tax rate in the world. And because 
we have highest tax rate in the world, companies are leaving 
because they are not competitive. We know that. I am hoping the 
American people are watching this, because that is the truth. 
And I think all of you would agree with this. We have the 
highest tax rate in the world.
    When companies leave, we lose tax revenue. We lose tax 
revenue. We lose tax revenue. The United States Government 
loses tax revenue.
    So we have to become more competitive. The way we become 
more competitive in a global economy is dropping our tax rates. 
Would you all agree with that? Do you all agree we got to lower 
tax rates? Good.
    Because that has to be the driver. We have to lower tax 
rates. And the disparity, really, between the income, between 
these tax rates, is what is driving us. So tell me, would you 
all agree--because I want top end now. We can get into the 
weeds later. But on top end, you all would agree we have to 
lower our tax rates? Everyone here? You all would agree that we 
need to have a territorial system? You all would agree that the 
U.S. has to become more competitive with a lower tax rate? You 
agree? And you all agree that we can't do nothing.
    So, I mean, we do have some agreement here, bipartisan 
agreement, which is great, because if we can get this economy 
moving, it is going to be so much better for the people, those 
hard-working American families.
    So this is the concern I have, and I--tell me what you 
think we should do immediately. I mean, immediately.
    And I would like to hear an answer from everyone here. What 
should we do immediately? Because tax reform is difficult.
    Mr. Rattner, I will start with you.
    Mr. RATTNER. Look, unfortunately, I think it is a package. 
I think you need a comprehensive package that addresses all the 
various issues we have been talking about today. So I don't 
think going in now and cutting the corporate tax rate to 15 
percent or 25 percent and saying, ``Okay, we have done our 
job,'' is anything remotely like a solution. I think you guys 
have a huge job on your hands with thousands of pieces. So I 
don't think, unfortunately, you can do it today or tomorrow or 
the next day. I think you need to take some time and do it 
right.
    Mr. PETERSON. Well, my thinking would be we have to be 
bold, and as you go through this process, as we just heard, it 
is complicated. There are thousands of pieces. But let's be 
bold, and let's get everything on the table, and let's fix it.
    Mr. FARR. I agree. We need to be bold, and we need to bring 
all the constituents in, the smaller people, the people in the 
factory, all the way up to the board rooms. And we need to 
think about all the impact to these individuals and what it 
means. But we need to reinvest in America. Get the money back 
in America.
    Mr. RENACCI. Mr. Mottl.
    Mr. MOTTL. Lower it, simplify it, and change the way you 
collect it.
    Mr. RENACCI. Mr. Stephens.
    Mr. STEPHENS. Lower the rate, create a cycle of virtuous 
investment, and do it right away.
    Mr. RENACCI. Thank you all for being here. I appreciate 
every one of your testimony. Thank you.
    Chairman BRADY. Thank you. The gentleman yields back.
    Mr. Holding, you are recognized.
    Mr. HOLDING. Thank you, Mr. Chairman.
    Mr. Peterson, in your testimony, you pointed out numerous 
times the competitive flaw in our current worldwide tax system 
versus a territorial tax system. And this is an extremely 
important point in an area we obviously need to address in tax 
reform. Everyone has agreed to that. I don't think that I have 
taken a single meeting where someone has argued against 
addressing our international Tax Code. While other countries 
have moved to a territorial tax system, we are one of the last 
remaining countries to tax the worldwide profits of U.S.-
headquartered companies. Others include Greece, Chile, Mexico, 
and South Korea.
    Now, in even more exclusive company, we are only one of two 
countries, Eritrea being the other, to tax the worldwide income 
of U.S. citizens that live and work in foreign jurisdictions.
    Now, we stand in even more exclusive because we are the 
only country, the only country, that has, through its Tax Code, 
put both our companies and our citizens at a competitive 
disadvantage on a global stage. It is pretty remarkable when 
you think of it.
    So, Mr. Peterson, you are the CEO of a company with global 
operations. Could you give me your firsthand perspective on how 
our Tax Code has affected the international competitiveness of 
both U.S. companies abroad as well as the ability for you to 
hire Americans for jobs in overseas operations?
    Mr. PETERSON. Thank you.
    On the first point about some of the competitiveness, let 
me give you a couple of examples. In my testimony, I mentioned 
that we pay a tax rate of well over 30 percent, and we have 
competitors pay in the teens. We have a competitor who is based 
in Canada that operates globally, one of our largest 
competitors, that pays a rate of about 12 percent. There is 
another one of our competitors that did an inversion and moved 
their operations to the United Kingdom and went from a 30-
percent tax rate to a 12-percent tax rate.
    In addition to that, I mentioned earlier, recent 
acquisitions by companies moving all of their offshore cash 
into international operations and doing acquisitions overseas.
    We are competing on a global scale. We pay the 30-percent 
rate. They pay 12, 15 percent rates. This is something that we 
feel every time we go out and have a situation where we are 
competing in the markets.
    Our employees when we move expatriates around the world or 
we try to hire Americans in other markets--they have a tax 
advantage, obviously. We pay our employees the same rates, 
which means that, for us, it is also an increased cost. We 
would like somebody to have the same net income and that means 
that we are paying for, also, their tax assistance when they 
are overseas. So there is an additional burden for us to have 
Americans when we move them overseas.
    Mr. HOLDING. Well, this example makes sense to you. I have 
a friend who works in mergers and acquisitions. They were 
buying a company in Hong Kong. And they were looking at moving 
some U.S. citizens to Hong Kong to work in executive positions 
there at this newly acquired company. And my friend was telling 
me it would cost 40 percent more to hire a U.S. citizen to do 
the exact same job in Hong Kong.
    Mr. PETERSON. That would be the right increase. Whether you 
are looking at people from United Kingdom, Australia, New 
Zealand, or from Singapore, Hong Kong, et cetera, there are 
always going to be about a 40-percent cost differential to hire 
an American.
    Mr. FARR. I did this. I got paid $125,000 a year. It cost 
the company $500,000 a year to have me in Hong Kong. That is 
the real cost of having an American international.
    Mr. HOLDING. All right. You know, I have also found--I have 
always been struck--you know, you go to a foreign country as a 
Member of Congress, and we always want to meet with the 
American Chamber of Commerce there in the country, whether it 
be Hong Kong--we are talking about Hong Kong. And often we go 
there, and we don't see Americans there. But we will see 
British there or New Zealanders there or Australians there as 
executives in U.S. companies based overseas. So I think when we 
address the territorial--the global--the territorial system, we 
need to address how our citizens are treated as well, 
particularly for their earned income, and look at that as a 
residency-based taxation and align our citizens, along with our 
companies, as to how the rest of the world treats them for tax 
purposes.
    So, with that, Mr. Chairman, I yield back.
    Chairman BRADY. Thank you.
    Ms. Sewell, you are recognized.
    Ms. SEWELL. Thank you, Mr. Chairman.
    I want to thank all of our guests today.
    This is a critically important first hearing. I am a new 
Member of the House Ways and Means Committee. And I can tell 
you that the people that I represent sent me to Washington to 
try to be a part of the solution, not a part of the problem. 
And I am really excited that we are having a hearing today 
about tax reform.
    You know, I think it is really important that the tax 
reform be comprehensive and truly be a tax reform.
    I am a true believer that our Tax Code is in dire need of 
meaningful reform. I have no doubt that, by working together in 
a bipartisan manner, both parties have a once-in-a-generation 
chance to really pass comprehensive tax reform that will 
benefit the middle class, small businesses, and hard-working 
Americans across this country.
    You know, my concern, though, is that the current 
Administration's plan doesn't seem to be a product of 
collaborative work. I think it is really important--and you 
have heard us echo this a couple of times. And I know that our 
chairman is listening, and I know that he, too, understands the 
value of collaborative work. We all want this tax reform to 
truly be lasting and not just a mere one-off.
    Every day, I am honored to represent my home district of 
Alabama, the Seventh Congressional District. The median income 
in my district for a family of four is $38,000. But I know what 
is possible with a little bit of resources and a whole bunch of 
opportunities from this district. I get to live it every day. 
The challenge, of course, is to try to figure out how we can 
promote viability, great opportunities for both businesses and 
workers. I know that, by sitting in a collaborative manner, 
that we can achieve both, that there can be winners/winners and 
not just winners and losers.
    But I have to say that I was quite concerned that what we 
are looking at in this current tax proposal is just more tax 
cuts and not true tax reform. I find it to be telling that we 
have been in this room for the last 3 hours almost talking 
about comprehensive tax reform and Vice President Pence just 
tweeted 20 minutes ago: I know that this President will sign 
into law the most consequential tax cuts in American history.
    It can't just be another tax cut, gentlemen. It needs to 
truly be comprehensive tax reform. I know the folks that I 
represent have been waiting for trickle-down economics to 
trickle down to them. And the spigot is always off by the time 
it gets to rural America. And I think we have to figure out a 
way to make this work.
    So my question, I guess--my first question is to you, Mr. 
Rattner. We talked about making sure that any tax reform is 
deficit neutral. I would like to talk a little bit about how we 
can make it distributionally neutral as well. Can you talk a 
little bit more about sort of supply-side economics, which you 
said, like trickle-down economics, doesn't trickle down to the 
middle class and to the working class? So can you talk a little 
bit about making sure any kind of comprehensive tax reform that 
we consider is also distributionally neutral?
    Mr. RATTNER. Sure, Congresswoman. And thank you for your 
comments.
    And I would say a couple of things. First of all, I agree 
that it needs to be comprehensive tax reform, not just tax 
cuts, regardless of what the distributional effects are. I 
would recognize that the President, in his plan, does propose 
to simplify the deductions on the personal side. We can debate 
what should or shouldn't be in there. But I think certainly 
that is a step in the right direction, and we should commend 
him for doing that.
    My problem is the distributional effects. I mentioned 
before that 83 percent of this tax cut on the individual side 
goes to the top 20 percent of Americans, an average of $25,000 
each; 50 percent, a full 50 percent, of this tax cut would go 
to the top 1 percent, an average of $317,000 each. So that 
doesn't seem fair to me, and I don't think it is complicated to 
fix that. It is simply a question of what rate cuts do you give 
to what level of Americans. And it is just making some 
adjustments to those formulas. I don't think it is terribly 
complicated. It is just something we need to do.
    Ms. SEWELL. Mr. Farr, I am a firm believer that our Tax 
Code should incentivize the type of behavior we want to see. 
For me, I know that the future of work in the rural parts of my 
district is really quite scary. And so incentivizing 
apprenticeship programs and workforce development and workforce 
training is really important. Each Congress, I try to introduce 
bills that reflect that. Can you discuss the roll tax reform 
can play in helping companies like Emerson promote workforce 
development?
    Mr. FARR. For sure. First of all, you have to know, I am a 
nine iron from Ferguson. And we put $12 million into Ferguson 
for the last 2 years, including an apprenticeship program for 
the high school kids. I went out and raised $2 million in 
funding. I think you find businesses do this, and we don't 
really need incentive from Federal Government. We want to help 
our communities. So I think you will quickly find out that 
businesses, if they are really engaged in the community, will 
do it. And I do this--and I tell you what, Ferguson is much 
better today than it was 2 years ago.
    Ms. SEWELL. Thank you, Mr. Chairman.
    Chairman BRADY. Thank you.
    Mr. Schweikert, you are recognized.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    You know, when we all sit down here, we always have a 
series of things we think we want to ask. And this is to all my 
brothers and sisters sitting up here on the dais--maybe I am 
being pathologically optimistic--and outside, look, some of the 
political banter that seems to be obligational to throw out, if 
you actually hear from the right and the left here, I think 
there is sort of a universal understanding that we need big, 
bold, comprehensive tax reform. This discussion, if you 
actually look at what we are doing, you know, and look--I don't 
know whatever noise is out in the rest of the world, take a 
look at our documents; this isn't just about rates. This is big 
time reform.
    And so, look, I have a personal fixation on this concept of 
velocity in our society. How many of our brothers and sisters 
out there, all up and down the tree, if you actually look at, 
like, the last 10, 14, 15 years, how little movement there 
really has been from different sort of stratifications. And 
that is a crisis for society when you don't see that movement.
    I am desperately hoping for all of you as entrepreneurs and 
investors that a comprehensive plan, as we are moving forward, 
is great for the society from, you know, the person entering 
the workforce to the person that just wants stability and wants 
opportunity.
    Mr. Farr, one of the things I wanted to come to you about 
was, when you also look at investments around the world and you 
are making that decision of--you know, your shareholders, 
those--what is in this tax plan, our tax plan, that makes you 
decide it is going to happen here in North America? What are we 
doing right, and what would you change?
    Mr. FARR. One of the panelists said, I think education in 
the United States is truly unique. We have a unique education 
system that drives innovation and technology. And I think if 
you continue to encourage that under this tax plan, that is 
very important.
    Secondly, I think getting the tax rate down so when I look 
at my tax cost to do business in the United States versus 
England versus U.K. or China or wherever that is, getting that 
tax rate down, that takes it off the table. The productivity, 
the education, the strength of the U.S. worker is very strong. 
And that is very important.
    Mr. SCHWEIKERT. Okay. So that is your baseline. Now we are 
coming to you and saying we are about to do comprehensive tax 
reform for our society. Does the expensing, do the rates, what 
are the drivers that say you are going to continue to invest in 
our communities?
    Mr. FARR. I think all those come into play. From the 
standpoint--the acceleration of the depreciation makes a big 
difference. From the standpoint of the recovery, the cash we 
put in and putting that cash back out into other investments. I 
think the tax rate from the standpoint of how much cash we pay 
in Federal taxes, State, local taxes makes a big difference. 
But, again, I think having infrastructure, having all these 
things come into play. I will go through 20 issues relative to 
making a decision. It is not just tax.
    Mr. SCHWEIKERT. Okay. So it is unified theory. But, right 
now, our job is to----
    Mr. FARR. Tax.
    Mr. SCHWEIKERT [continuing]. Get the tax--and then we 
have--and we will have other things we have to do.
    Mr. Mottl.
    Mr. MOTTL. Yes.
    Mr. SCHWEIKERT. You made a comment before that you had to 
change your business model or your production line, your 
research, multiple times because you keep losing your 
customers. Could you put a little more definition on that?
    Mr. MOTTL. Yeah. Well, for almost a hundred years, we 
primarily served the telecom industry. It was my great-
grandfather's account. And I watched as other countries made a 
very competitive environment for the people that made the 
chips, the boards, and all those little pieces that go in the 
electronics. And then they no longer needed me to make a 
housing here to hold those boards and electronics. It went 
overseas to another country. So, you know, I watched that 
industry leave.
    You know, for a while, we did some automotive work. There 
were some issues, as has been mentioned. We watched that change 
and disappear. Now that type of work is leaving.
    Mr. SCHWEIKERT. Okay. So, in many ways, you are sort of 
speaking to where I was trying to go before. It is more--there 
is also a cascade effect. And for all of us here, we sometimes 
get fixated on a single point in a complex plan and not 
understanding there is sort of a unified theory where, you 
know, this affects this, this affects that, that touches here.
    And this is not just business. I mean, we are also, you 
know, looking at how we deal with the passthroughs, also 
individual rates, and how it all sort of unifies together.
    For AT&T, what is the single biggest driver to get you as 
one of the biggest players in the world to make large capital 
investments in this country?
    Mr. STEPHENS. The two biggest drivers would be the tax rate 
and the immediate expensing, but, quite frankly, the biggest 
driver would be those changes as they impact my customers.
    Mr. SCHWEIKERT. Okay.
    Mr. STEPHENS. Because right now, just as Mr. Mottl 
mentioned, we are losing customers who are taking their 
business overseas. The work that he talked about in the auto 
industry went overseas where I am not the primary provider. 
When he talked about those microboards and other equipment 
being manufactured overseas, I lost that customer.
    So for us, let's be straight, we really believe that doing 
these changes will generate small business and medium-size 
business activity, and that will benefit us through the revenue 
line.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you.
    Mrs. Walorski, you are recognized.
    Mrs. WALORSKI. Thank you, Mr. Chairman. Thank you, 
gentlemen, for being here.
    I am grateful to represent Indiana's Second District. We 
are one of the largest manufacturing districts in the country. 
Very proud of the folks in our district. We have a lot of 
manufacturers, farmers, a lot of moms and dads that are just 
trying to pay bills and trying to get their kids through school 
and through college.
    And I have heard from so many CEOs in my district that the 
American economy has succeeded in spite of our Tax Code. It 
hasn't helped it. And I wanted to be a part of this Committee, 
and I am grateful to be a part of the Committee to actually be 
looking at this. And I want to just run a couple of quotes past 
you on what folks in my district have said.
    Barry Baldwin is a tax preparer. He talks about why it is 
important to lower the rates, and we have had this discussion 
for 3 hours on rates. And my question to you when I get there 
will be on rates and the issue of permanency and why it is so 
important to you that we don't do something that would damage, 
you know, your interests in tax reform by not making this 
permanent. But Baldwin, the tax preparer, says: ``More money in 
people's pockets, leading to more spending. More spending 
creates more jobs. More jobs increase the tax base.''
    Gary Fox, he is a managing partner for a tax services firm 
in my district called Crowe Horwath in South Bend. He said: 
``Small and middle market companies are unable to keep capital 
and invest in their business with the current tax rate 
environments.'' He said: ``Lower rates will allow for better 
capital investment. Capitalization increased full-time 
employment.''
    And then since we are a manufacturer, we manufacture nearly 
all the RVs in the country and worldwide, and we also 
manufacture boats. So Peter Barrett, senior VP of Smoker Craft 
said that tax cuts will allow his company to hire more workers, 
raise wages for their 600 employees, create new training 
programs, expand their plant, and make new capital equipment 
purchases. None of those things, he said, happened in a vacuum.
    So you have heard from my district. I have heard from you. 
And you touched on this a little bit earlier why lower rates 
are so important. But I guess when we talk about the benefit of 
lower rates, and you touched a little bit on the issue of 
permanency, I just think it is important that as we talk about 
this, we talk about what the distractions can be if this isn't 
permanent. And that is how I would like to hear your response, 
the issue of permanency and why it should be a top priority.
    Mr. Stephens.
    Mr. STEPHENS. So for most of the large companies, capital 
investments are multiyear projects. It takes years to go from 
the start to completion. And so as the rules change, as 
inconsistencies change, as the rules change, once again, for 
our customers and so we see demand for our services change, it 
makes things inconsistent and it puts higher risk. Higher risk 
makes people in our world be more careful with their 
investments. It is just a prudent responsibility we have to our 
shareholders.
    So whether that inconsistency is in tax rates or 
uncertainty, whether it is in regulatory conditions, all that 
goes to uncertainty. Uncertainty leads to less investment.
    Mr. MOTTL. I think I have spent some time in your district 
visiting some of those RV manufacturers. Goshen, Indiana, is 
out there?
    Mrs. WALORSKI. You bet. Right in the middle.
    Mr. MOTTL. I love it out there. Great area.
    But, you know, the thing about the concern and the risk of 
constant changing, you know, we talk about here in Congress we 
can't get things done because of the distraction maybe going 
on, right? There is no air in the room. It is the same thing in 
business. If we are constantly concerned about changes and who 
is going to jerk our chain next, we don't do anything. We 
freeze up and pause. So I think it is so important to have a 
consistent policy.
    You know, also, I have heard a lot about supply side 
things. You know, we are really talking here about--I am not an 
economist. I am a manufacturer. But we keep hearing about 
supply--we want to generate demand, demand for American 
workers, demand for training, and demand for skills. I have a 
skilled workforce shortage in my area, and I can't hire the 
people to run the machines----
    Ms. WALORSKI. As do we.
    Mr. MOTTL [continuing]. That we need. And so I have had to 
raise wages. So if we can create more demand, you will see a 
lot more of that. Thank you.
    Mr. FARR. The key issue you hear, you have got a medium, 
small, large business here. We are all interconnected, so 
whatever happens to one happens to the other. And I think the 
permanency is very, very important because we do make long-term 
plans, and if we have the risk issue that it is going to go 
away next year, then we will factor that in, we will slow it 
down, maybe spend less money, but it does have an impact.
    Why the rates are important is because I operate in a 
global marketplace. Like I said, over half my sales are outside 
the United States. My major competitors are German, French, 
German, French, maybe a Japanese. They all have lower rates. 
And if we have higher rates, I lose business.
    I just recently lost an acquisition in Germany to a French 
company for a $500 million acquisition. Same forecast. My tax 
rate is 37 percent, his tax rate is 20 percent. And I lose 
every day of the week.
    Mrs. WALORSKI. Mr. Peterson.
    Mr. PETERSON. Tax is a major expenditure for us, as I 
mentioned, $560 million last year in the U.S. If we knew what 
the cost was going to be and it was lower than that and we are 
able to predict it over the long run, we can have a completely 
different planning cycle and also invest for the long run. 
Permanency is absolutely critical to this package.
    Mrs. WALORSKI. Mr. Rattner?
    Mr. RATTNER. I would just--I would certainly echo that, but 
I would also just mention something the Committee is well aware 
of, which is that achieving permanency creates an additional 
burden in terms of how this package is constructed in terms of 
the legislative process, particularly in the Senate that you 
are all obviously very well aware of.
    Mrs. WALORSKI. Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Ms. DelBene, you are recognized.
    Ms. DELBENE. Thank you, Mr. Chair. And thanks to all of you 
for being here with us today.
    I have been spending time collecting feedback from my 
constituents about what tax reform means to them. I represent a 
very diverse district in Washington State with industries 
ranging from a booming high technology sector to life sciences 
and agriculture, and I can tell you that my constituents are 
asking for a middle class and small business tax relief, not 
massive unpaid for tax cuts for the wealthiest Americans and 
large corporations.
    I heard from a mom who is struggling to pay tuition for 
three children in college and could use just a little bit of 
relief. I heard from a small business owner who is spending 
$12,000 a year on a CPA to help him navigate the complexities 
of the current Tax Code instead of putting that money back into 
his business. And he still is paying a high tax rate.
    There are countless stories. We have heard some here today 
just like this across my district and across the country from 
hard-working people who just want a bit of fairness and 
simplicity out of tax reform. And we have talked about 
simplicity. We have talked about certainty, also very 
important. We have talked about competitiveness. Now I want to 
talk a little bit more about fairness and true impact.
    And so I want to share some data about what happened after 
the Bush tax cuts. According to a U.S. census report, median 
household income in 2007 was lower than it was in the year 
2000. And according to the Bureau of Labor Statistics, 
employment and wage and salary growth were lower than in any 
previous post World War II expansion.
    So, Mr. Rattner, I wanted to ask you what should we take 
away from what happened after the Bush tax cuts?
    Mr. RATTNER. Well, I certainly did not think the Bush tax 
cuts were well advised. We had a surplus when President Bush 
arrived. We effectively squandered it, created deficits, and as 
you pointed out, with no meaningful positive economic impact. 
So I think the lesson of all that is not to do it again.
    Ms. DELBENE. And how should that inform us going forward as 
we look at tax cuts in particular?
    Mr. RATTNER. Well, that should inform us, first and 
foremost, that they should be deficit neutral. And that you 
all, you are not in charge of all spending obviously, but you 
need to somehow with your colleagues make sure that the total 
package that ends up going through is deficit neutral using 
reasonable assumptions.
    And, secondly, while I think there is a benefit in reducing 
rates generally, we should also--for example, there was a 
discussion about R&D and the importance of that. We should also 
look to--I am not in favor of huge numbers of gimmicks or 
overly targeted tax cuts, but we should make sure the Tax Code 
is creating the incentives we want it to create, not just to 
invest but to train, to educate, and so on and so forth.
    Ms. DELBENE. Thank you.
    Mr. Stephens, you said, I think pretty straightforward, 
more investments equal more jobs, in your testimony. In a 2016 
New York Times article entitled, ``Gearing Up for the Cloud, 
AT&T Tells Its Workers: Adapt or Else,'' it really talks about 
AT&T shifting its business towards more of a digital and 
computing-based business. But there is also a quote in that 
article that said executives estimate that eventually AT&T 
could get by with one-third fewer workers due to automation, et 
cetera.
    So while you work with your workforce to train for the jobs 
of the future, if you are also going to have one-third less of 
a workforce due to automation or technology changes, that means 
that more investments may not mean more jobs or more workers. 
And so I am concerned about the idea that investment alone is 
always going to equal new jobs as we talk about the new 
economy. And I wonder if you would comment on that.
    Mr. STEPHENS. Sure. What we are doing at AT&T is our 
business is changing. If you are like my children, you don't 
have a dial tone phone at home, you use your mobile phone. And 
it has happened across the country. We have gone from about 55 
million of those dial tone phones down to about 25 million. So 
business changes. And so we need less people to take care of, 
you know, a 40, 50 percent loss in that customer base.
    What we are doing, though, is we are giving those 
individuals the opportunity to retrain themselves. We use 
nanodegrees. We have partnered with Georgia Tech University for 
an online programming, at the company's cost, to give our 
employees an opportunity to train themselves in the next 
generation of products and services.
    Ms. DELBENE. And so I just want to--I understand that 
retraining, it just still means there are less jobs, and so 
more investment may mean less jobs. And because I am running 
out of time, I just think it is important that we have an 
honest conversation about what technology means for the 
workforce and where we should be putting resources to make sure 
that we actually have an economy that really works for 
everyone.
    And I am out of time, and so I just want to yield back, Mr. 
Chair.
    Chairman BRADY. Mr. Curbelo, you are recognized.
    Mr. CURBELO. Mr. Chairman, thank you very much for this 
hearing, and I thank the witnesses. I am also grateful that my 
colleagues have expressed broad bipartisan support for a 
comprehensive permanent and revenue-neutral tax reform.
    We have the opportunity to reform and streamline existing 
programs in the Tax Code, like education incentives that will 
give families more flexibility in saving for their children; 
promoting greater access to cleaner, more efficient energy 
technologies; and seeking solutions for the people of Puerto 
Rico, who face a demoralizing economic outlook.
    But for me, Mr. Chairman, tax reform is about expanding 
freedom and opportunity for the American families of today and 
those of the future. I think about my immigrant parents and how 
they were able to come to this country and earn success. When 
they first arrived, it was tough. My mom helped her mother run 
a small fabrics business. On some days, my dad sought food and 
couldn't find any. Yet thanks to the possibilities afforded to 
them by the American economy, they were able to earn more, put 
away some money, buy an apartment, and start a family. The 
social safety net back then was not as expansive as it is 
today, but opportunity was boundless.
    My wife and I think about our own two daughters. I want to 
make sure they grow up in a country where they can find their 
own success and blossom. The decisions we make in this 
Committee in the coming months will make that either more or 
less possible.
    I think of all those young people who went to college and 
can't find quality jobs, and small businesses back in South 
Florida, the mom-and-pop bakeries and small restaurants where I 
often stop by in the mornings to grab my shot of Cuban coffee. 
Will our country offer them the opportunity to grow and invest? 
Or will we just sit back and watch opportunity in our country 
diminish?
    There is good news in the blueprint for every Florida 
family. My State could see as many as 97,220 new jobs and an 
estimated gain in after tax income of $4,248 per household, 
according to the tax foundation. Counties like Miami, Dade, and 
Monroe, which I am privileged to represent, I think especially 
stand to benefit given the entrepreneurial culture there.
    To our witnesses today I have one question very unique to 
my area. Miami, south Florida, is often called the Gateway of 
the Americas. There is so many opportunities, so many ways to 
access different markets from Miami. However, we also face 
competition from all those countries in Central South America, 
Europe, and really all over the world, because Miami is 
becoming a meeting point for people and goods from all over the 
world.
    Mr. Farr, given your perspective for those entrepreneurs in 
Miami who are creating jobs, who are innovating, who are 
opening new markets for American products, what is the 
difference for them between permanent comprehensive reform and 
short-term tax cuts?
    Mr. FARR. Thank you. First of all, we use Miami as our 
gateway into Latin America, so I couldn't resist.
    Mr. CURBELO. Thank you.
    Mr. FARR. I mean, the big impact for people starting up is 
having a know the tax rate will allow them to make those long-
term investments. I mean, when you start a company up, you are 
putting money on the line and it is going to be there for a 
long time, and you want to know what that tax structure is 
going to be. And I think that is very critical for these young 
people starting up these companies, having the permanence, 
having the knowledge of what that tax rate is going to be, what 
the rules are, and make them simple. For small companies they 
have to be simple. I have hundreds of tax lawyers and tax 
accountants to deal with this, but in small companies you have 
got to make them real simple, keep the rates low, and they will 
invest and grow, and that is how it works.
    Mr. CURBELO. Thank you, Mr. Farr.
    Mr. Stephens, I want to offer you the opportunity to send a 
message to the American worker. We all know how frustrated the 
American worker is. A lot of people in this country just don't 
feel like success is attainable for them. A lot of these young 
people go to college, get a degree. They were promised that 
they would be able to find a good job and they can't find one 
today. And a lot of these people have watched over the last 7, 
8 years this economic recovery where the wealthy have done 
quite well, the statistics show that, yet lower- and middle-
income Americans have struggled.
    Some of these people might be watching this hearing today. 
Maybe one or two of them. Hopefully more. What do you have to 
say to them? Why is this important to them? How can 
comprehensive, bold, permanent tax reform improve quality of 
life for middle- and lower-income Americans?
    Mr. STEPHENS. So for all businessmen the question of 
investments comes down to what returns they can make, and when 
the government takes 40 percent between the Fed and State and 
another location takes 20 percent or less, it makes it very 
difficult to make the decision to invest here.
    If we balance that out, if we make that competitive, those 
investments will come here. This will be the biggest jobs bill 
that this Committee could support, because with those dollars 
of investments comes the opportunities to do research, do 
innovation, do construction.
    Mr. CURBELO. So tax reform equals more and better jobs?
    Mr. STEPHENS. It is a jobs bill first and foremost.
    Mr. CURBELO. Let's leave it at that.
    Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you.
    Mr. Bishop, you are recognized.
    Mr. BISHOP. Thank you, Mr. Chairman, and thank you for the 
opportunity to be here on this very important hearing, and 
thank you for your tenacity in pursuing this package of tax 
reform measures.
    Gentlemen, thank you so much for your testimony here today. 
Thanks for sticking it out with us. I am the last of the group. 
Ms. Chu and I will be the last. And so much has been discussed. 
We all have the same interests. We want to deliver 
comprehensive tax reform, and we think in this case the 
blueprint in front of us will deliver profound tax relief to 
all Americans, and that is what we are hoping to see.
    I am from Michigan. Lots of great things going on in 
Michigan, but manufacturing is very important. It is our life 
blood. And I want to share with you a letter and an article 
that I read in New York Magazine on May 15 from a gentleman by 
the name of Mark Schmidt, who is also the president of a 
company called Atlas Tool. They are out of Roseville, Michigan. 
His testimonial on the existence of the tool and die industry 
is alarming. Given the fact that this is America, we can't 
afford this to happen, but he suggests that the United States 
manufacturing sector is dying. The tool and die business in 
particular is gone. His business, which is full of employees 
with high skills, and their well-compensated workforce is being 
choked off. And it is because we have done nothing to level 
this playing field.
    And I would just like to know, given the short amount of 
time that we have, and I know you can't do everything to give 
solutions here, but his suggestion is that the Chinese prices 
are so low that they cannot afford to buy their major dies from 
anywhere else. The major manufacturers. And he lists why they 
are low, and most of it has to do with China subsidizing their 
businesses.
    He also said that the industry has lost approximately 70 
percent of its companies and 80 percent of its skilled jobs. 
And the most alarming thing in his conclusion was ``our 
industry will soon lack sufficient capacity to supply the free 
world's automotive market.'' If that doesn't send off bells and 
whistles, and if that doesn't tell us that this is absolutely 
the most urgent thing that we can be doing right now in terms 
of public policy, I don't know what will.
    So I guess I will start with you, Mr. Mottl. This is your 
namesake, so I better make sure that I ask you first what you 
think about this, and if there is anything that we can do right 
now that would address this problem.
    Mr. MOTTL. Well, thank you, Mr. Bishop. I know the company. 
As soon as we get their phone calls, we send them the right 
way, and I hope they reciprocate. But, you know, the issue you 
are talking about is exactly what has happened in my business 
too. And, you know, the problem is--well, I don't know if it is 
a problem, but we need to make a profit here, and we are 
competing against companies that don't need to make a profit. 
Their banks will keep giving them loans and loans and loans 
just to have full employment.
    So the Chinese just flew their first jetliner. You know, I 
talked about the industries I have lost. Now I am in aerospace 
and I am in medical, so I am worried what is going to happen to 
the airspace industry when they have to compete against a 
company that has no need to make a profit, only to corner the 
market. And that is a fine strategy for that country, and kudos 
to them for pursuing it, but how can we engage in a different 
way so companies like Atlas Tool and my Atlas Tool can be 
competitive, we can create demand. I think it is right here in 
this room. We are talking about it today. Thank you.
    Mr. BISHOP. Thank you very much.
    Mr. Farr, I know you are----
    Mr. FARR. Oh, I am ready to go on this one. I tell you 
what, we have lost so much of our industrial base because of 
our antiquated tax policies, and we have allowed these 
companies to leave. We have allowed technology to leave.
    President Roosevelt took over our two facilities in 
manufacturing in 1939 for one reason: all our tool and die 
makers. He took over all our plants and almost put us out of 
business during the war, because we couldn't make motors 
anymore. But this technology is leaving, and we have got to 
figure out how to invest back in this country, again, not only 
to lower taxes, but put money back in education, into R&D. We 
can compete against the Chinese if we have a level playing 
field. Americans want to compete to win, and I believe that 
wholeheartedly.
    Mr. BISHOP. Thank you, gentlemen.
    Mr. Chairman, I know you are pressed for time, so I yield 
back.
    Chairman BRADY. Thank you, sir.
    Ms. Chu, you are recognized.
    Ms. CHU. Mr. Rattner, I would like to ask you about tax 
reform as it relates to small businesses. For every year that I 
have served in Congress, I have served also on the Small 
Business Committee, and it is because I truly believe that 
small business is the key to the American dream. In fact, my 
grandfather came to California with nothing but opened up a 
small Chinese restaurant and it just had a handful of 
employees. It was not a fancy place. But he worked day and 
night and night and day, and it was enough to keep the family 
going.
    Now, the Trump tax plan slashes the tax rate for 
passthrough entities from the current rates to a rate of 15 
percent, claiming that this is a tax cut for small businesses. 
But just this week, the Tax Policy Center found that over 
three-quarters of the benefits of this cut would accrue to the 
top 1 percent of earners. In fact, the top 1 percent, 1 percent 
would see their after-tax incomes climb to $76,000.
    So, Mr. Rattner, could you elaborate on how and why this 
tax cut would be so beneficial to the wealthiest few?
    Mr. RATTNER. I am sorry, Congresswoman, just that last 
part, elaborate on what?
    Ms. CHU. How this tax cut would be beneficial to the 
wealthiest.
    Mr. RATTNER. Well, as I said before, there are many wealthy 
people, and I think the study you cited seems to have put 
together some data, but there are hedge funds, there are 
private equity funds, there are businesses, not really small 
businesses, there are publicly traded firms that are taxed as 
passthroughs with billion dollar plus market capitalizations, 
and they would all receive that 75 percent, I think you said, 
of the benefits of this.
    And so I think that the idea of lowering the tax rates for 
true small businesses is certainly a worthwhile goal. But I 
express some skepticism about the ability to address the 
passthroughs in some way where you leave one group on one side 
paying their fair share and the other group on the other side 
getting some benefit. I think it is a very, very hard thing to 
do. And I think, frankly, our current system with the 
passthroughs is probably a better system but without lowering 
the rates to 15 percent, because I think that would confer too 
many benefits on the wealthy.
    Ms. CHU. In fact, let me follow up on that, because so many 
people refer to the passthrough income as if it were all small 
business income, and, in fact, many have argued that this type 
of rate reduction is critical to the success of small 
businesses.
    But can you tell us what kinds of businesses would qualify 
as passthroughs? Are there any distinctions drawn between the 
mom-and-pop restaurant or wealthy lawyers and lobbying firms? 
For instance, would the Trump organization be a passthrough?
    Mr. RATTNER. Trump organization would be a passthrough, but 
as we know, he doesn't pay a lot of taxes anyway, so I am not 
sure how much benefit he would get.
    The Administration has said that it would address the 
problem that you and I are both talking about of excessive, 
undeserved benefits going to very wealthy individuals or very, 
very successful large businesses, but they have produced no 
specifics. And as I said, I am personally reasonably skeptical 
that there is a way to draw those lines to give benefits to 
those who truly deserve them without having a lot of leakage, 
so to speak, to people who don't deserve them.
    I have many friends who are in the investment business who 
operate as passthroughs, and I don't see any reason why they or 
I should get a 15 percent tax rate.
    Ms. CHU. Let me turn now to the Kansas model. I was very 
interested to see that in 2012, Kansas cut taxes dramatically. 
They, in fact, exempted passthroughs from paying any State 
income tax at all. They cut the taxes on profits for more than 
100,000 businesses. In fact, the largest benefits were for 
upper middle class households, and there was massive revenue 
losses. Kansas was then forced to raise the sales tax, get 
pension payments, and even shortened the school year to save 
money.
    Can you comment on what is happening in Kansas and how 
could we avoid this pitfall on the Federal level?
    Mr. RATTNER. I am not an expert on Kansas, but I think it 
highlights a critical issue that we have talked about in this 
Committee hearing but I think really needs to be front and 
center, which is that there is no free lunch, unfortunately. 
That you can't simply--Kansas was, in effect, a supply site 
experiment. We will cut taxes massively. We think there will be 
so much economic activity, it will somehow make up for that 
lost revenue, and it didn't happen. And it hasn't happened in 
the past with tax cuts at the Federal level either.
    Tax cuts are fine, but they do not pay for themselves, they 
simply don't. And that is the lesson that this Committee needs 
to be mindful of. And in constructing its tax package, it 
should be deficit neutral using reasonable economic 
assumptions. So all the things that we all advocate, you all 
have to find way to pay for them.
    Ms. CHU. Thank you.
    Chairman BRADY. Thank you.
    Mr. Rice, you are recognized.
    Mr. RICE. Thank you, Mr. Chairman.
    Before I came here, I was chairman of Horry County Council 
in Horry County, South Carolina, and I saw firsthand how 
counties compete vigorously to attract investment by industry 
through regulatory changes, tax changes. And in States like 
South Carolina, for example, one of the top five States to do 
business, have done the same thing to attract--to be more 
competitive and to attract investment, and it has worked. BMW, 
Boeing, Volvo, Mercedes, and on and on and on.
    But what has our country done? You know, where our country 
fails to recognize, we argue about, you know, maintaining this 
level of revenue or that or how these benefits are going to be 
disbursed through society, but the fact that we have got to 
recognize is we are in a global competition. You know, we can 
change a lot of laws here in Washington, but one law that we 
can't change is economic law. And we can't change the law of 
economic competition.
    I have a question. Mr. Mottl, I thought your testimony was 
right on point about the border adjustment and the VAT and why 
other countries have done that. They agree to lower tariffs in 
trade agreements and then they put in VATs, and it is simply a 
disguised tariff. And it puts us at a huge disadvantage.
    Mr. Mottl, just assume this scenario. If you have got an 
American company paying a 35 percent tax rate, and you have got 
a European company, an Irish company paying a 13 percent tax 
rate in a VAT, and they both compete to buy the same materials, 
they both make the same product, and they both compete globally 
for the same customers. Can you tell me the end of that story?
    Mr. MOTTL. The one with the VAT tax is going to win because 
they refund that money when they export it.
    Mr. RICE. The American company is either going to go 
bankrupt or they are going to get bought by the Irish company, 
right?
    Mr. MOTTL. Absolutely, sir.
    Mr. RICE. Mr. Rattner, do you disagree with that?
    Mr. RATTNER. I don't disagree with that, but I think we 
have to recognize that the VAT would have a number of 
consequences and uncertainties.
    First of all, it will be a massive upheaval in our economy 
as certain companies benefited----
    Mr. RICE. But we also recognize--we also have to recognize 
there is 150 or 40 other countries around the world, including 
every single major industrial country, including every one of 
our competitors that are doing the exact same thing. And how 
can we sit here on our hands and put our American companies at 
a disadvantage to those?
    Mr. RATTNER. It is not completely one-sided. We have State 
and local sales taxes, which function as a form of VAT, 
admittedly at a lower level. But remember that this is all 
predicated on some very uncertain adjustment in the dollar, 
which if it does not happen, would involve raising prices very, 
very substantially for middle- and working-class Americans who 
typically buy a higher percentage of their goods imported from 
people like we do.
    Mr. RICE. Income tax cuts. If the currency doesn't adjust 
fully, there will be some increase in prices. Based on these 
tax foundation estimates, their incomes will go up by $4,000 a 
year, far more than these potential sales costs would.
    You know, the size of the American middle class and their 
income level has really declined, and it is not a recent 
phenomenon. It has declined in the last 8 years. It declined 8 
years before that and 8 years before that. It has been going 
down since 1990. Twenty years. The last time the Code was 
revised was 1986. I wonder if there is some maybe correlation 
there.
    The decline of the American middle class and the growing 
income inequality that we all fuss about is a direct and 
foreseeable result of the continued deterioration of America as 
a place to do business. Our Tax Code puts American companies at 
a disadvantage, and that translates to the loss of millions of 
middle class American jobs.
    If we truly want to grow the middle class, if we want to 
give them a raise, if we want to reduce income inequality, we 
must make our Tax Code competitive in the world. That has got 
to be our number one goal.
    I yield back, Mr. Chairman.
    Chairman BRADY. Thank you, Mr. Rice.
    Mr. Higgins, you are recognized.
    Mr. HIGGINS. Thank you, Mr. Chairman.
    Just a couple of things. You know, the American economy, we 
are 5 percent of the world's population, we are about 23 
percent of the world's economy. We have the strongest economy 
in the history of the world, but despite all the macroeconomic 
indicators pointing up, job growth, low unemployment, growth in 
the stock market, we lost 6 million manufacturing jobs in the 
past 15 years. 56,000 factories have closed.
    We just had an election where two unconventional candidates 
rose pretty quickly on both sides. Now, Donald Trump, our 
current President, beat 16 established Republican candidates. 
Hillary Clinton on the Democratic side was challenged by a 73-
year-old socialist from Vermont who garnered 12 million votes 
and won 21 primaries or caucuses.
    There is something underlying that isn't being addressed, 
and I would argue that it is income inequality. And regardless 
of our political persuasion, we all have a major stake in this.
    Let me give you an example. Between 1945 and 1980, we had 
productivity gains in the American economy by 97 percent. Real 
income and wages go at the same time by 95 percent. There was 
shared prosperity. Economists would call that a virtuous cycle 
or circle of growth. And the American CEO felt it was their 
responsibility to balance the economic interests of all of the 
stakeholders, the shareholders, the owners of businesses, the 
managers and the employees and the communities within which 
these corporations operated.
    Between 1980 and present, we have had productivity gains in 
the American economy by 89 percent. Real income and wages have 
grown by 9 and three-quarter percent. So if you are looking for 
the cause of the political disruption that people just voted 
for, it is that underlying issue of economic inequality.
    Now, I think a lot of people would view that personally and 
say, well, you know, that means more taxes for me, and I oppose 
that. I don't think that is necessarily the case. I think we 
can reach a point at which we can move our tax policy out of a 
political realm. Perhaps that is naive. But tax policy either 
works or it doesn't.
    You know, I think supply side is discredited. The new term 
for that is ``dynamic scoring'' that basically says that tax 
cuts will pay for themselves. Tax cuts do not pay for 
themselves, ever. So I think what we need to do is address what 
is going on here in the American economy because, as I said, 
people voted for disruption.
    Mr. Rattner, let me just say this to you: Supply-side 
trickle down dynamic scoring says let's give the very wealthy a 
big tax cut, and that money will find its way back into the 
economy in new business investment, in job growth, right? 
Wrong. It hasn't worked.
    Today, American companies are holding $2.5 trillion abroad, 
an increase of nearly 20 percent in the last 2 years. It is 14 
percent of the American economy. United States companies are 
holding $1.94 trillion in cash domestically. Zero yielding 
money markets are holding $2.66 trillion in investor cash, and 
banks are holding over $2 trillion in excess reserves in the 
Federal Reserve. Taken together, that is over $9 trillion.
    Why isn't that money finding its way in the American 
economy? And why would massive tax cuts to the wealthy have any 
measurable difference in what it hasn't done historically, Mr. 
Rattner?
    Mr. RATTNER. I think there is a number of complex reasons 
around what you are saying. First, I think the issues with 
manufacturing in the U.S. are not simply a function of the Tax 
Code. There is a whole variety of factors that have caused us 
to lose quite a number of our manufacturing jobs, particularly 
the rise of other countries being able to do what we do.
    Secondly, as you point out, there is an abundance of 
capital in this country. What there is a lack of are investment 
opportunities. Some of that may have to do with the Tax Code, a 
lot of it has to do with the perception that our economy is not 
growing that fast, there isn't that much demand, and so why 
build a factory to make something if you don't have people out 
there with the money to buy it.
    I see we are out of time, so I will stop there.
    Chairman BRADY. Thank you.
    I would like to thank our witnesses for appearing before us 
today. This is a discussion about how we grow jobs, grow 
paychecks, and the U.S. economy, and the role tax reforming is 
doing that. You have made all a very compelling argument for 
bold tax reform, permanent tax reform and doing it now.
    So I want to thank you for being here today. Please be 
aware the Members of the Committee have 2 weeks to submit to 
you written questions to be answered later in writing. Those 
questions, your answers, will be made part of the formal 
hearing record.
    And again, on behalf of the Committee, thank you. The 
Committee stands adjourned.
    [Whereupon, at 1:41 p.m., the Committee was adjourned.]
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