    [Joint House and Senate Hearing, 117 Congress]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-104

                    ``BUILDING BACK BETTER: RAISING REVENUE
                        TO INVEST IN SHARED PROSPERITY''

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

                                VIRTUAL HEARING

                                   BEFORE THE

                            JOINT ECONOMIC COMMITTEE

                                     OF THE

                         CONGRESS OF THE UNITED STATES

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 6, 2021

                                   __________

              Printed for the use of the Joint Economic Committee

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

            Available via the World Wide Web: http://www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    46-193 PDF                 WASHINGTON : 2022

    -----------------------------------------------------------------------------------

                            JOINT ECONOMIC COMMITTEE

        [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

    HOUSE OF REPRESENTATIVES             SENATE
    Donald S. Beyer Jr., Virginia,       Martin Heinrich, New Mexico, Vice
        Chairman                             Chairman
    David Trone, Maryland                Amy Klobuchar, Minnesota
    Joyce Beatty, Ohio                   Margaret Wood Hassan, New
    Mark Pocan, Wisconsin                    Hampshire
    Scott Peters, California             Mark Kelly, Arizona
    Sharice L. Davids, Kansas            Raphael G. Warnock, Georgia
    David Schweikert, Arizona            Mike Lee, Utah, Ranking Member
    Jaime Herrera Beutler, Washington    Tom Cotton, Arkansas
    Jodey C. Arrington, Texas            Rob Portman, Ohio
    Ron Estes, Kansas                    Bill Cassidy, M.D., Louisiana
                                         Ted Cruz, Texas

                      Tamara L. Fucile, Executive Director
                Vanessa Brown Calder, Republican Staff Director
                      Colleen J. Healy, Financial Director

                               C O N T E N T S

                                  ----------

                         Opening Statements of Members

    Hon. Donald Beyer Jr., Chairman, a U.S. Representative from the
      Commonwealth of Virginia.......................................     1
    Hon. Mike Lee, Ranking Member, a U.S. Senator from Utah..........     4

                                   Witnesses

    Dr. Kimberly Clausing, Deputy Assistant Secretary for Tax
      Analysis, U.S. Department of the Treasury, Washington, DC......     6
    Ms. Chye-Ching Huang, Executive Director of the Tax Law Center,
      New York University Law, New York, NY..........................     8
    Dr. Wendy Edelberg, Director of the Hamilton Project and Senior
      Fellow for Economic Studies at the Brookings Institution,
      Washington, DC.................................................     9
    Dr. William McBride, Vice President of Federal Tax and Economic
      Policy, Tax Foundation, Washington, DC.........................    11

                           Submissions for the Record

    Prepared statement of Hon. Donald Beyer Jr., Chairman, a U.S.
      Representative from the Commonwealth of Virginia...............    28
    Prepared statement of Hon. Mike Lee, Ranking Member, a U.S.
      Senator from Utah..............................................    29
    Prepared statement of Dr. Kimberly Clausing, Deputy Assistant
      Secretary for Tax Analysis, U.S. Department of the Treasury,
      Washington, DC.................................................    31
    Prepared statement of Ms. Chye-Ching Huang, Executive Director of
      the Tax Law Center, New York University Law, New York, NY......    38
    Prepared statement of Dr. Wendy Edelberg, Director of the
      Hamilton Project and Senior Fellow for Economic Studies at the
      Brookings Institution, Washington, DC..........................    51
    Prepared statement of Dr. William McBride, Vice President of
      Federal Tax and Economic Policy, Tax Foundation, Washington, DC    70
    Articles for the Record Submitted by Representative Schweikert...    84
    Response from Dr. Clausing to Question for the Record Submitted
      by Senator Lee.................................................    84
    Response from Ms. Huang to Question for the Record Submitted by
      Senator Lee....................................................    84
    Response from Dr. Edelberg to Question for the Record Submitted
      by Senator Lee.................................................    85
    Response from Dr. McBride to Question for the Record Submitted by
      Senator Lee....................................................    86
    Response from Dr. Clausing to Questions for the Record Submitted
      by Senator Warnock.............................................    87
    Response from Ms. Huang to Questions for the Record Submitted by
      Senator Warnock................................................    87
    Response from Dr. Edelberg to Questions for the Record Submitted
      by Senator Warnock.............................................    88

                    ``BUILDING BACK BETTER: RAISING REVENUE
                        TO INVEST IN SHARED PROSPERITY''

                                  ----------

                           WEDNESDAY, OCTOBER 6, 2021

                        United States Congress,
                              Joint Economic Committee,
                                                        Washington, DC.
        The WebEx virtual hearing was convened, pursuant to notice,
    at 2:30 p.m., before the Joint Economic Committee, Hon. Donald
    S. Beyer Jr., Chairman, presiding.
        Representatives present: Schweikert, Pocan, Davids, Estes,
    Beyer, Peters, and Arrington.
        Senators present: Cruz, Hassan, Cassidy, and Lee.
        Staff: Vanessa Brown Calder, Hugo Dante Jr., Ron Donado,
    Ryan Ethington, Tamara Fucile, Devin Gould, Owen Haaga, Colleen
    Healy, Jeremy Johnson, Adam Michel, Kole Nichols, Michael
    Pearson, Alexander Schunk, Nita Somasundaram, Sydney Thomas,
    Emily Volk, and Brian Wemple.

     OPENING STATEMENT OF HON. DONALD BEYER JR., CHAIRMAN, A U.S.
            REPRESENTATIVE FROM THE COMMONWEALTH OF VIRGINIA

        Chairman Beyer. This hearing will come to order. And I
    would like to welcome everyone to the Joint Economic
    Committee's Hearing entitled ``Building Back Better: Raising
    Revenue to Invest in Shared Prosperity.'' I want to thank each
    of our truly distinguished witnesses for sharing their
    expertise today, and now let me offer my opening statement.
        The Biden Administration Build Back Better Plan will cut
    taxes for working families, help small businesses, and invest
    in America's long-term economic prosperity, all while asking
    the wealthy and big corporations to pay their fair share.
    Today, Federal revenue is just 16.4 percent of the economy, and
    asking the wealthy and big corporations to contribute more
    Federal revenue is consistent with supporting long-term
    economic growth.
        The Build Back Better Plan will help provide American small
    businesses with a level playing field to compete with
    multinational corporations. The Treasury Department projects
    that 97 percent of small businesses will be protected from
    increased taxes, and many will get a tax cut from reducing the
    corporate tax rate to 18 percent for incomes under $400,000.00.
        The Build Back Better Plan promotes global competitiveness
    by working to end the race to the bottom on corporate taxes,
    letting American businesses compete on the basis of bringing
    the best products to market at the lowest price, instead of
    competing on who can avoid paying taxes.
        As a small businessman for almost five decades I know that
    paid family leave will help small businesses retain workers.
    When I had workers who got sick, or needed to care for a sick
    child, we provided paid leave to our employees because we would
    never want to leave our workers to choose between a paycheck or
    taking care of themselves or a loved one.
        At some point during their lives all workers are going to
    need to take time away from work. By establishing a Federal
    paid leave program, Build Back Better helps small businesses
    cover those inevitabilities and reduces the cost of turnover,
    which is why so many small businesses have come out in support
    if it.
        Small businesses will also benefit from expanding the work
    opportunity tax credit, which would give businesses up to
    $5,000.00 to hire qualified individuals, including eligible
    veterans. Asking the wealthy and big corporation to pay their
    fair share is consistent with supporting long-term economic
    growth.
        After the Obama-Biden Administration allowed the Bush tax
    cuts for the very wealthy to expire in 2013, the economy added
    8 million jobs in President Obama's second term. Job growth
    slowed under President Trump as the Trump taxes delivered a
    windfall for the wealthy, creating record stock buybacks, and
    adding hundreds of billions to the deficit.
        Although friends across the aisle will likely claim that
    asking the wealthy and big corporations to pay their fair share
    will hurt economic growth, the evidence just doesn't back them
    up. A congressional research service report found that ``both
    labor supply and savings and investment are relatively
    insensitive to tax rates.'' In addition, improving IRS
    enforcement will increase revenue without raising rates, while
    ensuring that businesses cannot gain advantages over their
    competitors by cheating on their taxes.
        We know that investing in working families, communities and
    innovation is the key to broadly shared economic growth, and
    that's exactly what the Build Back Better Plan would do. An
    analysis by the Tax Policy Center shows that the Build Back
    Better Revenue provisions passed out of the House Ways and
    Means Committee would abide by President Biden's pledge not to
    raise taxes on those making under $400,000.00 a year.
        So in 2022, households making under $500,000.00 will get
    their direct taxes cut on average. Middle income parents will
    get a tax cut of about $3,000.00 on average. Extending the
    enhanced child tax credit, and expanded child and dependent
    care tax credit that is proposed under Build Back Better, would
    help families to access affordable childcare and paid family
    leave.
        These two supports are both critical to helping parents,
    particularly mothers, remain engaged in the labor market. And
    we know that increased labor force participation is key,
    driving long-term and sustainable economic growth.
        Under President Biden, almost four and a half million
    people have returned to work, and unemployment has dropped to
    5.2 percent. In the first few quarters of 2021, real GDP grew
    at over 6 percent. In fact, the second quarter was just revised
    upward again, and the Federal Reserve projects 5.9 percent real
    GDP growth this year. Core CPI inflation grew just 0.1 percent.
    That's 1 over 1,000 in August, even as real wages grew at .4
    percent--four times faster.
        So passage of Build Back Better and the bipartisan
    infrastructure bill will cement these economic gains, improved
    productivity, lower inflationary pressures and create long-term
    growth. Louisiana Analytics projected that passing both bills
    will increase GDP growth in 2022 to 5.3 percent.
        Similarly, the Economic Policy Institute projects that the
    two bills would support 4 million jobs per year, including
    556,000 manufacturing jobs and 312,000 construction jobs. For
    too long the wealthy and big corporations have avoided paying
    their fair share. You have an opportunity now to rebalance the
    scale and invest in America's future to create long-term
    broadly shared economic growth.
        We have been waiting for our Vice Chair, Senator Lee to
    show up, but while he's not here yet let me go ahead with the
    introductions of our speakers, and then we will slot Senator
    Lee as soon as he shows up.
        So in the order of their witness testimony our four
    distinguished witnesses. Dr. Kimberly Clausing. Dr. Kimberly
    Clausing is the Deputy Assistant Secretary for Tax Analysis in
    the Office of Tax Policy at the U.S. Department of the
    Treasury. Prior to that Dr. Clausing was the Eric M. Zolt
    Professor of Tax Law and Policy at UCLA School of Law. And
    before that, she joined UCLA from Reed College where she worked
    as the Thormund Miller and Walter Mintz Professor of Economics.
        Dr. Clausing has published numerous articles on taxation
    with a particular emphasis on the taxation of multinational
    companies, and she is the author of an amazing, excellent book
    called Open: The Progressive Case for Free Trade Immigration
    and Global Capital. She's a long-time friend of many of us and
    advisor.
        She received her BA in Economics from Carleton College, and
    an MA and PhD in Economics from Harvard University.
        Ms. Chye-Ching Huang is the Executive Director of the Tax
    Law Center at NYU Law. Before joining the Tax Law Center Ms.
    Huang was Senior Director of Economic Policy at the Center on
    Budget and Policy Priorities where she worked on the analysis
    and design of a wide range of Federal tax fiscal and economic
    policy proposals in collaboration with tax academics,
    practitioners, analysts and advocates.
        Previously Ms. Huang was a Tax Academic at the University
    of Auckland in New Zealand, where she published research in tax
    law, policy and regulation, and taught graduate and under-
    graduate tax law. Ms. Huang holds an LLM from Columbia Law
    School where she was a Sir Wallace Rowling/Fullbright and James
    Kent Scholar, and a Bachelor of Law and a Bachelor of Commerce
    in Economics from the University of Auckland in New Zealand.
        Dr. Wendy Edelberg is the Director of the Hamilton Project
    and a Senior Fellow for Economic Studies at the Brookings
    Institution. She's also a Principal at WestExec Advisors, and
    prior to Brookings, Dr. Edelberg was Chief Economist at the
    Congressional Budget Office, something near and dear to all of
    us.
        Previously Dr. Edelberg was the Executive Director of the
    Financial Crisis Inquiry Commission which reported on the
    causes of the 2008 Financial Crisis. Dr. Edelberg also worked
    on issues related to macroeconomics, housing, and consumer
    spending at the White House Council of Economic Advisers and
    the Federal Reserve Board.
        Dr. Edelberg received a BA in Economics from Columbia, and
    MBA from the University of Chicago, and a PhD in Economics from
    the University of Chicago.
        Finally, Dr. William McBride is the Vice President of
    Federal Tax and Economic Policy at the Tax Foundation. Dr.
    McBride previously served as a Manager in the National Economic
    and Statistics Group at PricewaterhouseCoopers. Dr. McBride has
    experience researching and modeling the economics of taxation
    and issues related to tax reform at the State, Federal and
    international levels.
        From 2011 to 2014 Dr. McBride served as the Chief Economist
    at the Tax Foundation. Dr. McBride holds a BS in Physics from
    the University of the South, a BS in Electrical Engineering
    from Washington University in St. Louis, and a PhD in Economics
    from George Mason University.
        And with that, let me turn the floor over to the Vice Chair
    of the Full Committee and the distinguished senator from Utah,
    Senator Michael Lee.
        [The prepared statement of Chairman Beyer appears in the
    Submissions for the Record on page 28.]

      OPENING STATEMENT OF HON. MIKE LEE, RANKING MEMBER, A U.S.
                           SENATOR FROM UTAH

        Senator Lee. Thank you so much, Mr. Chairman. I really
    appreciate it. Before the pandemic disrupted American's work
    lives and social connections, tax cuts and deregulation
    supported a thriving economy that delivered broad benefits to
    families and workers.
        The Tax Cuts and Jobs Act of 2017, which provided historic
    relief to working and middle class American families, and led
    to higher wages, better benefits, and new employment
    opportunities across the country, was crucial to that
    prosperity.
        Our booming economy provided some of the largest benefits
    to those Americans who needed it most. Unemployment for
    Hispanic Americans, Black Americans, and Asian Americans fell
    to the lowest rates on record. Unemployment for women dropped
    to a near 65 year low, and low income workers saw their wages
    rise at some of the fastest rates.
        All told the wealth of the bottom 50 percent of all
    Americans increased by over 70 percent in the three years prior
    to the pandemic. In early 2020, more than 80 percent of working
    age Americans were employed, and wages continued to rise. Pro-
    growth policy reform brought the economy roaring to life in a
    way that few forecasters thought might be possible.
        That success demonstrates an important truth. Americans
    benefit from lower taxes, less regulation, and more freedom.
    Unfortunately, we've come here today because the Biden
    Administration and Democrats in Congress want to squeeze the
    American people with higher taxes and more regulation.
        They've proposed a 3.5 trillion dollar tax and spend
    blowout, one that would increase American's taxes by over 2
    trillion dollars. It would be the largest tax increase in my
    lifetime, and it would substantially expand the Federal
    Government's footprint into our homes, our businesses, and
    across our economy.
        Now let's be clear the major winners from the Democrat's
    plan are special interests and beltway bureaucrats. Our economy
    is still recovering from the pandemic. Now is one of the worst
    times to saddle our economy with higher taxes. The recovery has
    stopped accelerating and American families are being hit by
    higher prices for essential goods.
        Things like everything from groceries to housing to
    gasoline keep getting more expensive. Inflation is rising at
    its fastest pace in three decades, and it's making it harder to
    make ends meet. Wage increases are being swamped by higher
    prices and job growth is stalling. Democrats reckless tax and
    spend boondoggle will only make things worse.
        Here's what we know this tax plan would do to American
    families and workers and businesses. It would raise taxes on
    American families despite President Biden's pledge to the
    contrary. The non-partisan Joint Committee on Taxation, and the
    left leaning Tax Policy Center both agree that the plan would
    hike taxes on low and middle income families making less than
    $400,000.00 a year.
        The Democrats tax plan would also drive jobs for American
    workers overseas. It would raise the Federal corporate tax rate
    to 26.5 percent, making the cost of doing business in the U.S.
    higher than in Canada, Mexico, Japan, the United Kingdom,
    Germany, France and China.
        American workers would pay the price. They'd pay for it in
    lost jobs and slower wage growth and less investment in things
    like domestic manufacturing and innovative research and
    development. In 10 years two-thirds of the tax burden from this
    corporate tax increase would be shouldered by low and middle
    income workers, and perhaps worst of all the Democrats tax plan
    would embolden Washington to pick winners and losers, rather
    than allowing entrepreneurs to meet the needs of American
    consumers.
        This is about so much more than penalizing successful
    Americans with even higher taxes. This is about putting more of
    American's resources under the control of Washington
    politicians. Democrats tax plan would cost American families
    and workers and businesses. It would mean less innovation,
    lower wages, and fewer jobs.
        It would increase the size and scope of the Federal
    Government. It would make our country less prosperous, less
    fair, and less free. We know what works--keeping taxes low
    helps to support a thriving economy. It benefits all Americans.
    We should return to the policies that made the pre-pandemic
    economy so successful for so many Americans.
        Congress should keep taxes low and predictable by making
    the reforms in the Tax Cuts and Jobs Act permanent. And then we
    should restrain government spending. It's on a runaway path
    right now, by setting clear and enforceable rules for fiscal
    discipline.
        Look, we simply can't, as in it simply won't work. We can't
    succeed at taxing and spending our way into shared prosperity.
    Instead, we need to stop spending indiscriminately and make
    America the best place in the world to do business, pursue
    happiness and earn success. Thank you.
        [The prepared statement of Senator Lee appears in the
    Submissions for the Record on page 29.]
        Chairman Beyer. Senator Lee thank you very much. Now we
    will recognize Dr. Clausing for your testimony.

    STATEMENT OF DR. KIMBERLY CLAUSING, DEPUTY ASSISTANT SECRETARY
    FOR TAX ANALYSIS, U.S. DEPARTMENT OF THE TREASURY, WASHINGTON,
                                   DC

        Dr. Clausing. Thank you Chairman Beyer. Chairman Beyer,
    Ranking Member and members of the committee. Thank you so much
    for inviting me to share my views on the relationship between
    tax policy and the economy.
        The present moment is a very consequential one for the
    future of tax policy. We have an opportunity in front of us to
    create a modern, efficient, and fair tax system, capable of
    funding investments that are essential to the creation of
    prosperous U.S. business environment, and to the sort of
    inclusive economic growth that can benefit all Americans.
        First off, raising adequate government revenue is important
    for funding the Nation's priorities, and for shoring up the
    fundamental economic strengths that are central to job
    creation. We need revenue to build roads and bridges, to fund
    education, training and research, to mitigate climate change,
    and to support families from tackling child poverty to
    maintaining support to the elderly.
        These investments are important to all of us, including
    those in the business community. Right now however, the United
    States raises less revenue than we need. We are in the bottom
    fifth of all OECD countries in terms of revenue raised relative
    to the size of our economy across all levels of government.
        We raise particularly low levels of revenue taxing of
    capital and corporations. The Joint Committee on Tax reports
    that U.S. multinationals pay an average tax rate of only 8
    percent on their income. In contrast, companies located in our
    top trading partners pay 18 percent.
        We collect far less corporate income tax revenue than our
    trading partners, and we only collect about half what we
    collected before the Tax Cut and Jobs Act, when we collected 2
    percent of GDP. Our corporate tax revenues are low despite the
    fact that U.S. companies show very high corporate profits, both
    in historic and comparative terms.
        Indeed, the United States' corporate sector is the most
    profitable in the world, dominating every measure of corporate
    success. Beyond revenue, tax reform is also essential to
    address the offshoring and profit shifting incentives that are
    embedded in current law.
        Under current, law foreign income is sometimes tax exempt,
    and sometimes taxed at half the rate of domestic income,
    providing very strong incentives to locate both activity and
    profit offshore. Although the Tax Cuts and Jobs Act included a
    global minimum tax called GILTI, it did not stop profit
    shifting. Indeed, the very large share of U.S. multinational
    income in very low tax jurisdictions did not change after 2015.
        Unfortunately, current law creates an America last tax
    system. Even high- or medium-taxed foreign income is preferred
    to U.S. income because it can be blended with low--tax income
    and taxed at a 50 percent discount. This is why a country by
    country minimum tax system is so crucial.
        These reforms will also create a fairer tax system. The
    past four decades can be characterized by three related
    trends--large, troubling increases in income and inequality,
    multiple reductions in tax rates for those at the top, and
    difficulty making ends meet for many lower and middle income
    families.
        Under current proposals, large expansions in the child tax
    credit, the earned income tax credit and the child dependent
    care tax credit will help address the needs of typical
    Americans. In short, asking for somewhat larger tax
    contributions from the country's wealthiest households, and
    from the most profitable corporations will help us raise the
    revenue that is needed to support the long-term competitiveness
    of the U.S. economy and the well-being of American families.
        Finally, there are many ways that our tax system needs to
    be modernized to suit the 21st century. The mobility of capital
    means that the taxation of multinational companies is subject
    to large tax competition pressures.
        The existential threat posed by climate change makes it
    critical to make changes in the tax code that incentivize clean
    energy. In both areas, cooperation with other countries
    pursuing the same goals yields double dividends, encouraging
    them to take firm actions of their own in solving long-standing
    collective action problems.
        A crucial way to modernize our tax system is to also ensure
    that we collect the tax that is due. The tax gap, which is
    forecast to total about 7 trillion over the coming decade,
    creates both inefficiencies and inequities. Honest businesses
    who pay their tax obligations in full compete with businesses
    whose owners shirk their tax responsibilities.
        Workers who earn solely wage or salary income fully report
    their income accurately, but face higher tax burdens than
    taxpayers using evasion to hide opaque sources of income. Those
    at the top of the income distribution are disproportionately
    responsible for the tax gap. Providing the IRS with the
    resources and information they need will give us a more
    progressive tax system.
        American taxpayers will benefit across many dimensions:
    improved taxpayer service, better targeted audits toward those
    that evade, and hundreds of billions of dollars of revenue that
    allow lower taxes elsewhere, less debt, and better government.
        In conclusion, the tax reforms that we will discuss today
    are essential for encouraging U.S. job creation, economic
    growth and inclusive prosperity. Thank you for inviting me.
        [The prepared statement of Dr. Clausing appears in the
    Submissions for the Record on page 31.]
        Chairman Beyer. Thank you, Dr. Clausing very much. We'll
    next hear from Ms. Chye-Ching Huang for your testimony.

     STATEMENT OF MS. CHYE-CHING HUANG, EXECUTIVE DIRECTOR OF THE
         TAX LAW CENTER, NEW YORK UNIVERSITY LAW, NEW YORK, NY

        Ms. Huang. Chairman Beyer, Ranking Member Lee and members
    of the committee. I am honored to testify about an opportunity
    to meet the Nation's most pressing economic needs. Sound tax
    policy can lift the living standards of low and moderate income
    Americans, and support economic growth with shared benefits for
    workers, families and businesses.
        And that is because it can raise revenues to support
    investments in areas like infrastructure, education, scientific
    research and worker training that are known to deliver long-
    term benefits. And this can also reduce the costs of challenges
    like climate change.
        Further, lawmakers are considering proposals, including a
    stronger child tax credit, and those are also true in these
    folks because they deliver longer benefits for the trajectories
    of children and the broader economy.
        Research shows that such credits increase the likelihood
    that children grow up healthier, do better in school, attend
    college, and earn more as adults. And these long-term benefits
    can be large. Nobel research also suggests that financial
    stability can help more children develop and apply their
    talents for research, innovation, and entrepreneurship and the
    country is currently losing out on so much of their potential.
        Seventeen Nobel Laureate economists have explained that the
    package that lawmakers are considering will ease long-term
    inflationary pressures, and that's because it combines
    investments that improve growth with revenues to financial
    those investments without adding to long-term deficits.
        Furthermore, sound tax policy can scale back on inefficient
    tax breaks, and can help it slow to where it's most productive,
    rather than where the tax savings are the most lucrative. It
    can also reduce complex and wasteful tax planning games. And in
    doing so tax policy can level the playing field for small,
    domestic and honest businesses so they can fairly compete with
    businesses that use tax avoidance, profit shifting to tax
    havens, or even outright tax evasion is a business strategy.
        The revenue raising proposals before Congress meet those
    goals. They would first ensure that companies of wealthy filers
    pay what they already are. Second, they would reverse some of
    the 2017 tax law's corporate rate cuts that would even cover
    what businesses asked for, and also address subsidies for
    locating profits and investments offshore.
        Third, they would scale back tax breaks that allow some of
    the wealthiest people in the country to pay a little or no
    income tax on very large sources of income. Such tax policies
    are far more likely to strengthen the economy than tax cuts
    concentrated at the top of the income distribution.
        Careful research finds no evidence that the 2017 tax law
    increased investment or wages above trends already in place. In
    the fact of that disappointing track record, some proponents of
    the tax cut strategy have instead cited predictions from paid
    studies that are deeply flawed, or inaccurately described
    current proposals.
        Another response has been to promote a view of
    competitiveness that misattributes America's economic success
    very narrowly to its willingness to subsidize multinationals
    tax avoidance, rather than the quality of American ideas,
    people and infrastructure.
        Those have already accumulated large profits and are
    seeking to protect their tax preferences, can afford to push
    this short-sighted view of American's competitive potential. An
    investment supported by good tax policy can ensure that more
    children can be part of the next generation of innovators who
    may generate new breakthroughs in businesses with widely shared
    benefits.
        And of course successful business and individuals will
    continue to benefit from American's infrastructure. Finally,
    some may try to frame the tradeoffs that will make us now face,
    as requiring them to choose between areas of deep need,
    including reducing child poverty, broadening access to
    community college and paid leave, addressing climate change,
    filling homes with Medicaid and more.
        But the actual tradeoff is much broader. It's between those
    investments and to what extent policy maintains the status quo
    of very wealthy taxpayers and corporations not paying taxes
    that they owe, and keeping provisions of law that allow them to
    pay very low tax rates. Thank you for inviting me, and I would
    be glad to take your questions.
        [The prepared statement of Ms. Huang appears in the
    Submissions for the Record on page 38.]
        Chairman Beyer. Ms. Huang, thank you very much. We'll now
    hear from Dr. Edelberg. Dr. Edelberg the floor is yours.

       STATEMENT OF DR. WENDY EDELBERG, DIRECTOR OF THE HAMILTON
    PROJECT AND SENIOR FELLOW FOR ECONOMIC STUDIES AT THE BROOKINGS
                      INSTITUTION, WASHINGTON, DC

        Dr. Edelberg. Chairman Beyer, Ranking Member Lee, and
    members of the committee. My name is Wendy Edelberg, and I am
    the Director of the Hamilton Project and the Senior Fellow at
    the Brookings Institution. Before coming to Brookings I was
    Chief Economist at the Congressional Budget Office.
        As we discuss the tax provisions contained in the
    reconciliation package, and other ambitious policy proposals,
    I'd like to focus on three points. First, investments in the
    social insurance system are vital for ensuring broad access to
    opportunities in advancement, and for making our economy more
    resilient.
        There's extensive evidence demonstrating how effectively
    these programs work and why they should be expanded. Second,
    adopting the ambitious policies included in these packages
    would not create worrying inflation risk, and those packages
    effect on the long-term fiscal trajectory would be modest.
        Finally, although the contemplated tax increases would have
    a small negative effect on incentives to work and invest, other
    policies in the package would increase incentives to work and
    invest. You know everyone in the United States directly
    benefits from the social insurance system at some point in
    their lives.
        Moreover, everyone indirectly benefits from it, either from
    knowing the system would be there during some time of
    unexpected hardship, or simply because it helps to support the
    overall economy. During the pandemic-induced economic downturn,
    some of these programs have proven particularly effective.
        As a result of the enormous fiscal support provided to
    households in 2020, the percentage of the U.S. population in
    poverty fell from 12 percent to 9 percent. There is more to do.
    Implementing new policies with regard to childcare and paid
    leave would lower barriers to work among parents and those with
    caregiving responsibilities, and those policies would improve
    outcomes for children.
        Making permanent the full refundability of the child tax
    credit would lock in place reductions in child poverty. Making
    permanent the recent expansion of the EITC for adults without
    children would reduce poverty and income and equality, and
    increase labor force participation.
        Permanent expansions to health insurance premium tax
    credits and cost-sharing subsidies would decrease uninsured
    rates by potentially 14 percent. These are not the only
    improvements to the social insurance system included in the
    reconciliation package, but they are illustrated examples of
    how strengthening this system would improve well-being, and
    make our economy more resilient.
        At the same time the ambitious policies included in the
    packages being considered would not creating a worrying
    inflation risk and their effect in the long-term fiscal
    trajectory would be modest.
        Policymakers have stated their goal is to include increases
    in tax revenues and decreases in spending that would fully
    offset policies that would decrease revenues and increase
    spending. If something close to a full offset is achieved, the
    reconciliation package would do little to the project debt
    trajectory.
        To be clear, policymakers still have long-term challenges
    with regards to the Federal budget, however this reconciliation
    package even if the estimates end up showing it would modestly
    increase the cumulative deficit over the next decade would not
    worsen those challenges in a notable way.
        Although many of the changes being considered would
    increase people's incentives to work and invest, the revenue
    raising policies would have muted negative effects. For
    example, the reconciliation package undoes some of the
    reduction the corporate tax rate put in place in the 2017 Tax
    Act.
        Consensus projections were that the large reduction in 2017
    only boosted the level of investment modestly. Inversely,
    reversing some of that reduction would have only small,
    negative effects on investment even as it raised substantial
    revenue. In addition, the package increases the effect of
    marginal tax rates on labor income, but only for a small
    portion of the labor force comprised of the highest income
    people.
        Any negative effect on the aggregate labor supply would
    likely be hard to identify after the fact. The policies that
    would increase recipient's incentives to work, save and invest,
    could have large positive effects.
        For example, access to high-quality and affordable
    childcare could be a game changer for labor force participation
    among mothers of young children. With a larger and more
    productive workforce firms would have greater incentives to
    work and invest in the United States.
        To wrap up, despite headwinds created by the Delta Variant,
    the economy is recovering. This is the moment to strengthen the
    social insurance system, and to enact an ambitious Federal
    investment package. Together those policy changes would make
    the U.S. economy more resilient and productive over the longer
    term, and it would broaden the degree to which prosperity in
    the United States is shared across workers and families, thank
    you.
        [The prepared statement of Dr. Edelberg appears in the
    Submissions for the Record on page 51.]
        Chairman Beyer. Dr. Edelberg, thank you very much. And
    finally, we will hear from Dr. McBride.

    STATEMENT OF DR. WILLIAM MCBRIDE, VICE PRESIDENT OF FEDERAL TAX
          AND ECONOMIC POLICY, TAX FOUNDATION, WASHINGTON, DC

        Dr. McBride. Thank you Chairman Beyer, Ranking Member Lee
    and members of the Joint Economic Committee. I appreciate the
    opportunity to speak with you. Today I'll share the key
    findings of our analysis about the economic impacts, the
    revenue provisions of the most recent version of the
    President's Build Back Better agenda, the House Ways and Means
    Committee reconciliation bill.
        The House bill relies heavily on corporate tax increases,
    would raise the corporate tax rate 5 percentage points to 26 1/
    2 percent, which would be the largest increase in the rate in
    more than 70 years.
        Including the average State corporate tax, combined Federal
    State corporate tax rate will be almost 31 percent, the third
    highest corporate tax rate in the OECD. A similar ranking would
    result in looking at effective corporate tax rates which
    account for various deductions and other tax preferences.
        The bill also raises or introduces several other taxes on
    U.S. multinationals. Taxes that do not exist in other
    countries, including the GILTI tax. The result would be to
    disadvantage U.S. companies and their workers, in favor of
    companies based in lower tax countries such as Canada, the UK,
    or just about anywhere in Europe.
        It's important to remember that corporate taxes are not
    just paid by corporate shareholders. By reducing investment and
    productivity growth, higher corporate taxes lead to lower wages
    across the board. This is why the OECD finds that corporate
    taxes are the most economically damaging way to raise revenue,
    followed by individual income taxes, consumption taxes and
    property taxes.
        Several studies demonstrate that corporate taxes are borne
    in part by workers. For example, a recent study found that
    workers bear about half of the tax burden in the form of lower
    wages, with low-skilled young and female employees
    disproportionately harmed.
        Our modeling of the House bill indicates that the corporate
    tax increases alone would reduce long range GDP by about 0.6
    percent, shrink the capital stock by 1.2 percent, cut wages by
    0.5 percent and eliminate about 120,000 jobs.
        The House bill also levies several tax increases on high
    earning individuals, especially pass-through business owners,
    causing the top combined tax rate on ordinary and pass-through
    business income to exceed 52 percent on average. The top
    combined tax rate on capital gains and qualifying dividends
    would reach 37 percent on average.
        These higher tax rates come with a cost. They will reduce
    incentives to work, save and invest broadly reducing employment
    opportunities throughout the economy. In total we estimate that
    the House plan, including the corporate and individual income
    tax increases would reduce the size of the economy by about 1
    percent in the long run, shrink the capital stock by 1.8
    percent, cut wages by 0.7 percent and cost more than 300,000
    jobs.
        While the plan would raise more than $2 trillion in tax
    revenue over the next decade on a gross basis, it would give
    away about half of it in the form of dozens of tax credits,
    leaving just over $1 trillion in net revenue. After accounting
    for the smaller economy, the plan raises even less revenue,
    about $800 billion over the next decade on net.
        In other words, the House plan would reduce long-run GDP by
    more than $2 for every $1 raised, meaning the costs in terms of
    GDP loss far outweigh the benefits in terms of tax revenue.
    This occurs for two reasons: the revenue is raised in
    economically destructive ways, and a large part of that revenue
    is spent in the form of tax credits with little to no benefits
    for long-term economic growth.
        The tax credits are aimed at a variety of issues that
    deserve attention, including childcare, clean energy, housing
    and broadband development. However, cluttering up the tax code
    with more tax credits comes with many downsides, including
    increased complexity and compliance costs for taxpayers as well
    as additional administrative burden for the IRS, which is ill-
    equipped to take on so many extra duties unrelated to tax
    collection.
        The bulk of the tax credits are aimed at providing
    temporary relief to families with children--a worthy goal, but
    likely better administered by a spending agency such as the
    Social Security Administration. In general, tax policy should
    be focused on how to raise revenue in the least economically
    harmful manner, and other goals should be handled as public
    spending subject to the appropriations process.
        It is important to address the escalating costs of
    childcare, healthcare, housing and other concerns, but it
    should be done in a sustainable way that does not greatly add
    to the deficit or reduce job opportunities, wage growth, or
    people's ability to succeed and attain a higher standard of
    living. Thank you for your time and attention.
        [The prepared statement of Dr. McBride appears in the
    Submissions for the Record on page 70.]
        Chairman Beyer. Dr. McBride, thank you very much. We will
    now begin the round of questions. I will begin followed by
    Senator Lee. So let me start. Dr. Clausing companies often
    worry that tax increases will make them less competitive. In
    fact, I've been on many Zooms in the last couple months with
    corporations complaining about this.
        In your judgment, how will reforming the international tax
    system affect competitiveness?
        Dr. Clausing. I've got mute button problems, but thank you
    for that question. There are three really important ways to
    think about competitiveness, and in my view all three of them
    are much improved because of this set of proposals.
        So first if we think about economic fundamentals, like what
    makes the U.S. economically strong right? These are things like
    our infrastructure, our workers, our institutions, our business
    environment of entrepreneurship. Those fundamentals will be
    strengthened if we have adequate revenue to invest in things
    like climate change mitigation, like research and education and
    training.
        So in that definition of competitiveness this is definitely
    helpful. The second definition of competitiveness thinks about
    the competitiveness of the U.S. location as a place to do
    things in comparison to offshore locations. Under current law
    there's a tax preference for the offshore locations relative to
    the U.S. locations because offshore income is either exempt
    from U.S. tax, or taxed at a 50 percent discount.
        Under these proposals the tilt in the playing field in
    favor of foreign income, and away from U.S. income would be
    dramatically reduced, and that would reduce the incentive--the
    tax incentive to locate offshore. So this is a very important
    way that we can improve the attractiveness of the U.S. location
    for job creation and U.S. activity, as well as buttress the
    U.S. tax base.
        A final notion of competitiveness concerns the
    competitiveness of U.S. companies when they're operating
    offshore relative to their foreign counterparts right, so you
    could imagine a U.S. company and a foreign company both
    competing in a low tax rate country.
        That type of competitiveness is also improved under the tax
    policy environment that we see in front of us because there is
    a historic opportunity to increase tax rates on companies based
    abroad, and continue ongoing negotiations to end the race to
    the bottom in corporate taxation.
        So when we look at the typical tax burden faced by U.S.
    companies, relative to the typical tax burden faced by foreign
    companies that will be narrowing rather than widening. And I
    should point out that even if we ignore changes in foreign laws
    and if we assume that there are none of them, a recent Reuter's
    study found that even if you adopted the full-fledged Biden
    proposals on corporate and international tax, that U.S.
    companies would still have a tax advantage relative to their
    peers.
        They looked at the 52 largest multinational companies, and
    they found that our current tax advantage is about 8 percentage
    points relative to their own competitors cited in financial
    statements, and that that advantage would still be at least 3
    percentage points. And that's ignoring all of these investments
    in things like clean energy and also ignoring any possible
    changes to our foreign tax laws.
        So we think that this set of proposals enhances every type
    of competitiveness.
        Chairman Beyer. Thank you very much. Dr. Edelberg as the
    former Chief Economist of the Congressional Budget Office
    you're probably better equipped to understand than anyone the
    impact of this legislation on our fiscal health, so do you
    worry about the long-term fiscal trajectory of the Nation if we
    pass any of this reconciliation in the Infrastructure Bill, and
    specifically do you worry about inflation?
        Dr. Edelberg. I don't think that the packages that are
    currently being contemplated would have a notable effect on the
    fiscal trajectory over the next decade. Policymakers have
    stated that their goal is to fully offset any tax decreases or
    spending increases with when you have tax increases and
    spending decreases.
        But even if those weren't fully offset, I don't see that
    this would notably increase the fiscal trajectory in a worrying
    way. Financial markets have made it very clear that they are
    not perturbed by the level of fiscal debt, with the level of
    Federal debt. I mean they're not perturbed by the projection of
    Federal debt over the next decade under current law, and this
    wouldn't do much to that projection over time.
        And so you also asked about inflation. I don't see that the
    packages currently being considered would have notable--would
    create notable, in any kind of worrying inflation risk, and
    that's for two main reasons. One, the Committee Commission on
    Taxation estimates in their score that the policies would
    essentially be deficit neutral over the next two years, which
    is to say that all of any spending increases would be offset by
    spending decreases or tax increases.
        So we would see a little economic effect from those
    policies over the next two years, and other policies would take
    years to stand up. So inflation risk is a thing that we should
    be worried about, but it has nothing to do with the policy
    discussions at hand. The Chairman. Thank you Dr. Edelberg very
    much. My time is up. I'll recognize my friend from Arizona, Mr.
    Schweikert, with the shout out that the President appointed an
    Arizonan to be the new Chair of the National Endowment of the
    Humanities, and an Arizonan to be the new Chair of the National
    Endowment of the Arts. Dave you were left out, but you get to
    ask questions now.
        Representative Schweikert. And a Native American from our
    State, so it's wonderful. Mr. Chairman and just as an aside,
    but an incredibly important one, as you've heard the democrat,
    the left's witnesses all throw the caveat that the democrats
    have a stated commitment. Majority Leader Steny Hoyer even,
    after I gave a floor speech came and reaffirmed right after my
    discussion that the left has made a commitment. They will pay
    for every dime of the spending in this package, whether it be
    the transfer payments, whether it be the subsidies to the rich,
    and so we look forward to the left keeping their commitment
    that this will be fully paid for.
        Because without doing that much of the economic discussion
    we're having here is intellectually vacuous and dishonest. So
    Mr. McBride I want to first thank you, Tax Foundation, for
    doing the only intellectually credible analysis of the
    proposals we've seen so far, but I wanted to go a bit further.
        I'm one of those that has a fixation on how you make the
    working poor less poor, and we've seen some of the success of
    economic expansion providing resources and ability and making
    labor wages more robust. When Tax Foundation did their modeling
    I know you worked through the capital stock, the actual
    revenues, those things you came up with what was it 880 billion
    dollars of probably true, actual increase in revenues.
        Was there any attempt to model a society that moves to
    almost a social welfare transfer payment model, and what that
    will actually do to labor stock and labor participation
    incentives?
        Mr. McBride. Well we follow the empirical literature on the
    well run impacts of transfer payments, and you know studies
    from the IMF for instance, and other major organizations
    indicate that it's very small, it's close to zero. Some studies
    indicate it's actually it has a negative impact on long-term
    economic growth. And so we've adopted the assumption of a zero
    impact at those type of transfer payments.
        Representative Schweikert. Okay. And my reason Dr. McBride
    for the discussion is we have a couple articles and Chairman
    Beyer we're going to submit them for the record that basically
    focus on social stratification and freezing of social mobility
    in the societies that do almost the identical model to the
    Left's proposal that people find themselves trapped in their
    quartiles.
        And we were struggling, to figure out how you would even
    model such a thing.
        Dr. McBride. Well it's interesting. I mean the idea of
    mobility and movement you know from one income quintile to the
    next over one's lifetime, or you know from one generation to
    the next, is a very interesting topic.
        Representative Schweikert. Yes.
        Dr. McBride. That's no doubt that there's actually a great
    deal of movement across income quintiles within ones lifetime,
    an average person's lifetime that the millionaires, or the top
    1 percent are not monolithic. They are actually changing from
    year-to-year. You can look at the list of the richest people in
    the U.S. or any other list.
        It's changing. It changes quite a lot over the course of
    you know 10 or 20 years, and you know essentially that's
    because wealth is episodic, and you know someone can really hit
    it big with a very successful business, and that doesn't last
    forever. Very often the good times lasts only a few years and
    then end.
        Representative Schweikert. Dr. McBride, and the tyranny of
    the clock because some of this would be actually very
    interesting, if our ultimate goal was we wished to deal with
    child poverty, but we also want a society that closes income
    inequality. There's good literature that shows transfer
    payments give you a nice pop, and then freeze your society.
        And I have a fixation of how do we help with child poverty,
    but then also maximize economic expansion? And even some of the
    details in everything--even from some of the other witnesses,
    that looks like long-term capital stock economic growth
    opportunity, particularly for the working poor will be actually
    fairly severely damaged by the end of the decade by the
    democrat proposal. And with that Mr. Beyer I yield back.
        [The articles referred to by Representative Schweikert
    appear in the Submissions for the Record on page 84.]
        Chairman Beyer. Thank you Congressman Schweikert very much.
    I now recognize the Congressman from Madison, Wisconsin Mr.
    Pocan.
        Representative Pocan. Thank you very much Mr. Chairman. I
    appreciate it and thanks to all the witnesses. Ms. Huang, I
    hope I'm saying it right, Huang.
        Ms. Huang. Huang, thank you.
        Representative Pocan. Thank you. Let me ask you this
    question because I think there's a lot of Halloween-like
    behavior going out, people trying to scare the average person
    about taxes, scare small businesses. I'm a 33 year's small
    business owner, over half of my lifetime.
        I'm curious when you said this is about leveling the
    playing field between small business and big business. And I
    know there's some provisions in particular I think, you know
    for example, about corporation's first five million et cetera.
    Can you just talk a little bit about what you meant in a little
    more detail as if you were explaining it to a local Wisconsin
    chamber group?
        Ms. Huang. Yeah. Well when I talk to small business people,
    I really prefer not to think that much about taxes. They'd
    rather be thinking about their products, their customers, their
    supply chains, or the real world things that really sort of
    drive business growth and productivity.
        But that sort of falls down when they have to compete with
    big businesses that are shifting profits offshore and using
    complex tax havens to undercut them, or they have another
    person that's down the street, that they know is kind of taking
    in cash and not reporting it to the IRS.
        So there are a range of proposals that would help these
    other productive small businesses by leveling the playing field
    for them, and allow really both them and other businesses to
    focus more on the core things that make American productive as
    opposed to playing games with taxes. And I think that's one of
    the biggest things.
        The other part of course is the investment part. Small
    businesses, I think would also like to not have to think about
    potholes in the roads that they are using to get their product
    to market or other sort of relaxed infrastructure skilled
    workforce that make it hard to run a business.
        Representative Pocan. And I agree with you on the supply
    chain issues. If you ask my husband who's spending many extra
    hours every night trying to find the same stuff that he used to
    be able to find, he would vote for whoever figured that issue
    out. That's absolutely a huge issue in the small business side.
        You know another question is you know we talk about how I
    think it was referred to as you know the average person is
    going to pay more in taxes. Again, I like to do it with you
    know people I might run into. So the median income in Wisconsin
    for a family is $81,829.00. If they have two children, let's
    say one's at childcare age, and one's in elementary school.
        You know I looked at what the child tax credit does for
    that family, and that's going to be $3,600.00 a year for one of
    their kids and $3,000.00 for another kid they're going to
    benefit from. The childcare provisions, if they're paying 7
    percent of their income, that's going to be $5,700.00 instead
    of the median $12,597.00--again I'm only counting one child.
        You know I'm already up to $13,500.00 savings, I'm not even
    counting the prescription drug savings, I'm not counting the
    paid leave if they need that. Can you just address that as well
    a little bit about the reality is for that median family in
    Wisconsin, are they paying more like it's been inferred by some
    of the crypt keepers--I'm trying talk about Halloween, and
    scare people, or are they actually going to be benefiting
    pretty well.
        Ms. Huang. Yeah. They will be benefiting. And to your point
    I've seen some numbers that sort of average out the tax
    increase that a hedge fund manager will pay with the tax cut
    that a teacher or one of the small business people would get.
    And in fact, the vast majority of working families and small
    businesses will be benefiting from these costs and tax cuts,
    that's really only the very top of the income scale that faces
    those tax increases.
        Representative Pocan. Great thank you. And then one last
    one. I'm going to throw out a little wild ball here, hopefully
    our Chairman doesn't care. I find it amazing that Jeff Bezos
    pays virtually nothing in taxes, that between 2006 and 2018 his
    wealth grew by 127 billion, and he only paid 1.1 percent of his
    income, or 1.1 percent of that in Federal taxes.
        That year he claimed--one year he claimed a $4,000.00 child
    tax credit. In 2018 he paid no Federal income taxes. You know
    for a guy who has his employees having to carry bottles with
    them when they're on the road to urinate in, tell me what do I
    say to that average person in my district who is saying why is
    it our tax code rewards someone like him?
        What can we do to go after someone with that kind of wealth
    in the long-term?
        Ms. Huang. There's a major hole in the tax code that is
    real income and that is income that just Bezos or anyone else
    that's making 100 billion dollars in gains in their stock
    prices can use to fund a pretty Huxtable lifestyle, and it
    doesn't make sense that they face a lower tax rate their
    income, but a teacher or a professional that's earning a
    salary. So I completely agree we should be addressing that, and
    that is one of the things a number of the proposals would do.
        Representative Pocan. Thank you. I'm out of time. I
    appreciate Mr. Chairman.
        Chairman Beyer. Mr. Pocan thank you very much. We'll now
    turn to a professional tax collector, the former Treasurer of
    Kansas Mr. Estes.
        Representative Estes. Well thank you Mr. Chairman. And
    thank you for all of our witnesses for being here today.
    Congress should be concerned more with the economic crisis
    that's unfolding before us, an unprecedented worker shortage,
    coupled with rising inflation and energy prices.
        But still this bill forces through trillions of new
    spending and is fixated on raising taxes. So much so that
    President Biden will break his promise and raise taxes on those
    who make less than $400,000.00. The Joint Committee on Taxation
    found that two-thirds of Biden's corporate tax hike will be
    felt by middle income taxpayers, including small businesses
    that file taxes as individuals.
        It's not honest to say this legislation, which the New York
    Times describes as touching virtually every American at every
    point in life from conception to old age, won't cost a dime.
    That's clearly not true.
        The many new social spending programs in this plan won't
    create economic growth. The Joint Committee on Taxation
    estimates it will actually lower Federal revenues by around 1.2
    trillion dollars over the next decade. The administration's
    budget even acknowledges that growth isn't a priority for them
    in an ideal world.
        It only forecasts a meager 2 percent GDP growth by 2023
    with it dropping even lower until 2029. Any inside Washington
    seem to think that just because a bill spends lots of money
    it's automatically a good investment, but Washington has a
    lousy track record of spending taxpayer money.
        Out in the real world spending money doesn't magically make
    money. A so-called good investment gets worse when you dig into
    the actual details under the hood. Much of it will go to force
    Americans to do what a bureaucrat in Washington decides to do
    for them, like what car to drive.
        The Green New Deal provisions would make working class
    families across the U.S. pay more in taxes so the millionaires
    in California can write off a new electric vehicle. The bottom
    line of the agenda is not based on reality. It's going to crush
    small businesses, even though it's got a pull tested slogan
    like Build Back Better.
        I hope that we get serious about the dire financial
    situation our country faces. The U.S. took in more than 3.4
    trillion dollars in revenue last fiscal year. If we took time
    to prioritize spending that could very well be more than enough
    to support the United States Government.
        Dr. McBride, as you know the evidence shows that higher tax
    rates do not always yield higher increases in revenue. For
    example, despite the wide variation in Federal marginal tax
    rates over the years in the `60s they were even as high as 90
    percent. The share of Federal revenues remained relatively
    steady in the post-World War II era, ranging between 15 and 20
    percent of GDP.
        Indeed, scholars at your organization have pointed out that
    many studies show income reported by taxpayers falls as
    marginal tax rate rise. Punitively high tax rates, not only
    increase the insidious to shift or underreport income, they
    also have a high economic cost. How should policymakers think
    about the tradeoff between high tax rates, raising revenue and
    economic performance?
        Dr. McBride. Thank you. That's certainly a very important
    thing to remember that it's like you said it's not that simply
    raising rates, it leads to more revenue in every case.
    Primarily the most extreme example demonstrating that is
    capital gains, and this is why they're recognized from the
    history of changing tax rates on capital gains that there's a
    sort of a revenue maximizing tax rate of about 28-29-30 percent
    in that range, and that's what the Joint Committee on Taxation
    assumes as well. And this is widely understood among revenue
    estimators.
        So for instance, that is well below the 37 percent average
    capital gains tax rate that would apply when factoring in the
    State capital gains rate under the House bill. So another
    example there is corporate taxes, and so here we can look at
    across the developed world, countries that have generally been
    lowering their corporate tax rates quite a lot in the last 40
    years roughly in half, have come down you know from around you
    know 40-50 percent corporate tax rates in most countries down
    to closer to 20 percent on average.
        And what has been the impact on revenue? You might think
    that revenues would have collapsed across all of these
    countries. In fact they have been fairly stable as a share of
    GDP, and actually increased moderately in many cases, and
    that's over this very long period of time.
        So there's something going on there along the lines of what
    you're talking about. Reported income goes down, the production
    of income and incentives to generate income go down as marginal
    tax rates increase. And it can be a very large effect.
        Representative Estes. Thank you. I wish I had more time
    because I want to talk a little bit about the budget deficit,
    and the increase there, but thank you for enlightening us on
    some of that, and Mr. Chairman I yield back.
        Chairman Beyer. Thank you Mr. Estes, and hang in there if
    we have time. It would be great to do a second round. But now
    let me recognize the gentleman from southern California
    Congressman Peters.
        Representative Peters. Thank you Mr. Chairman. First of all
    I just want to say when I was a student at NYU Law School, I
    took a couple tax classes. I thought it was so fascinating that
    I actually went into tax law while in practice, and that was a
    huge mistake. So I'm saying that the academics are a lot more
    fun than the practice, so my free advice is don't leave.
        But I had a question on this topic which is about taxing
    the wealthy. One of the objections I had to the Trump tax cuts,
    I didn't disagree with every part of it, because I thought the
    corporate rate needed to be adjusted, and I thought we had to
    fix some international tax things, but to give all that money
    to wealthy people who didn't need it.
        And we saw that it did not increase wealth according to the
    President's projections. We saw also that the inequality has
    continued to rise. And I just want to know what's your take on
    the long-term economic impact on economic growth or job
    creation if we were to increase taxes on capital gains for high
    income earners?
        It seems to be just to set that up is that wealthy people
    have all the stuff that they need to buy right? They got their
    fancy refrigerator, they got the cars that they need, they
    might have a second house. There's no stimulative effect to
    giving them money. How should we tax them, and what's wrong
    with raising the capital gains rate along the lines that the
    President suggested?
        Ms. Huang. It's a great question because it comes up over
    and over again the idea that this would damage investment which
    is just simply not worn out by the reality. But the model, the
    sort of trickle down idea that increasing taxes on very high
    end, high wealth people would somehow sort of make it square
    down to workers, that model can break down on each and every
    link.
        There's not that much that tax cuts are very effective at
    spurring private investment. Cutting taxes can increase tax
    opportunity for investment, but that can also mean that people
    need to save and invest less to sort of meet their savings
    goals. And also if the taxes are following on excess returns
    from market power rates, and other sort of special returns,
    there's not going to be a hit to the overall size of
    investment.
        So you see pretty small private investment changes in
    response to tax changes, and that can be overwhelmed by the
    effect on public saving and investment because there is a very
    large fiscal cost.
        Representative Peters. And I think also that the CBO does
    assess that even after all the growth projections haven't been
    met, the add to the deficit from that was 1.9 trillion dollars,
    which has a real drag effect on the investment as you know.
        Dr. Clausing, I want to just talk to you a little bit about
    corporate tax revenues. I would have definitely agreed with Mr.
    McBride that 35 percent was too high. I thought we were
    uncompetitive. At the time the business roundtable was asking
    for 25 percent, so was Dave Camp, who was then the Chairman of
    the Ways and Means Committee, and President Trump took it down
    to 21 percent.
        Now there's talk about raising it back up to 25 say, and
    business community is saying that the effective rate would be a
    lot higher because there's been base broadening. Can you tell
    me how we should analyze that? Is that true? And how should
    that matter as we analyze what the appropriate corporate tax
    treatment is?
        Dr. Clausing. Well I think there's a general principle,
    it's very useful to have a broad base in part because you don't
    need to raise the rate as high if you're taxing all the income.
    If you tax some of the income at a high rate and some of the
    income at a low rate, right, then the income kind of rushes
    over to the place where the rate is lower.
        So in several aspects of these tax proposals we've tried to
    even the tax treatment of different types of income. So whether
    it's for capital or labor; for a multinational company, whether
    it's foreign or domestic income; for a small business, whether
    they're paying their taxes, or whether they're evading taxes.
    And so I think that this is a very important feature.
        It's certainly the case that if the base is broader all
    things equal, at any particular tax rate that more tax will be
    paid. The question is whether that is a bad thing. You know I
    think that the corporate taxes----
        Representative Peters. Wouldn't it be just--I'm going to
    run out of time, so can you assess what the effective rate
    would be if we were looking at 25 percent before, now there's
    base broadening. What if we raise it up to nominally 25
    percent, what are we talking about for an effective rate?
        Dr. Clausing. Yes I think part of the difficulty there is
    that the actual statutory rates doesn't bear a lot of
    resemblance to the true tax rate paid by companies. So, for
    instance, the Joint Committee on Tax is telling you right now
    that U.S. companies are paying about 8 percent, the big
    multinationals right.
        If you ask them to pay more it will be more than 8 percent,
    but 8 doesn't really reflect current law which is 21 for
    domestic, and 10 and 1/2 for foreign right? So while the Biden
    proposals would certainly raise effective rates, they would
    still remain competitive with those of peer countries. Right
    now we're way below the effective rate in peer countries.
        Representative Peters. Thank you. My time has expired. I
    want to just commend your testimony from 2017 about carbon
    taxes, maybe we have time to do that later.
        Chairman Beyer. Thank you Congressman Peters very much. If
    the Senator Cruz is with us, you will be recognized next.
        Senator Cruz. Thank you Mr. Chairman. Thank you to the
    witnesses who are here. Dr. McBride, President Biden and the
    democrats so-called Build Back Better Act, as reported by Ways
    and Means is estimated to reduce long-run GDP by .98 percent,
    which in today's dollars amounts to about 332 billion dollars
    of lost output annually each and every year.
        It's also estimated that the plan would in the long run
    raise about 152 billion in new tax revenue. That being said for
    every dollar of revenue raised economic output would fall by
    $2.18. Your team has done extensive work analyzing these
    proposals. What are your thoughts on the potential impact of
    the democrat's plan on the U.S. budget deficit on America's
    long-term fiscal health?
        Dr. McBride. Thank you for that question. It's very
    difficult to pinpoint the impact on the deficit when we don't
    have estimates from the CBO or anyone else on all of the
    spending programs that are being discussed in this
    reconciliation bill.
        What we have assumed for our purposes of estimating the
    impact of the deficit is we have assumed the top line number of
    3 and       1/2 trillion, and there's actually deficits over
    the 10 year budget window, and in the out years no impact on
    the deficit based on compliance with the Byrd Rule of the
    Senate.
        And but event there due to the impacts on the economy, the
    reduction in wages, which is a major tax base for the Federal
    Government, and other tax bases, that so-called dynamic
    revenue, that accounts for all this reduction in the size of
    the economy, falls to only about 800 billion over the 10 year
    window.
        And so you can tell that is considerably lower than the top
    line spending numbers that are being discussed on the order of
    2 trillion plus. And so we do find it does increase deficits in
    the 10 year window, and those deficits do matter. In our
    modeling the deficits, the increasing deficits means that if we
    continue with a historical pattern of a lot of our national
    debt is bought up by foreigners, and assuming that continues to
    hold, that means foreigners own a larger and larger share of
    U.S. assets, and a larger amount of income in the form of
    interest payments goes to foreigners, as a result of the
    increase in the debt. There's a reduction in U.S. income that's
    measured by sort of gross national product.
        Senator Cruz. So Dr. McBride a minute ago you just
    described the cost of the Bernie Sanders socialist budget as
    3.5 trillion. President Biden rather remarkably has claimed the
    cost of it is zero dollars. I'm reminded of what Nobel Prize
    winning economist Milton Friedman said, which is ``there's no
    such thing as a free lunch.''
        How can you possibly reconcile this administration's claim
    that a 3.5 trillion dollar bill costs zero dollars?
        Dr. McBride. Right. I think that the charitable
    interpretation there is that it has no impact on the deficit,
    but as I've just discussed it does have an impact on the
    deficit when you account for the reduction in the size of the
    economy, the reduction of the tax bases--the big tax bases.
        Senator Cruz. But so you found that if I heard your number
    correctly a little bit over 2 trillion dollars of impact, is
    that right?
        Dr. McBride. Thereabouts.
        Senator Cruz. Okay. Let me ask you also President Biden has
    repeatedly pledged that the democrats would not increase taxes
    on anyone making less than $400,000.00 a year, and yet this
    Bernie Sanders socialist budget does exactly that, and in fact
    Congress's own Joint Committee on Taxation--so not a republican
    organization. The Joint Committee on Taxation shows that all
    these promises are unequivocally false, and that tax rates will
    increase on virtually every income level--taxpayers earning
    $40,000.00 a year, $50,000.00, $50,000.00 to $75,000.00,
    $100,000.00.
        Pretty much everyone earning $40,000.00 a year or more will
    see their taxes go up. Can you explain why that is, and we're
    talking about 85 percent of taxpayers that either see no
    impact, or see their taxes increase. Is that right?
        Dr. McBride. That's right. Right. In particular for
    instance, the group earning between $100,000.00 and
    $200,000.00, most of those taxpayers would see a tax increase
    over the course of the next decade as a result of this, that's
    according to----
        Senator Cruz. But how? Please explain how.
        Dr. McBride. The main reason is the corporate tax. While
    it's being depicted as paid only by the wealthy or
    shareholders, neither of those are completely true. First of
    all let's just stick to the idea that it's paid by
    shareholders. The first thing to know about that is not all
    shareholders are rich. Many of them are retirees earning
    considerable less than $400,000.
        So as a result the Joint Committee finds that even in 2023,
    very early in the budget window, although that year they assume
    that all of the corporate taxes are paid by shareholders, they
    find that even there in all income groups, all of those deciles
    all the way down the scale, there are shareholders that own
    U.S. equities, and they own them in all sorts of forms.
        But the fact is they are affected by those corporate taxes
    through that channel. And the second big channel is through
    worker's wages. And so that effect takes longer to happen, but
    it happens through reduced productivity as a result of
    corporate taxes.
        Reduced productivity means lower wages over time. And so
    that has an effect of further increasing the tax burden
    ultimately on workers all up and down the income scale.
        Senator Cruz. Thank you.
        Chairman Beyer. Senator, thank you very much. By the way
    ``there's no such thing as a free lunch'' was actually used by
    Robert Heinlein in 1966, nine years before the Milton Friedman
    thing.
        Senator Cruz. I stand corrected Mr. Chairman.
        Chairman Beyer. In the first century, so pretty cool.
        And with that Senator thank you very much. Now recognize my
    friend from Texas Mr. Arrington for his questions.
        Representative Arrington. Thank you Chairman. Thank you
    witnesses, and I'm driving through God's country out here in
    West Texas, and so if I----
        Chairman Beyer. I think you just got muted there
    Congressman Arrington.
        Representative Arrington. Can you hear me now?
        Chairman Beyer. You're back.
        Representative Arrington. Okay. Look this notion of
    fairness in the tax code is intriguing to me, and I want to
    direct this to Dr. McBride to make sure that I'm using accurate
    numbers here. But I think some top 1 percent of the income
    earners who earn 20 percent of the total income in the country
    pay 40 percent of the taxes doesn't seem fair to me.
        I think some top 10 percent of the income earners pay 75 to
    85 percent of the taxes. I guess my point is the tax code is
    pretty darn progressive, and in fact even though the TCJA, the
    Tax Cuts and Jobs Act was disparaged for a giveaway to the
    rich, we actually have a more progressive tax code post
    Republican tax cuts.
        Dr. McBride could you confirm and shape up some of those
    numbers and percentages I was throwing out there? Do we have
    one of the most progressive tax systems in the developed world?
        Dr. McBride. That is correct. That was an assessment by the
    OECD a few years ago. I have not seen a new assessment as to
    how the U.S. compares to other countries, but safe to say the
    U.S. has not changed the progressivity of the tax code a great
    deal even after the Tax Cuts and Jobs Act, that's according to
    David Splinter at the Joint Committee on Taxation, and found
    that progressivity did not increase measurably, did not change
    measurably after the Tax Cuts and Jobs Act.
        Redistribution--a separate concept, did change. Taxes came
    down, it was a tax cut, and so redistribution in the tax code
    came down, but the actual progressivity as it is measured did
    not change appreciably as a result of the Tax Cuts and Jobs
    Act.
        Mr. Arrington. I don't know you know what the definition of
    fairness in a tax code vis-a-vis the democrat Reconciliation
    Tax and Spend Bill, but to have 10 percent of Americans paying
    80 percent of the freight in terms of the cost of our
    government doesn't sound very fair to me, especially if you
    have 40 percent roughly, or over 40 percent paying zero taxes.
        And I think that's bad policy, not just on the inequity of
    that ratio, but I want every American to have a stake in the
    future of our country. I want ownership. I think that's
    healthy, it's good, and I think you can make it so that it's
    reasonable to relative to their income.
        Same thing on the whole corporate tax rate. I don't know
    what the tax rate--I don't have a magic number. I'm not
    dogmatic about it. It's not the gospel to me. I'm not
    theological about, and religious about this. I just--one place
    I start is what's everybody else taxing their job creators and
    their risk takers, and their businesses?
        Because this is a global economy, and I don't want to
    hamstring the whole team while we're competing in away games
    for customers in markets around the world.
        And so that's kind of where I start. So it seemed pretty
    reasonable to me to go from the highest corporate tax rate in
    the free world, the developed world, to something more
    competitive, not the best. So when we did that we had 4,000
    inversions in the United States, the decade leading up to the
    tax cuts.
        We've had no inversion since then. If you talk to biotech
    it's just one sample of the economy. Three out of four biotech
    companies in acquisitions were being purchased by foreign
    biotech companies, or venture capital companies, and today that
    trend is completely reversed.
        So I don't think that's an accident that we're more
    competitive as a result of reducing the tax burden on our job
    creators. But here's my question on the corporate tax side
    because this is disconcerting to me, but it's also because of
    the effects, but it's also interesting that we can't all see
    this the same because the Tax Policy Center, which is more left
    leaning, and the Joint Committee on Taxation, which is supposed
    to be neutral arbiter of these things--tax policies, and you
    all have said that the tax increases on corporations, the vast
    majority--70 percent of it will be borne by working people with
    higher prices of goods and services in the form of lower wages
    and benefits.
        I mean every think tank, and every expert analyses of the
    policy left, and right is saying that same thing. Am I getting
    that right Mr. McBride? And I yield back, I probably went over
    my time, sorry Mr. Chairman.
        Chairman Beyer. I know you don't have the clock in the car,
    I understand Congressman.
        Dr. McBride. That's right. And that's essentially right
    that the Joint Committee on Taxation, the Treasury Department,
    all major scoring groups such as ours, the Tax Policy Center,
    Penn Wharton, they all assume that a significant portion of the
    corporate tax is borne by workers.
        And so that explains why the Joint Committee finds that so
    many households, some tens of millions of households earning
    less than $400,000.00 would ultimately bear the burden of
    corporate taxes.
        Chairman Beyer. Because we have gone so far over, let me go
    to Ms. Huang for her thoughts on this.
        Ms. Huang. Just to sort of effect a clarification, it is
    true that all of the major estimators do assume that ultimately
    some of the corporate tax is borne by non-shareholders. But
    mainstream estimates are roughly 20 to 25 percent, not 75
    percent. And that's what the JCT estimates.
        It's also really important to note that the intuition that
    sits behind the models that assumes that this happens. ASO
    assumes that the cost of any corporate tax cut is fully paid
    for because otherwise any private investment change that you
    see in those tables would get offset by the public debt going
    up, and interest rates going up, and therefore national saving
    and investment going down.
        So one of the things that's really important to know is
    that most tables don't show the ultimate cost of the corporate
    tax cuts even though they assume they'll be paid for. So when
    you try and figure out where the workers actually do benefit,
    you really need to check who ends up bearing the ultimate cost.
        And that means taking into account things like in the 2017
    tax law, the long-run costs of the permanent cuts was offset by
    tax changes that increased taxes for individuals across the
    board after the 10 year budget window, and that would have made
    more workers worse off as opposed to better off even in those
    models.
        Chairman Beyer. Thank you very much. I wish we could talk
    about this all afternoon, but many things are going on
    including missing our seven democrats. So I want to thank each
    of our witnesses for their expert contributions.
        I always marvel how beautifully trained economists with
    PhD's can so disagree on the same sets of statistics, but
    asking the wealthy and the big corporations to pay their fair
    share is an essential part of the broader package to help small
    business thrive, cut taxes for working parents and invest in
    education and healthcare, and policies for the workforce.
        So Congress has a real opportunity to level the playing
    field for American small businesses and workers while also
    supporting long-term economic growth, and promoting labor force
    participation. So thank you to each of our panelists for their
    contributions to this timely and important debate.
        This once in a generation investment in America's future
    will create long-term broadly shared economic growth,
    rebalancing the scale to Build Back Better. And as we do this
    important work, we're going to rely on your expertise and good
    faith. So thank you as well to all my colleagues for being a
    part of this discussion and sharing your wisdom.
        The record will remain open for 3 business days, and this
    hearing is now officially adjourned.
        [Whereupon, at 3:51 p.m., Wednesday, October 6, 2021, the
    hearing was adjourned.]

                           SUBMISSIONS FOR THE RECORD

             Prepared Statement of Hon. Donald Beyer Jr., Chairman,
                            Joint Economic Committee
                                  recognitions
        This hearing will come to order. I would like to welcome everyone
    to the Joint Economic Committee's hearing entitled ``Building Back
    Better: Raising Revenue to Invest in Shared Prosperity.''
        I want to thank each of our truly distinguished witnesses for
    sharing their expertise today. Now, I would like to turn to my opening
    statement.
                                   statement
        The Biden Administration's Build Back Better plan will cut taxes
    for working families, help small businesses, and invest in America's
    long-term economic prosperity, while asking the wealthy and big
    corporations to pay their fair share. Today, Federal revenue is just
    16.8 percent of the economy, almost an all-time low, and asking the
    wealthy and big corporations to contribute more to public revenue is
    consistent with supporting long-term economic growth.
        The Build Back Better plan will help provide American small
    businesses with a level playing field to compete with multinational
    corporations. The Treasury Department projects that 97 percent of small
    businesses will be protected from increased taxes and many will get a
    tax cut from reducing the corporate tax to 18 percent for income under
    $400,000.
        The Build Back Better plan promotes global competitiveness by
    working to end the race to the bottom on corporate taxes, letting
    American businesses compete on the basis of bringing the best products
    to market at the lowest price, instead of competing on who can avoid
    paying taxes.
        As a small businessman for almost five decades, I know that paid
    family leave will help small businesses retain workers. When I had
    workers who got sick or needed to care for a sick child, we provided
    paid leave to our employees because we would never leave workers to
    choose between a paycheck or taking care of themselves or a loved one.
        At some point during their lives, all workers will need to take
    time away from work. By establishing a Federal paid leave program,
    Build Back Better helps small businesses cover those inevitabilities
    and reduces the cost of turnover, which is why so many small businesses
    have come out in support of it. Small businesses will also benefit from
    extending the Work Opportunity Tax Credit, which will give businesses
    up to $5,000 to hire qualifying individuals, including eligible
    veterans.
        Asking the wealthy and big corporation to pay their fair share is
    consistent with supporting long-term economic growth. After the Obama-
    Biden Administration repealed the Bush tax cuts for the very wealthy in
    2013, the economy added 8 million jobs in President Obama's second
    term. Job growth slowed under President Trump, as the Trump tax cuts
    delivered a windfall for the wealthy, creating record stock buybacks
    and adding hundreds of billions to the deficit.
        While our friends across the aisle will likely claim that asking
    the wealthy and big corporations to pay their fair share will hurt
    economic growth, the evidence does not back them up. A congressional
    Research Service report found that ``both labor supply and savings and
    investment are relatively insensitive to tax rates.'' In addition,
    improving IRS enforcement will increase revenue without raising rates,
    while ensuring that businesses cannot gain advantages over their
    competitors by cheating on their taxes.
        We know that investing in working families, communities, and
    innovation is the key to broadly shared, long-term economic growth. And
    this is exactly what the Build Back Better plan would do.
        Analysis by the Tax Policy Center shows that the Build Back Better
    revenue provisions passed out of the House Ways and Means committee
    would abide by President Biden's pledge not to raise taxes on those
    making under $400,000 a year. In 2022, households making under $500,000
    would get their direct taxes cut, on average. Middle-income parents
    will get a tax cut of about $3,000 on average.
        Extending the enhanced Child Tax Credit and expanded Child and
    Dependent Care Tax Credit, as proposed under Build Back Better, would
    help families pay household expenses and generate long-term economic
    benefits. The Joint Economic Committee estimated that advance payments
    of the CTC will generate $19.3 billion in local economic activity each
    month, creating jobs in local communities.
        Using the revenue raised from making multinational corporations and
    the wealthiest pay their fair share, Build Back Better would help
    families access affordable childcare and paid family leave. These two
    supports are both critical to helping parents--and particularly
    mothers--remain engaged in the labor market--and we know that
    increasing labor force participation is key to driving long term and
    sustainable economic growth.
        Under President Biden, almost 4.5 million people have returned to
    work and unemployment has dropped to 5.2 percent. In the first two
    quarters of 2021, real GDP grew at over 6 percent, and the Federal
    Reserve projects 5.9 percent real GDP growth this year. Core CPI
    inflation was just 0.1 percent in August, even as real wages grew at
    0.4 percent.
        Passage of Build Back Better and the bipartisan infrastructure bill
    will cement these economic gains, improve productivity, lower
    inflationary pressures, and create long-term growth. Moody's Analytics
    projected that passing both bills will increase GDP growth in 2022 to
    5.3 percent. Similarly, the Economic Policy Institute projects that the
    two bills would add 4 million new jobs, including 556,000 manufacturing
    jobs and 312,000 construction jobs.
        For too long, the wealthy and big corporations have avoided paying
    their fair share. We have an opportunity now to rebalance the scale and
    invest in America's future to create long-term, broadly shared economic
    growth.
                                   __________
              Prepared Statement of Hon. Mike Lee, Ranking Member,
                            Joint Economic Committee
        Before the pandemic disrupted Americans' work lives and social
    connections, tax cuts and deregulation supported a thriving economy
    that delivered broad benefits to families and workers. The Tax Cuts and
    Jobs Act of 2017--which provided historic relief to working and middle-
    class American families and led to higher wages, better benefits, and
    new employment opportunities across the country--was crucial to that
    prosperity.
        Our booming economy provided some of the largest benefits to those
    Americans who needed it the most. Unemployment for Hispanic Americans,
    Black Americans, and Asian Americans fell to the lowest rates on
    record.\1\ Unemployment for women dropped to a near 65 year low. And
    low-income workers saw their wages rise at some of the fastest rates.
    All told, the wealth of the bottom 50 percent of Americans increased by
    over 70 percent in the three-years prior to the pandemic.\2\
    ---------------------------------------------------------------------------
        \1\ https://www.bls.gov/cps/
        \2\ https://www.federalreserve.gov/releases/z1/dataviz/dfa/
    distribute/chart/#range:2006.1,2021.1
    ---------------------------------------------------------------------------
        In early 2020, more than 80 percent of working age Americans were
    employed and wages continued to rise.\3\ Pro-growth policy reform
    brought the economy roaring to life in a way that few forecasters
    thought possible. This success demonstrates an important truth--
    Americans benefit from lower taxes, less regulation, and more freedom.
    ---------------------------------------------------------------------------
        \3\ https://fred.stlouisfed.org/series/LNS12300060
    ---------------------------------------------------------------------------
        Unfortunately, we have come here today because the Biden
    Administration and Democrats in Congress want to squeeze the American
    people with higher taxes and more regulation. They have proposed a $3.5
    trillion tax-and-spend blowout, one that would increase Americans'
    taxes by over $2 trillion. It would be the largest tax increase in my
    lifetime and would substantially expand the Federal Government's
    footprint into our homes, into our businesses, and across our
    economy.\4\
    ---------------------------------------------------------------------------
        \4\ https://www.heritage.org/taxes/commentary/8-things-you-need-
    know-about-democrats-tax-increase-bill
    ---------------------------------------------------------------------------
        Let's be clear--the major winners from the Democrats' plan are
    special interests and beltway bureaucrats.
        Our economy is still recovering from the pandemic; now is one of
    the worst times to saddle our economy with higher taxes. The recovery
    has stopped accelerating and American families are being hit by higher
    prices for essential goods--things like groceries, housing, and
    gasoline keep getting more expensive.
        Inflation is rising at its fastest pace in three decades, and it is
    making it harder to make ends meet. Wage increases are being swamped by
    higher prices and job growth is stalling. Democrats' reckless tax-and-
    spend boondoggle will only make things worse.
        Here's what we know this tax plan would do to America's families,
    workers, and businesses.
        It would raise taxes on American families--despite President
    Biden's pledge to the contrary. The nonpartisan Joint Committee on
    Taxation and left-leaning Tax Policy Center both agree the plan would
    hike taxes on low- and middle-income families making less than $400,000
    a year.
        The Democrats' tax plan would also drive jobs for American workers
    overseas. It would raise the Federal corporate tax rate to 26.5
    percent, making the cost of doing business in the U.S. higher than in
    Canada, Mexico, Japan, the United Kingdom, Germany, France, and China.
        American workers would pay the price--they would pay in lost jobs,
    slower wage growth, and less investment in things like domestic
    manufacturing, and innovative research and development. In 10 years,
    two-thirds of the tax burden from this corporate tax increase would be
    shouldered by low- and middle-income workers.\5\
    ---------------------------------------------------------------------------
        \5\ https://www.finance.senate.gov/ranking-members-news/analysis-
    biden-tax-hikes-hit-middle
    ---------------------------------------------------------------------------
        Perhaps worst of all, the Democrats' tax plan would embolden
    Washington to pick winners and losers rather than allowing
    entrepreneurs to meet the needs of American consumers. This is about so
    much more than penalizing successful Americans with even higher taxes;
    this is about putting more of Americans' resources under the control of
    Washington politicians.
        Democrats' tax plan would cost American families, workers, and
    businesses. It would mean less innovation, lower wages, and fewer jobs.
    It would increase the size and scope of the Federal Government. It
    would make our country less prosperous, less fair, and less free.
        We know what works. Keeping taxes low helps to support a thriving
    economy that benefits all Americans. We should return to the policies
    that made the pre-pandemic economy so successful for so many Americans.
    Congress should keep taxes low and predictable by making the reforms in
    the Tax Cuts and Jobs Act permanent, and restrain runaway spending by
    setting clear and enforceable rules for fiscal discipline.
        We cannot tax and spend our way to shared prosperity. Instead, we
    need to stop spending indiscriminately and make America the best place
    in the world to do business, pursue happiness, and earn success.
        Thank you.

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

         Articles for the Record Submitted by Representative Schweikert
        1. Should the U.S. Copy Denmark's Social Welfare Policies?
        https://taxfoundation.org/denmark-social-welfare-policies/.

        2. The Anti-Poverty, Targeting, and Labor Supply Effects of the
    Proposed Child Tax Credit Expansion
        https://bfi.uchicago.edu/wp-content/uploads/2021/10/BFI--WP--2021-
    115-1.pdf.
                                   __________
      Response from Dr. Clausing to Question for the Record Submitted by
                                  Senator Lee
        Dr. Clausing:
        In your testimony, and in past work, you have each emphasized the
    importance of addressing income and wealth inequality. Yet, there is a
    contingent of lawmakers who are openly advocating for either lifting or
    repealing the $10,000 cap on the SALT deduction. Ironically, the
    success of the Build Back Better Act may hinge on whether changes to
    the cap are included.
        According to the Brookings institution, ``the SALT tax deduction is
    a handout to the rich.''\1\ Eliminating or raising the cap on this
    deduction is a policy change that would not meaningfully benefit
    middle-class households--or even upper-middle class households.
    Repealing the SALT cap would cost hundreds of billions of dollars in
    tax revenues and the top 5 percent of households would receive over 80
    percent of the benefit.\2\
    ---------------------------------------------------------------------------
        \1\ https://www.brookings.edu/blog/up-front/2020/09/04/the-salt-
    tax-deduction-is-a-handout-to-the-rich-it-should-be-eliminated-not-
    expanded/.
        \2\ https://www.cbpp.org/research/Federal-tax/repealing-salt-cap-
    would-be-regressive-and-proposed-offset-would-use-up-needed.

          What is your perspective on lifting or repealing the SALT
    deduction cap? Would including this change improve inequality or make
    ---------------------------------------------------------------------------
    it worse?

        The Administration did not propose changes to the SALT deduction
    cap. However, any tax law changes should be evaluated on a holistic
    basis that considers the aggregate effects of all of the component
    parts. Although repealing the SALT deduction cap in insolation would
    reduce the progressiveness of the tax code between now and 2025 (the
    cap expires after 2025), any such repeal could be coupled with other
    reforms that make the tax system as a whole more progressive. As one
    exam pie, the SALT cap was implemented in the context of a tax law
    change (the Tax Cuts and Jobs Act of 2017) that made our overall tax
    system less progressive. Likewise, a repeal of the cap could easily
    occur in the context of a tax law change that makes our overall tax
    system more progressive.
                                   __________
    Response from Ms. Huang to Question for the Record Submitted by Senator
                                      Lee
        Ms. Huang:
        In your testimony, and in past work, you have each emphasized the
    importance of addressing income and wealth inequality. Yet, there is a
    contingent of lawmakers who are openly advocating for either lifting or
    repealing the $10,000 cap on the SALT deduction. Ironically, the
    success of the Build Back Better Act may hinge on whether changes to
    the cap are included.
        According to the Brookings institution, ``the SALT tax deduction is
    a handout to the rich.'' \1\ Eliminating or raising the cap on this
    deduction is a policy change that would not meaningfully benefit
    middle-class households--or even upper-middle class households.
    Repealing the SALT cap would cost hundreds of billions of dollars in
    tax revenues and the top 5 percent of households would receive over 80
    percent of the benefit. \2\
    ---------------------------------------------------------------------------
        \1\ Christopher Pulliam and Richard Reeves, ``The SALT deduction is
    a handout to the rich. It should be eliminated not expanded,''
    Brookings Institution, September 4, 2020, https://www.brookings.edu/
    blog/up-front/2020/09/04/the-salt-tax-deduction-is-a-handout-to-the-
    rich-it-should-be-eliminated-not-expanded/.
        \2\ Chuck Marr, Kathleen Bryant, and Michael Leachman, ``Repealing
    `SALT ' Cap Would Be Regressive and Proposed Offset Would Use up Needed
    Progressive Revenues,'' CBPP, December 10, 2019, https://www.cbpp.org/
    research/Federal-tax/repealing-salt-cap-would-be-regressive-and-
    proposed-offset-would-use-up-needed.

          What is your perspective on lifting or repealing the SALT
    deduction cap? Would including this change improve inequality or make
    ---------------------------------------------------------------------------
    it worse?

        Thank you for your question, Senator Lee.
        The Brookings estimate and Center on Budget analysis of the direct
    distribution and revenue impact of repealing the SALT cap are sound.
        In the 2017 tax law, however, capping the SALT deduction was used
    to help offset the cost of tax cuts that were, overall, even more
    tilted to the wealthiest filers than the benefits of the SALT
    deduction, so this was not a sound trade.
        However, repealing the SALT cap now in the context of a package
    with a limited size is likely to mean less robust investments in other
    policies like the Child Tax Credit that directly benefit low- and
    moderate-income families, so that, too would be an unsound trade. \3\
    ---------------------------------------------------------------------------
        \3\ Ibid.
    ---------------------------------------------------------------------------
        Some proponents of repealing the SALT cap are concerned that the
    cap constrains the ability of states to raise progressive revenues and
    fund State investments with widely shared benefits. That is a
    reasonable concern, especially because in 2017, some supporters of
    capping the SALT deduction explicitly hoped that it would limit State
    revenue collection and investments.
        However, the evidence on the SALT deduction's impact on State
    budgets is inconclusive.\4\ For example, since the 2017 tax law went
    into effect, New Jersey has raised income taxes for households with
    incomes over $1 million, New York has extended and increased an
    existing millionaires' tax, and three states (Connecticut, New York,
    and Washington state) have increased real estate transfer taxes on
    high-value homes.\5\ While it impossible to know precisely what states
    would have done without the cap in place, this does at least show that
    states can continue to raise progressive revenues and invest with the
    cap in effect.
    ---------------------------------------------------------------------------
        \4\ Congressional Research Service, ``Tax Expenditures: Compendium
    of Background Material on Individual Provisions,'' Senate Committee
    Print #116-53, December 2020, https://www.govinfo.gov/content/pkg/CPRT-
    116SPRT42597/pdf/CPRT-116SPRT42597.pdf.
        \5\ Wesley Tharpe, ``New Jersey Budget Deal Advances Equity With
    Millionaires' Tax and More,'' CBPP, October 7, 2020, https://
    www.cbpp.org/blog/new-jersey-budget-deal-advances-equity-with-
    millionaires-tax-and-more; Ashlea Ebeling, ``New York's ` Temporary'
    Millionaire Tax Extended 5 More Years,'' Forbes, April 9, 2019, https:/
    /www.forbes.com/sites/ashleaebeling/2019/04/09/new-yorks-temporary-
    millionaire-tax-extended-5-more-years/?sh=53926abe59bd; Carmen
    Reinicke, ``New York is raising taxes for millionaires. Will other
    states follow?'', CNBC, April 8, 2021, https://www.cnbc.com/2021/04/08/
    new-york-is-raising-taxes-for-millionaires-will-other-states-
    follow.html; Michael Leachman and Samantha Waxman, ``State `Mansion
    Taxes' on Very Expensive Homes,'' CBPP, October 1, 2019, https://
    www.cbpp.org/research/state-budget-and-tax/state-mansion-taxes-on-very-
    expensive-homes.
    ---------------------------------------------------------------------------
        Further, even if repealing or weakening the SALT cap were to make
    it somewhat easier to raise revenues for investments at the State
    level, that is likely to be a far less effective and cost-efficient way
    of delivering economic and budgetary benefits to states than
    alternatives proposed in President Biden's Build Back Better agenda.
    For example, the proposed package makes critical investments in
    infrastructure, green jobs, community colleges and other areas of deep
    need.\6\ These investments would likely be far more effective, per
    dollar spent, at boosting strong and inclusive economic growth in
    states. Along with investments in areas like the CTC and child and
    elder care, these would be a far better use of the revenues raised by
    progressive tax changes.
    ---------------------------------------------------------------------------
        \6\ Adam S. Hersch, `` `Build Back Better' agenda will ensure
    strong, stable recovery in coming years,'' Economic Policy Institute,
    September 16, 2021, Elizabeth McNichol, ``It's Time for States to
    Invest in Infrastructure,'' CBPP, updated March 19, 2019, https://
    www.cbpp.org/research/state-budget-and-tax/its-time-for-states-to-
    invest-in-infrastructure.
    ---------------------------------------------------------------------------
                                   __________
      Response from Dr. Edelberg to Question for the Record Submitted by
                                  Senator Lee
        Dr. Edelberg:
        In your testimony, and in past work, you have each emphasized the
    importance of addressing income and wealth inequality. Yet, there is a
    contingent of lawmakers who are openly advocating for either lifting or
    repealing the $10,000 cap on the SALT deduction. Ironically, the
    success of the Build Back Better Act may hinge on whether changes to
    the cap are included.
        According to the Brookings institution, ``the SALT tax deduction is
    a handout to the rich.'' Eliminating or raising the cap on this
    deduction is a policy change that would not meaningfully benefit
    middle-class households--or even upper-middle class households.
    Repealing the SALT cap would cost hundreds of billions of dollars in
    tax revenues and the top 5 percent of households would receive over 80
    percent of the benefit.

          What is your perspective on lifting or repealing the SALT
    deduction cap? Would including this change improve inequality or make
    it worse?

        My colleagues at the Brookings Institution, Christopher Pullam and
    Richard Reeves,\1\ have examined the state and local tax (SALT)
    deduction cap and find that under the current SALT cap, over \3/4\ of
    the tax benefit goes to the top quintile of households by income.\2\
    ---------------------------------------------------------------------------
        \1\ Pulliam, Christopher and Richard Reeves. 2020. ``The SALT tax
    deduction is a handout to the rich. It should be eliminated not
    expanded.'' Up Front (blog), Brookings Institution, Washington, DC,
    September 4, 2020.
        \2\ Urban-Brookings Tax Policy Center. 2018. ``Table T18-0143:
    Repeal $10,000 Limit on Deductible State and Local Taxes; Baseline:
    Current Law; Impact on Tax Revenue, Number of Itemizers, and Individual
    Alternative Minimum Tax (AMT), 2018-28.'' Urban-Brookings Tax Policy
    Center, Washington, DC.
    ---------------------------------------------------------------------------
        Those authors point out that the main argument for the SALT
    deduction ``is that it encourages states to spend more by making it
    easier for them to tax more.'' Many of the State and local policies
    that are implicitly subsidized through the SALT deduction are
    progressively structured and aim to support disadvantaged households,
    despite the benefits of SALT tax relief disproportionately accruing to
    those with the highest incomes. However, repealing the SALT deduction
    cap is not the optimal policy approach if the goal is to provide fiscal
    support to fiscally active State and local governments. If the cap were
    raised or fully eliminated, the tax benefit would flow overwhelmingly
    to households at the top of the income distribution while providing
    little benefit to the after-tax incomes of middle-class households.
    Moreover, proposals to repeal the SALT cap that also include revenue
    raising offsets, such as increasing the top marginal income tax rate,
    risk exhausting a finite source of potential revenue while failing to
    address any of our Nation's critical priorities. A better approach
    would provide additional Federal aid directly to states and localities
    in the form of grants to better target funding toward key priorities
    like K-12 education, infrastructure, and health care.
                                   __________
       Response from Dr. McBride to Question for the Record Submitted by
                                  Senator Lee
        Dr. McBride:
        We know that pro-growth policies, like tax cuts and deregulation
    benefit low-income and otherwise disadvantaged Americans by creating
    strong labor markets and a healthy economy. Americans experienced these
    benefits following the 2017 tax cuts. Unemployment was historically
    low, including for women, Black Americans, and Hispanics. In my home
    state of Utah, per capita income grew 17 percent in the 3-years before
    the pandemic and some of the largest wage gains benefited the lowest
    income Americans. This strong pre-COVID economy is a testament to the
    power of getting the government out of the way and unleashing American
    ingenuity.

          Key pieces of the Democrats' plan are targeted at
    reversing the very policy changes that helped support our strong
    economy. Can you speak briefly to the successes of the 2017 Tax Cuts
    and Jobs Act and then describe how these new tax increases might
    undermine some of the gains that Americans experienced?

        A central goal of the Tax Cuts and Jobs Act (TCJA) was to reduce
    the tax burden on business investment, which it did primarily by
    reducing the corporate tax rate as well as tax rates on pass-through
    business income among other measures. Basic economic theory and much
    empirical evidence predicts investment increases when the after-tax
    return on investment increases, leading to a larger capital stock, more
    productivity, higher wages, more jobs, and faster economic growth.
        Indeed, the Congressional Budget Office (CBO) projected that the
    effects of the TCJA would ``include higher levels of investment,
    employment, and gross domestic product (GDP).'' By most measures, the
    actual performance of the economy post-TCJA exceeded CBO's forecasts,
    until the pandemic hit two years later. CBO forecasted in June 2017,
    prior to enactment of the TCJA in December 2017, that business
    investment (i.e., real nonresidential fixed investment) would grow by
    4.8 percent from the fourth quarter of 2017 to the fourth quarter of
    2019, but it actually grew 9.4 percent--even exceeding the CBO's post-
    TCJA forecast from April 2018 of a 9.2 percent increase. Employment
    grew about 3 percent over the two years following TCJA, roughly
    tripling CBO's pre-TCJA forecast and matching CBO's post-TCJA forecast.
    Growth in wages and GDP also exceeded CBO's pre-TCJA forecast, although
    not to the extent forecast post-TCJA.
        While there were certainly other non-tax factors in play--e.g.,
    deregulation may have added to investment and the trade war may have
    subtracted from investment--tax reform should not be dismissed as a
    major factor driving the higher performance of the economy after TCJA.
    Proposals to unwind major pro-growth elements of TCJA, by raising tax
    rates on corporate and individual income, would push the economy in the
    other direction, reducing incentives to work, save, and invest, and
    leading to fewer jobs, lower wages, and a smaller economy than would
    otherwise exist.
                                   __________
      Response from Dr. Clausing to Questions for the Record Submitted by
                                Senator Warnock
        Small Businesses (Dr. Kimberly Clausing)
        According to polling done by the Small Business Majority, nearly
    three-quarters of small businesses say the current tax system favors
    big businesses over small businesses and that their business is harmed
    when big corporations use loopholes to avoid taxes. If you're a small
    business, such as those structured as a pass-through business, I am
    sure it can sometimes feel like you are swimming upstream.

        1.  What will it mean for the economy to enact policy that
    effectively raises the necessary revenue without raising taxes on small
    businesses?

        For pass-through businesses, no tax increases will occur if the
    owners are below the $400,000 threshold. Indeed, According to Treasury
    Department analysis, the President's Agenda will protect 97 percent of
    small business owners from income tax rate increases, while delivering
    tax cuts to more than 3.9 million entrepreneurs.

        2.  What benefits will small businesses have through the enacted of
    programs such as providing affordable childcare to working families,
    funding for workforce training programs, and lower higher education
    costs?

        The revenue raised from these tax proposals will help pay for
    investments that will grow our economy and create jobs, including
    investments in small business. These include investments in clean
    energy, research, technology, childcare, education, and workforce
    training. The Build Back Better Agenda will also increase access to
    contracting opportunities and provide financing and technical
    assistance programs for small businesses, including small
    manufacturers.
                                   __________
       Response from Ms. Huang to Questions for the Record Submitted by
                                Senator Warnock
        Child Tax Credit (Ms. Chye-Ching Huang)
        In the past, there has been discussions about the economic impact
    of corporations, but I think more about hard working Georgians, like
    the mother I met in Columbus, Georgia. She was laid off recently, but
    was able to use the money from the Child Tax Credit to pay for books
    for her little girl. I also think of the constituent who just last week
    sent me a note about how they've been able to use the credit to pay
    down debt incurred during the pandemic, afford teaching materials for
    their children participating in online learning, and told me that this
    money kept her family in their home and off the streets.

        1.  What kind of long term benefits to the economy will we see from
    reducing child poverty by implementing tax cuts, like the Child Tax
    Credit, that supports working families?

        2.  What benefits have we seen by having the Child Tax Credit paid
    monthly in advance to eligible taxpayers, instead of requiring
    Americans to file their taxes to receive the benefit?

        Thank you for your question, Senator Reverend Warnock.
        The experiences of these Georgian families are not unusual, which
    is why the CTC is so important for families and communities across the
    country.
        Monthly distribution of the Child Tax Credit has made it easier for
    families to pay for recurring expenses throughout the year.\1\ Research
    shows that parents with low incomes have, like your constituents, spent
    their monthly CTC on basic needs like food, rent, utilities, clothing,
    or school supplies--and shortly after the first monthly check was
    distributed, food insecurity and financial hardship fell dramatically
    among households with children.\2\
    ---------------------------------------------------------------------------
        \1\ Chuck Marr, ``The Expanded Child Tax Credit Must Be Permanent
    and Monthly,'' CBPP, April 15, 2021, https://www.cbpp.org/blog/the-
    expanded-child-tax-credit-must-be-permanent-and-monthly.
        \2\ Claire Zippel, ``After Child Tax Credit Payments Begin, Many
    More Families Have Enough to Eat,'' CBPP, August 30, 2021, https://
    www.cbpp.org/blog/after-child-tax-credit-payments-begin-many-more-
    families-have-enough-to-eat; Daniel J. Perez-Lopez, ``Economic Hardship
    Declined in Households With Children as Child Tax Credit Payments
    Arrived,'' U.S. Census Bureau, August 11, 2021,  https://
    www.census.gov/library/stories/2021/08/economic-hardship-declined-in-
    households-with-children-as-child-tax-credit-payments-arrived.html.
    ---------------------------------------------------------------------------
        The monthly CTC has not only helped families make ends meet in the
    short-term, but a large body of research suggests that it is a true
    investment: it will also have positive effects on the life trajectories
    of children in the long run, and for the economy as a whole.
        Investments in families with low incomes have been shown to improve
    infant and child health, improve children's academic performance in
    schools, increase the likelihood that children attend college, and
    boost earnings once children ultimately reach adulthood.\3\
    ---------------------------------------------------------------------------
        \3\ Arloc Sherman and Tazra Mitchell, ``Economic Security Programs
    Help Low-Income Children Succeed Over Long Term, Many Studies Find,''
    CBPP, July 17, 2017, https://www.cbpp.org/research/poverty-and-
    inequality/economic-security-programs-help-low-income-children-succeed-
    over.
    ---------------------------------------------------------------------------
        These long-term benefits for children and families can also mean
    broadly shared benefits for communities and the larger economy. They
    mean that children are more likely to be healthier as adults, attend
    college and have higher adult earnings. Boosting the health and
    earnings of the next generation also in turn reduces spending on health
    care costs and other macroeconomic costs associated with high child
    poverty rates over time.\4\
    ---------------------------------------------------------------------------
        \4\ Arloc Sherman, Ali Safawi, Zoe Neuberger, and Will Fischer,
    ``Recovery Proposals Adopt Proven Approaches to Reducing Poverty,
    Increasing Social Mobility,'' CBPP, August 5, 2021, https://
    www.cbpp.org/research/poverty-and-inequality/recovery-proposals-adopt-
    proven-approaches-to-reducing-poverty.
    ---------------------------------------------------------------------------
        Further, novel research suggests that investments in children from
    low- and moderate-income families can help more children develop and
    apply their talents for innovation. If equally talented girls, children
    of color, and children from low- and middle-income families grew up to
    be inventors at the same rate as white boys from rich families, there
    would be four times as many inventors in America as there are today.\5\
    The research suggests that a key reason why this potential is being
    lost is simply because many families lack basic financial resources.
    Sound investments in these families can ensure more children are able
    to be a part of the next generation of innovators who may generate new
    breakthroughs and businesses with widely shared benefits.
    ---------------------------------------------------------------------------
        \5\ Alex Bell et al., ``Who Becomes an Inventor in America? The
    Importance of Exposure to Innovation,'' Quarterly Journal of Economics,
    Vol. 134, Iss. 2, May 2019, https://opportunityinsights.org/paper/
    losteinsteins/. Also see: Wesley Tharpe, Michael Leachman, and Matt
    Saenz, ``Tapping More People's Capacity to Innovate Can Help States
    Thrive,'' CBPP, December 9, 2020, https://www.cbpp.org/research/state-
    budget-and-tax/tapping-more-peoples-capacity-to-innovate-can-help-
    states-thrive.
    ---------------------------------------------------------------------------
                                   __________
      Response from Dr. Edelberg to Questions for the Record Submitted by
                                Senator Warnock
                               racial wealth gap
        In 2019, the median net worth for all American families was about
    $121,000 while the median net worth of Black families was about
    $24,000.

        1.  What can a strong social insurance system, like those in the
    Build Back Better plan, do to address historical inequities in our
    economy?

        2.  What do you believe their long-term effect will have on our
    economy?

        Improvements in the social insurance system can help to address
    historical inequities in household resources, including wealth, which
    act to cushion families against financial setbacks, enable individuals
    to take risks, and provide people with access to better neighborhoods.
    The racial wealth gap is the product of exclusionary and discriminatory
    practices dating back to the foundation of this country. As a result,
    the median Black household was left far more vulnerable to the
    devastating economic effects of the COVID-19 pandemic.
        Piling onto an already precarious situation for Black Americans,
    Black workers and Black owned businesses were disproportionately likely
    to be in the industries hardest hit by the pandemic [1]. As the economy
    recovers, a hot labor market will begin to close the racial and ethnic
    unemployment gap, but will not be enough to eliminate it [2]. Moreover,
    closing the unemployment gap does not close the racial wealth gap [1].
    In fact, the racial wealth gap is observable even among households with
    similar incomes and at all levels of income, except for the bottom
    quintile in which median net worth is universally zero [3].
        A stronger social insurance system can alleviate the harsh impact
    of recessions by bolstering household savings, reducing poverty and
    food insecurity, and guaranteeing access to preschool programs. Black
    households have less in emergency savings than white households, with
    $1,500 in liquid assets in 2019 as compared to $8,100 among white
    households [4]. Such disparities in financial resources would be
    mitigated by making the full refundability of the Child Tax Credit
    (CTC) permanent [5]. Notably, the expansions to the CTC in 2021 will
    help cut child poverty by more 45 percent among all households, and
    more than 52 percent among Black households [6]. In addition, an
    improvement in access to childcare would lower the cost of working for
    parents of young children and, particularly, increase labor force
    participation among women [7]. An improved social insurance system
    would do more to curb the severity of economic crises and hasten
    recoveries, though it does not fundamentally address the racial wealth
    gap.
        As articulated in The Hamilton Project blog on this subject, as
    published in December 2020:

            ``Indeed, closing the Black-white wealth gap will require that
            the deep and systemic economic disparities brought about by
            centuries of discriminatory policies are addressed through
            significant structural changes across a range of policy areas.
            As discussed in a previous Hamilton Project analysis, these
            policies range from redlining and the denial of financial
            services to minority communities, to the Jim Crow Era's ``Black
            Codes'' strictly limiting opportunities in many southern
            states--all of which contributed to the disproportionate
            accumulation of wealth held by white households while
            exacerbating the economic fragility of many Black households.
            Overcoming the effects of these policies will necessitate
            substantive and systemic changes in education, small business,
            healthcare, broadband access, tax reform, and broader place-
            based policies.

            The COVID-19 pandemic underscores the importance of the Black-
            White wealth gap and its impact on the ability of households to
            weather the economic shocks caused by recessions. By expanding
            policymakers' focus not only on strengthening the safety net
            and income supports, but also on the inclusion of systemic and
            structural public policy changes across a range of areas to
            close the Black-White wealth gap, disparities in the ability of
            Black and White households to weather the next economic storm
            will be greatly reduced'' [2].

        References

            1. McIntosh, Kriston, Emily Moss, Wendy Edelberg, Kristen E.
            Broady. 2020. ``The Black-White Wealth Gap Left Black
            Households More Vulnerable.'' The Hamilton Project, Washington,
            DC.
            2. Aaronson, Stephanie, Mitchell Barnes, Wendy Edelberg. 2021.
            ``A Hot Labor Market Won't Eliminate Racial and Ethnic
            Unemployment Gaps.'' The Hamilton Project, Washington, DC.
            3. McIntosh, Kriston, Emily Moss, Ryan Nunn, Jay Shambaugh.
            2020. ``Examining the Black-White Wealth Gap.'' The Hamilton
            Project, Washington, DC.
            4. Bhutta, Neil, Andrew C. Chang, Lisa J. Dettling, and Joanne
            W. Hsu. 2020. ``Disparities in Wealth by Race and Ethnicity in
            the 2019 Survey of Consumer Finances''. Board of Governors of
            the Federal Reserve System, Washington, DC.
            5. Jabbari, Jason, Leah Hamilton, Stephen Roll, Michal
            Grinstein-Weiss. 2021. ``The New Child Tax Credit Does More
            Than Just Cut Poverty''.'' The Brookings Institution,
            Washington, DC.
            6. Center on Poverty and Social Policy at Columbia University.
            2021. ``A Poverty Reduction Analysis of the American Family
            Act.'' Center on Poverty and Social Policy at Columbia
            University, New York, New York.
            7. Betsey Stephenson. 2021. ``Women, Work and Families:
            Recovering from the Pandemic-Induced Recession.'' The Hamilton
            Project, Washington, DC.

                                           [all]