[Senate Hearing 117-42]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-42

                    ENDING A RIGGED TAX CODE: THE 
                     NEED TO MAKE THE WEALTHIEST 
                     PEOPLE AND LARGEST CORPORA-
                     TIONS PAY THEIR FAIR SHARE OF 
                     TAXES

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

                                HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET

                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             March 25, 2021

                               __________

           Printed for the use of the Committee on the Budget
           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
45-119                      WASHINGTON : 2021                     
          
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                        COMMITTEE ON THE BUDGET

                   BERNARD SANDERS, Vermont, Chairman
PATTY MURRAY, Washington             LINDSEY O. GRAHAM, South Carolina
RON WYDEN, Oregon                    CHARLES E. GRASSLEY, Iowa
DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
SHELDON WHITEHOUSE, Rhode Island     PATRICK TOOMEY, Pennsylvania
MARK R. WARNER, Virginia             RON JOHNSON, Wisconsin
JEFF MERKLEY, Oregon                 MIKE BRAUN, Indiana
TIM KAINE, Virginia                  RICK SCOTT, Florida
CHRIS VAN HOLLEN, Maryland           BEN SASSE, Nebraska
BEN RAY LUJAN, New Mexico            MITT ROMNEY, Utah
ALEX PADILLA, California             JOHN KENNEDY, Louisiana
                                     KEVIN CRAMER, North Dakota
                Warren Gunnels, Majority Staff Director
                 Nick Myers, Republican Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 25, 2021

                                                                   Page

                    STATEMENTS BY COMMITTEE MEMBERS

Chairman Bernard Sanders.........................................     1
Ranking Member Lindsey Graham....................................     4

                               WITNESSES

Statement of Abigail E. Disney, Chief Executive Officer (CEO) and 
  Co-Founder, Fork Films, Chair and Co-Founder, Level Forward....     5
Prepared Statement of............................................    35

Statement of Gabriel Zucman, Associate Professor of Economics, 
  University of California, Berkeley.............................     7
Prepared Statement of............................................    40
    Questions and Answers (Post-Hearing) from:
        Senator Mike Crapo.......................................    91
        Senator Chris Van Hollen.................................    92
        Senator Mark R. Warner...................................    93

Statement of Amy Hanauer, Executive Director, Institute on 
  Taxation and Economic Policy...................................     8
Prepared Statement of............................................    55
    Questions and Answers (Post-Hearing) from:
        Chairman Bernard Sanders.................................    95
        Senator Chris Van Hollen.................................    97

Statement of Maya MacGuineas, President, Committee for a 
  Responsible Federal Budget.....................................    10
Prepared Statement of............................................    71
    Questions and Answers (Post-Hearing) from:
        Senator Mike Crapo.......................................    98
        Senator Mark R. Warner...................................   101

Statement of Scott A. Hodge, President, Tax Foundation...........    12
Prepared Statement of............................................    78
    Questions and Answers (Post-Hearing) from:
        Chairman Bernard Sanders.................................   102
        Senator Mike Crapo.......................................   103

              ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Letter from National Retail Federation, Senior Vice President, 
  David French Submitted for the Record by Senator Graham........   106

 
 ENDING A RIGGED TAX CODE: THE NEED TO MAKE THE WEALTHIEST PEOPLE AND 
           LARGEST CORPORATIONS PAY THEIR FAIR SHARE OF TAXES

                              ----------                             



                        THURSDAY, MARCH 25, 2021

                                       U.S. Senate,
                                   Committee on the Budget,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 11:00 a.m., via 
Webex and in Room SH-216, Hart Senate Office Building, 
Honorable Bernard Sanders, Chairman of the Committee, 
presiding.
    Present: Senators Sanders, Whitehouse, Warner, Kaine, Van 
Hollen, Lujan, Padilla, Graham, Grassley, Crapo, Toomey, 
Johnson, Braun, and Scott.
    Staff Present: Warren Gunnels, Majority Staff Director; 
Nick Myers, Republican Staff Director; Richard Phillips, 
Majority Senior Tax Analyst; and Erich Hartman, Republican 
Economist.

         OPENING STATEMENT OF CHAIRMAN BERNARD SANDERS

    Chairman Sanders. Let me call this hearing to order. Let me 
thank the Ranking Member, Lindsey Graham, for his help, and let 
me thank our colleagues on the Committee and our witnesses who 
will be testifying remotely--almost all, not all--this morning.
    Right now there is a vote that has been called. It will be 
the first of four votes, so I think you are going to see 
members moving in and out.
    Last week, as some may recall, the Budget Committee held a 
hearing on income and wealth inequality in America. We talked 
about the economic absurdity of two people in this country--
Jeff Bezos and Elon Musk--owning more wealth than the bottom 40 
percent of the American people. Two people owning more wealth 
than the bottom 40 percent. We talked about the obscenity of 
the 50 wealthiest Americans owning more wealth than the bottom 
half of our society--165 million people--while over 90 million 
Americans are uninsured or underinsured, unable to go to the 
doctor when they need.
    We talked about the absurdity of the top one-tenth of 1 
percent owning more wealth than the bottom 90 percent, as the 
same time as half a million Americans are homeless and children 
in our country are going hungry.
    We have talked about the fact that over 650 billionaires in 
America became $1.3 trillion richer during the pandemic while 
63 percent of Americans have been living paycheck to paycheck, 
worried that if their cars break down or their kids get sick, 
they are going to be in financial disaster.
    Today, in the midst of massive wealth and income 
inequality, this hearing is going to talk about the need to end 
a corrupt and rigged Tax Code that has showered trillions of 
dollars in tax breaks to the wealthiest people in our country 
and the most profitable corporations. Warren Buffett, one of 
the very wealthiest people in America, is right. Buffett is 
right. We can no longer tolerate a Tax Code that allows him, 
worth $95 billion, to pay a lower tax rate than his secretary. 
We can no longer tolerate many large corporations making 
billions of dollars a year in profits paying nothing, zero, in 
Federal income taxes while at the same time half of older 
Americans have no retirement savings and no idea about how they 
will be able to retire with dignity.
    According to recent studies, in America today the top 1 
percent is responsible for 70 percent of the taxes that go 
unpaid each year. In other words, the top 1 percent is evading 
some $266 billion in Federal taxes each and every year. And 
even in Washington, that is a tidy sum of money.
    If we collected just a third--one-third--of the unpaid 
taxes of the very rich, we could provide in this country and 
make public colleges and universities tuition free, provide 
universal school meals to every child, and guarantee clean 
drinking water to every person in our country. And that is 
because the people on top have underreported some 20 percent of 
their income.
    Despite what some of my Republican colleagues may claim, 
the reality is that when you take into account Federal income 
taxes, payroll taxes, gas taxes, sales taxes, and property 
taxes--i.e., the entire tax system--we have as a Nation an 
extremely unfair Tax Code that allows billionaires to pay a 
lower effective tax rate than public school teachers, truck 
drivers, and nurses. And that has got to change.
    We need a progressive tax system based on the ability to 
pay, not a regressive tax system that rewards the wealthy and 
the well-connected.
    Let us be clear. As I think all of us know, this country 
faces enormous structural crises that we must address. 
Everybody understands that our infrastructure is crumbling, 
that is, our roads, bridges, dams, wastewater plants, sewers, 
culverts, and, yes, affordable housing. And it is going to take 
a lot of money to rebuild our crumbling infrastructure.
    In order to combat climate change, which is an existential 
threat to our planet, we need to fundamentally transform our 
energy system to make it energy efficient and to build 
sustainable emergency systems, also an expensive proposition.
    Further, we need to do what every other major country on 
Earth does, and that is to guarantee health care to every man, 
woman, and child as a human right, not a privilege. We need to 
make sure that all of our children, regardless of their income, 
are able to get a higher education if that is what they desire. 
We need to expand not cut Social Security so that 20 percent of 
our seniors are no longer forced to survive on an income of 
less than $13,500 a year.
    Now, I think as many people know, as a result of the Trump 
tax cuts for the rich, in 2018 over 90 Fortune 500 companies 
not only paid nothing in Federal income taxes, they actually 
received billions of dollars in tax rebates from the Internal 
Revenue Service (IRS). Profitable corporations pay nothing in 
Federal taxes, get a rebate from the IRS.
    For example--just a few examples--in 2018 Amazon received a 
$129 million refund check from the IRS after making $10.8 
billion in profits. Delta received a $187 million refund check 
from the IRS after making over $5 billion in profits. Chevron 
received a $181 million refund check from the IRS after making 
$4.5 billion in profits. And this gross unfairness never ends.
    Recently, as many know, some of my Republican colleagues 
introduced a bill to give a $1.7 trillion tax break to the 650 
richest families in America, families who are now worth over $4 
trillion. So in the midst of all of the problems facing our 
country, some of my Republican colleagues have decided that 
what we should do is give massive, massive tax breaks to the 
very, very wealthiest families in America, the top one-tenth of 
1 percent.
    For example, under this effort to completely repeal the 
estate tax, which some of my Republican colleagues are talking 
about, the Walton family, the richest family in America and the 
owners of Walmart, will get a tax break of up to $88 billion. 
Got that? Richest family in America under the repeal of the 
entire estate tax would get an $88 billion tax break.
    The family of the wealthiest individual in the world, Jeff 
Bezos, owner of Amazon, complete repeal of the estate tax would 
mean that that family would receive a tax break of more than 
$70 billion.
    Meanwhile, under that plan to completely repeal the estate 
tax, over 99.9 percent of families in America, including every 
family farmer, rancher, and small business owner, would get 
nothing--not a penny in tax relief. Why? Because the estate tax 
repeal only applies to people who inherit over $11.7 million in 
wealth.
    Well, needless to say, I have a very different perspective, 
and that is why I am introducing today an estate tax bill with 
Senators Whitehouse, Gillibrand, Reed, and Van Hollen that 
would do exactly the opposite of what my Republican colleagues 
would do. It would demand that the families of the billionaire 
class not only not get a tax break but start paying their fair 
share of taxes.
    And, by the way, interestingly enough, when we talk about 
the estate tax, I hope my colleagues understand this is not an 
idea invented by Bernie Sanders and some other progressives. It 
was an idea developed, created by a good Republican named Teddy 
Roosevelt. And as Teddy Roosevelt said--and this is an 
important quote because it is as relevant today as it was back 
then. Roosevelt said, ``The absence of effective State, and, 
especially, national, restraint upon unfair money-getting has 
tended to create a small class of enormously wealthy and 
economically powerful men, whose chief object is to hold and 
increase their power. The prime need is to change the 
conditions which enable these men to accumulate power. 
Therefore, I believe in a graduated inheritance tax on big 
fortunes...properly safeguarded against evasion, and increasing 
rapidly in amount with the size of the estate.''
    Teddy Roosevelt, Republican. And Roosevelt was, of course, 
exactly right.
    Further, today I am introducing the Corporate Offshore Tax 
Dodging Prevention Act, legislation that would prevent 
corporations from shifting their profits offshore to avoid 
paying U.S. taxes and would restore the top corporate rate to 
35 percent, where it was before Trump became President. Today 
corporations are avoiding hundreds of billions of dollars in 
taxes by shifting their profits to offshore tax havens in the 
Cayman Islands, Bermuda, and other locations.
    Interestingly, in 1952, corporate income taxes amounted to 
32 percent of all Federal revenue. Today that figure is down to 
just 7 percent.
    So here is the bottom line. We are living in a country 
which has enormous needs, we have a very large deficit, and yet 
we have a Tax Code which enables the very, very richest people 
in America and the largest corporations to avoid paying their 
fair share of taxes. That has got to change.
    With that, I am happy to give the microphone over to my 
colleague, the Ranking Member, Lindsey Graham.

          OPENING STATEMENT OF SENATOR LINDSEY GRAHAM

    Senator Graham. Thank you, Mr. Chairman. These debates are 
very worth having, well worth having. In 2017, we did, in fact, 
cut taxes. We cut taxes in a way to make American corporations 
competitive with the worldwide rate. What happened before 
COVID, you saw a rise in wealth among every segment of the 
American family. Latino and Hispanic household incomes 
increased. African American incomes increases. Women's income 
increased. We added 5 million jobs. People benefited mightily.
    What happened after that is that the top 1 percent account, 
I think, for 19 percent of all income in the country. They pay 
40-something percent of income taxes; 35 percent of the people 
in the United States do not pay any income taxes. And so I 
think a model of increasing taxes now in the name of going 
after the wealthy hurts the middle class as much as it would 
hurt anybody else.
    The one thing that I differ with Senator Sanders is that we 
live in a world that is very competitive. If you go to a 35 
percent corporate tax rate, you are going to incentivize people 
in the wrong way to find locations that are more friendly. Why 
are we doing so well in South Carolina? Because we have a low, 
business-friendly tax structure, hardworking people with a good 
education system to help them acquire the skills they need to 
work in a modern economy. That is why BMW, Michelin, and 
Boeing--I could go on and on and on--the premier manufacturers 
in the world have chosen my State because of a good workforce 
and good sound tax policy.
    To those who are listening out there, tax policy is job 
policy. The way you structure your Tax Code is going to 
determine how competitive you can be vis-a-vis the rest of the 
world. And if you want to declare war on the top income earners 
in this country because you think they have too much because 
they do not pay their fair share, well, what is a fair share? 
Reader's Digest has been doing polling on this issue for 
decades, and most people say around 25 or 30 percent is a fair 
share of anybody to pay.
    What Senator Sanders does not get, in my view, is that most 
people who are struggling to make it out there would like to be 
wealthy and do not resent people who are wealthy who have done 
it right and fairly. So when the Government is going to 
determine how much you can make, what the ratio should be of 
what a CEO can make in any company, what else are we going to 
do?
    So the bottom line is that free enterprise works. The model 
you are proposing has been followed throughout the world, and 
it crashes and burns over time. I am not advocating eliminating 
the death tax, but I am advocating making it possible for 
people to work all their lives to pass wealth to their 
families. And when Bill Gates' time comes, I think he has done 
a good job with his money. I do not want the Government to grab 
all of it at the end.
    This insatiable desire by my friends on the left to grab as 
much money and power as they can is going to ruin the country. 
There has to be some balance. I do believe in a progressive Tax 
Code, but every time we meet, we are talking about another 
group of people in America, to grab their money to do things 
with that politicians like on the left. And we will see where 
this goes. We are going to have an election in 2022, and I want 
everybody in South Carolina to know that if Senator Sanders 
gets his way, it is going to be hard for corporations to remain 
competitive in our country.
    The reason people are leaving New York and California in 
droves to come to where I live is they are making it impossible 
to do business there. And we are not going to do that to the 
country with Republican votes. I think our tax cuts in 2017 
were well designed. They have benefited everybody in the 
country, and we will fight you appropriately and respectfully 
as you try to rearrange America in a fashion that I think is 
contrary to what we stand for as a country. A debate worth 
having and a fight worth engaging in.
    Chairman Sanders. Thank you, Senator Graham.
    We have some wonderful witnesses today, and let me begin 
with Abigail E. Disney. Ms. Disney is the CEO and co-founder of 
Fork Films, chair and co-founder of Level Forward. She is a 
filmmaker, philanthropist, activist, and an Emmy-winning 
director. Ms. Disney is the granddaughter of Roy O. Disney, co-
founder of the Walt Disney Company, which makes her an heiress 
to the Disney family fortune.
    Ms. Disney, thank you very, very much for being with us.

STATEMENT OF ABIGAIL E. DISNEY, CHIEF EXECUTIVE OFFICER AND CO-
    FOUNDER, FORK FILMS, CHAIR AND CO-FOUNDER, LEVEL FORWARD

    Ms. Disney. Thank you, Senator Sanders, and also thank you 
to Ranking Member Graham for letting me come and testify for 
you here today.
    I grew up with one of the most recognizable names on Earth 
in a family that went from dirt poor to embarrassingly wealthy 
in two generations. My grandfather managed to accumulate a 
large amount of wealth in a tax environment some now call 
``punitive.'' He built a series of wildly successful businesses 
despite negotiating with highly empowered unions who had 
support from the Federal Government. He managed to navigate a 
regulatory environment many now describe as ``draconian.'' 
Somehow, he managed to do all of this, despite living under 
conditions that many rich people now would claim would make 
their lives impossible.
    The commonly held image of the wealthiest being ungenerous 
and elitist is, I am sorry to say, completely consistent with 
my own experience. The bubble it creates can be self-affirming, 
and poverty, hard work, and struggle become a distant and 
exotic experience meant for other sorts of people. You can 
start to believe that you are admirable because you have money 
and you have money because you are admirable. And this 
mythology of relative merit conveniently supports doing nothing 
about the unfair structures advantaging a handful of people 
that are supported in this delusion by a political system that 
needs your money more than it needs to fight for constituents.
    We have gone so far down this rabbit hole to hell that we 
have lost touch with some common-sense notions like that those 
who have benefited more from society should pay more for its 
upkeep or that a profitable company is not built as much by 
executives as by its workers.
    One place to start to right this wrong is by changing how 
we tax people like me who inherit huge sums of money and pay 
less in taxes for owning things than most Americans pay on the 
money that they earn by working. That is why I support the For 
the 99.5 Percent Act and equalizing capital gains and earned 
income tax rates.
    Some Senators have recently proposed repealing what is left 
of the estate tax, which would do nothing but reward people who 
lucked into the American dream just by being born into wealthy 
families.
    As if inheriting money was not advantage enough, I am able 
to use it entirely by living off of investments, and thanks to 
the capital gains tax rate, I pay half the tax rate of people 
who are working for a living. It is time to stop rewarding 
people who make money simply by having money.
    Lately, I have made myself obnoxious by pointing out that 
the CEO at the company that shares my name should not earn 
1,400 times what his average worker makes or more than 2,000 
times what his lowest-paid worker makes.
    I am not against a person making a lot of money per se, but 
if you do so while people who cash paychecks with your name on 
them are skipping insulin or, in one heartbreaking case, dying 
while sleeping in their car, it is only common sense that a 
larger share of profits would be better deployed to make sure 
your employees can meet their basic needs.
    Of course, Disney is not the only company overpaying its 
CEO, and it is not even the worst. That is why I support a 
higher minimum wage because there is such a thing as ``not 
enough.'' But I also support the Tax Excessive CEO Pay Act 
because there is also a thing as ``too much.''
    In 1970, a CEO--and that would have included my 
grandfather--got paid roughly 20 times what their typical 
worker was paid. Today the average CEO makes about 320 times. 
This is absurd, and our Tax Code should treat it as such. If 
these CEOs are worth their astronomical salaries, these 
companies are more than welcome to cover the tax or to raise 
wages for their other employees.
    It is also time to institute a wealth tax so that we can 
deploy at least some of the hoarded and impossible-to-spend 
sums of money that the wealthiest have locked up, often built 
on the backs of workers, to programs that help give those same 
workers a fair and decent life. It is time for the wealthy to 
stop viewing taxes as a punishment instead of a responsibility. 
A half-century has been spent denigrating the Government and 
all it can do to protect its vulnerable and poor, but good 
governance is possible, and it cannot exist without revenues 
adequate to the challenges it has. The wealthy have begun to 
think that society and Government should serve their interests 
alone. That is why I am a proud class traitor. It is time for 
the rich to ask what we can do for our country, not the other 
way around.
    Thank you, Chairman Sanders and Ranking Member Graham and 
the Committee.

       [The prepared statement of Ms. Disney appears on page 35]

    Chairman Sanders. Thank you very much, Ms. Disney.
    Our next panelist is Gabriel Zucman, associate professor of 
economics at the University of California at Berkeley. His 
research focuses on accumulation, distribution, and taxation of 
global wealth, analyzes the macro distributional implications 
of globalization.
    Professor Zucman, thanks very much for being with us.

STATEMENT OF GABRIEL ZUCMAN, ASSOCIATE PROFESSOR OF ECONOMICS, 
               UNIVERSITY OF CALIFORNIA, BERKELEY

    Mr. Zucman. Thank you, Chairman Sanders, Ranking Member 
Graham, and members of the Committee, for inviting me to 
testify today. My name is Gabriel Zucman, and I am a professor 
of economics at the University of California, Berkeley.
    The United States used to have one of the most progressive 
tax systems in the world. Let us take a look. From 1930 to 
1980, the top marginal Federal income tax rate averaged 78 
percent. This top rate reached as much as 91 percent from 1951 
to 1963. No other country, with the exception of the United 
Kingdom, ever applied such high marginal tax rates on the 
wealthy. Moreover, the U.S. tax system was progressive not only 
on paper, but in actual facts. All taxes, including the average 
tax rates of the top 0.1 percent highest earners, reached 50 to 
60 percent in the 1950s and 1960s.
    Today the situation is very different. When taking into 
account all taxes paid at all levels of Government, the U.S. 
tax system looks like a giant flat tax that becomes regressive 
at the very top end. Americans pay an average 28 percent of 
their income in taxes; this is the official tax to national 
income ratio of the United States. And all groups of the 
population pay more or less 28 percent of their income in 
taxes. The main exception is the 400 richest Americans, 
billionaires, who pay less than 25 percent, less than the 
middle class.
    So how is this possible? Working-class Americans pay a 
significant fraction of their income in payroll and sales 
taxes. Billionaires, on the other hand, enjoy two major tax 
breaks.
    Number one, dividends and capital gains--the two key 
sources of income for billionaires--are subject to low 
statutory tax rates of 20 percent.
    Second, and more important, a lot of the income of 
billionaires is not subject to the personal income tax. Jeff 
Bezos, Elon Musk, Mark Zuckerberg, Larry Page, Sergei Brin, 
Warren Buffett--I just named six of the ten wealthiest 
Americans. They are all large shareholders of companies that do 
not distribute dividends. Their true economic income is their 
share of their companies' profit, but because the companies do 
not distribute dividends, most of their economic income is tax 
free.
    The only sizable tax that billionaires pay is the corporate 
tax they pay through the companies they own. But now a key 
problem comes into view: the corporate tax has almost 
disappeared. In the early 1950s, the corporate income tax 
collected as much revenue as the individual income tax, in both 
cases about 6 percent of national income. Today the corporate 
tax raises only about 1 percent of U.S. national income. A 
large part of the decline owes to the rise of tax avoidance, in 
particular, the shifting of profits to tax havens. More than 
half of the foreign profits of U.S. companies are booked in tax 
havens today.
    In 2018, according to the most recent data, U.S. 
multinationals booked more profits in Bermuda and Ireland than 
in the United Kingdom, Japan, France, Germany, and Mexico 
combined. So how to make the tax system more progressive? With 
a stronger corporate tax, a more progressive income tax, and 
also with the wealth tax, why isn't the income tax enough? 
Because many billionaires have little taxable income, so that 
even increasing the top marginal income tax rates would not 
make a significant difference to the taxes they pay. The proper 
way to tax billionaires is with a wealth tax, and a wealth tax 
can work. In the U.S., property rights are well defined; most 
assets have clear market values; and when market values are 
missing, they can be estimated. There is no technical obstacle 
to making the tax system more progressive. Tax avoidance and 
tax evasion are not laws of nature. They are policy choices.
    Before the creation of the Federal income tax in 1913, 
income taxation was decried as impractical, dangerous, a 
fantasy imported by ``European professors.'' Today the Federal 
income tax is widely recognized as a large success. A wealth 
tax on billionaires could be a success, too.
    I look forward to your questions. Thank you.

       [The prepared statement of Mr. Zucman appears on page 40]

    Chairman Sanders. Thank you very much, Professor Zucman.
    Our next panelist is, in fact, with us today in the room, 
and that is Amy Hanauer, who is the executive director of the 
Institute on Taxation and Economic Policy (ITEP). She has 30 
years of experience working to create economic policy that 
advances social justice and, as the executive director of ITEP, 
works to promote fair and equitable State and national policy.
    Ms. Hanauer, thanks so much for being with us.

  STATEMENT OF AMY HANAUER, EXECUTIVE DIRECTOR, INSTITUTE ON 
                  TAXATION AND ECONOMIC POLICY

    Ms. Hanauer. Thank you for having me. Chairman Sanders and 
Ranking Member Graham, thank you for the opportunity to speak 
to this Committee. My name is Amy Hanauer. I am the executive 
director of the Institute on Taxation and Economic Policy.
    In 2020, the pandemic killed hundreds of thousands of 
Americans, and unemployment soared to levels not seen since we 
began collecting data in the 1940s. Despite that, Amazon's 
profits surged to $20 billion last year, but the company paid 
just 9.4 percent of its profits in Federal corporate income 
taxes after paying zero in 2018 and about 1 percent in 2019. 
Their total effective Federal corporate income tax rate over 3 
years was just 4.3 percent on $44.7 billion in profits. That is 
a far cry from the statutory rate of 21 percent.
    Netflix's 2020 profits surged to $2.8 billion because 
people went out less and watched more TV at home. Yet the 
company paid less than 1 percent of those profits in Federal 
corporate income taxes after paying nothing in 2018 and about 1 
percent in 2019. Over those 3 years, Netflix paid a total 
effective rate of just 0.4 percent on $5.3 billion in profits. 
Again, not at all close to the 21 percent statutory rate.
    And late last week, we learned that Zoom, the 
videoconferencing platform that has become ubiquitous for 
meetings, saw its profits spike by a staggering 4,000 percent 
last year, but the company paid zero in Federal corporate 
income taxes for 2020.
    Zoom, Amazon, and Netflix are not alone. The pandemic has 
been hard on many businesses, large and small, and many 
reported losses last year. But some with profits, indeed, even 
some with record profits, still avoided paying corporate income 
tax. So far my colleagues have found more than 50 Standard and 
Poor's (S&P) 500 corporations that reported profits but paid no 
Federal corporate income tax last year--a year when our lives 
depended on public resources for testing, research, and vaccine 
distribution.
    Let me point out some truths about corporate tax avoidance.
    First, lawmakers could address this, but have chosen not 
to. We knew about the corporate tax avoidance crisis long 
before Congress drafted a major tax overhaul signed into law by 
former President Trump in 2017. In fact, the figures I share 
with you today are the result of that law's first 3 years.
    Second, the tax avoidance is not due to the current 
economic crisis. The corporate income tax is a tax on corporate 
profits. It does not affect companies that are not profiting. 
Closing special breaks and loopholes would not hurt businesses 
laid low by the pandemic.
    Third, the corporate tax dodging hurts ordinary Americans 
by reducing resources to pay for things we all need. Trump 
administration officials claimed their corporate breaks would 
boost the economy. In fact, Gross Domestic Product (GDP) growth 
in the law's first 2 years was 2.9 percent and 2.2 percent, 
comparable to or well below 2015 levels. Proponents of the tax 
breaks also said benefits would be passed on to workers, 
claiming salaries would increase by $4,000 to $9,000 annually. 
This never happened, and the Congressional Research Service 
found that instead $1 trillion went to share buybacks, which 
mostly enrich wealthy stockholders.
    This matters to the Senate Budget Committee because you 
will soon be asked to decide what our Nation can afford to do 
to improve our economy and health going forward. Our research 
finds that corporations already have too many tax breaks, but 
some lawmakers want to preserve or even expand corporate tax 
cuts in the Trump law. As you know, the law includes a tax 
break, the expensing provision, that is set to expire. It also 
includes tax increases related to interest deductions and 
research expenses that have yet to take effect. Lawmakers call 
for extending the temporary break and repealing the upcoming 
increases, but both of those would be a mistake. Yet some of 
these same lawmakers also claim that we cannot afford to help 
people directly. They argue that we cannot make permanent the 
child tax credit expansion that is projected to reduce child 
poverty by 45 percent, or that we cannot invest in green jobs 
or we cannot invest in updating our failing infrastructure.
    I ask that instead of choosing corporate tax breaks, you 
choose to provide benefits directly to families in ways that 
clearly reduce poverty and improve lives. In my written 
testimony, I specify how we can stop corporate tax avoidance, 
including by passing some of the bills introduced by members of 
this Committee.
    We look forward to working with you on making our Tax Code 
work for all of us. Thank you so much for the opportunity to 
testify.

       [The prepared statement of Ms. Hanauer appears on page 55]

    Senator Graham. [Presiding.] Well, thank you very much.
    Our next witness is Maya MacGuineas, president of the 
Committee for a Responsible Federal Budget. She is a leading 
budget expert and a political independent. She has worked 
closely with members of both parties.
    Ms. MacGuineas, welcome.

   STATEMENT OF MAYA MACGUINEAS, PRESIDENT, COMMITTEE FOR A 
                   RESPONSIBLE FEDERAL BUDGET

    Ms. MacGuineas. Thank you so much. Chairman Sanders, 
Ranking Member Graham, and members of the Committee, thank you 
for inviting me here today.
    Let me start by saying that we have engaged in an 
unprecedented amount of borrowing in the past months, which is 
exactly what we should have been doing. This has been a 
terrible crisis, and while the most recent package was larger 
and less targeted than we thought was warranted, the overall 
COVID response has been very successful in fighting the 
pandemic, alleviating economic hardships, and fostering the 
recovery.
    The good news is that we seem to be coming out of the worst 
part. The bad news is we had a mountain of debt before the 
crisis, and we have a much larger mountain now.
    Going forward, we are on track to borrow $15 trillion over 
the next decade, assuming there is no new borrowing. And 
barring fixes, we will have four major insolvent trust funds, 
including both Social Security Trust Funds. This leaves people 
who depend on these programs vulnerable. It leaves our economy 
vulnerable to shifts in interest rates and foreign demand for 
our debt, and it leaves the Nation vulnerable as the national 
debt is a national security threat as well. So I appreciate the 
topic of the hearing because revenues will have to be a 
significant part of the solution.
    The main point I would like to make today is that they 
alone will not fix the imbalances we face or pay for the 
expansive agendas that are being discussed. So one of the 
tricky things about paying the fair share is, of course, that 
``fair'' is in the eye of the beholder. I personally think that 
making the Tax Code and our spending programs more progressive 
is the right thing to do in light of trends in inequality, 
mobility, security, and opportunity. So here are some options 
to consider.
    Clearly, we need to do something about the very large tax 
gap and ensure that people pay what they actually owe. We 
should look to reduce tax expenditures, which this year alone 
will lead to $1.8 trillion in lower revenues, and while some of 
these breaks are worthwhile, many are expensive, regressive, 
distortive, and we should make a number of changes. We should 
also consider changes to the estate tax and how we tax capital.
    On the corporate side, rate reduction to 21 percent far 
exceeded what most think was necessary in terms of 
competitiveness, and we can bring up that rate, though I have 
always thought the more sensible approach is to tax more on the 
individual side rather than the corporate side because capital 
is so mobile.
    One thing that we most certainly should not do is tax cuts 
further--we should not do further tax cuts for the well-off. 
For example, by restoring the State and local tax (SALT) 
deduction, which would provide an average of $40,000 in annual 
tax cuts for millionaires and billionaires. So I think that 
would be one of the most unwise tax policies we could consider.
    How far will this get us? To stabilize the debt at today's 
level of 100 percent of GDP over the next decade, which is very 
high, it would take $4 trillion in savings. This could be done 
by enacting all of President Biden's proposed campaign agenda: 
tax increases, higher tax rates, limits on tax expenditures, 
expanding the minimum tax, et cetera.
    If you want to finance his spending agenda as well, 
probably $11 trillion in new initiatives, you would have to go 
further from what is already a pretty aggressive set of tax 
increases, for example, by imposing a wealth tax, transaction 
tax, boosting individual and corporate rates as high as 50 and 
35 percent, respectively, and this would still leave a $6 
trillion hole.
    A more expansionary set of policies such as Medicare for 
All, free college, student debt cancellation would cost even 
more. And even if net revenues needed were able to be kept 
below $30 trillion, you would need to impose either a 32 
percent payroll tax, a 25 percent increase in all income tax 
rates, including raising the bottom rate to 35 and the top to 
62, a 42 percent Value-Added Tax (VAT), or doubling the 
individual and corporate income tax rates, or some combination.
    So the point is we need to look at both sides of the 
ledger. Going forward, the growth in deficits is driven 
primarily by growth in health, retirement, and interest, which 
are responsible for 86 percent of the growth in spending over 
the next decade.
    The types of measures we could consider on that side: 
measures to control health care costs for sure. That would have 
many benefits. Changes to save Social Security, which also can 
be used to make this program more progressive, same as the Tax 
Code. So we could start by means-testing or changing the 
benefit formula. Other changes will need to be made to save 
Social Security, including lifting the payroll tax cap, 
broadening the base, increasing the retirement age, and/or 
fixing Cost-of-Living Adjustments (COLA). Finally, we should 
reinstate reasonable discretionary spending caps at a level 
that we can actually stick to.
    So the fiscal hole is so deep that basically all credible 
options will need to be on the table, and the longer we wait, 
the longer this list will have to grow.
    Fiscal responsibility is not about big government or small 
government. It is about being willing to pay for the priorities 
you want to spend money on. Shifting costs to the future is at 
odds with the principle of serving as a good steward for the 
economy, the Nation, or the next generation, even when that is 
money well spent.
    So thank you again for hosting this hearing today. It is so 
important that we focus on these important issues.

     [The prepared statement of Ms. MacGuineas appears on page 71]

    Senator Graham. Thank you, Maya.
    Scott Hodge is next, president of the Tax Foundation. He is 
recognized as one of Washington's leading experts on tax 
policy, the Federal budget, and Government spending.
    Mr. Hodge.

     STATEMENT OF SCOTT A. HODGE, PRESIDENT, TAX FOUNDATION

    Mr. Hodge. Thank you, Ranking Member Graham, Chairman 
Sanders, and members of the Committee. I appreciate the 
opportunity to speak with you today.
    Let me suggest that there is no objective standard for what 
defines ``fair share.'' It is a purely subjective concept. But 
there are facts, which are objective, and the facts suggest 
that the U.S. tax and fiscal system is very progressive and 
very redistributive. Let us dive into some of those facts. We 
will start with individual taxes and move on to corporate 
taxes.
    According to the latest IRS data for 2018, the year after 
the Tax Cuts and Jobs Act, the wealthy in America now bear the 
heaviest share of the income tax burden than at any time in 
recent history. The data shows that the top 1 percent of 
taxpayers pays 40 percent of all the income taxes. By contrast, 
the bottom 90 percent of taxpayers, about 130 million 
taxpayers, combined pay less than 30 percent of all income 
taxes.
    It is hard to say that the Tax Code is rigged in favor of 
the rich when more than 53 million low- and middle-income 
taxpayers--that is one-third of all taxpayers--have no income 
tax liability because of the numerous credits and deductions 
that have been created over the last few decades.
    Since the creation of the child tax credit in 1997, the 
percentage of income tax filers who have no income tax 
liability has increased from 23 percent to nearly 35 percent. 
The doubling of the child tax credit in the Tax Cuts and Jobs 
Act knocked more than 4 million taxpayers off the income tax 
rolls.
    Redistribution is also at record levels. According to a 
recent Congressional Budget Office (CBO) report, the bottom 60 
percent of households in America receive more in direct 
Government benefits than they pay in all Federal taxes. 
Meanwhile, the top 20 percent of households paid $1.7 trillion 
more in taxes than they received in direct Government benefits. 
These figures demonstrate the results that one would expect 
from a highly progressive tax and fiscal system.
    Now let us look at the corporate side of the tax ledger. 
Now, if the Tax Code was rigged in favor of corporations, we 
would have more of them. Today there are about 1.6 million 
corporations, the fewest number in 50 years, and a million 
fewer corporations than there were in 1986. The likely reason 
for that decline is the fact that we have levied one of the 
highest corporate tax rates in the developed world for the past 
30 years, and the fact that, of course, corporate income is 
taxed twice--once at the entity level, and again at the 
shareholder level.
    But because of the growth in pass-through businesses over 
the last few decades, more business income is taxed today on 
individual tax returns than on traditional corporate tax 
returns.
    That said, an Organisation for Economic Co-operation and 
Development (OECD) study found that the U.S. tax system is 
still one of the most business-dependent tax systems anywhere 
as American businesses pay or remit 93 percent of all the taxes 
in America.
    More importantly, economic studies show that workers bear 
at least half of the economic burden of corporate taxes through 
lower wages, with women, low-skilled workers, and younger 
workers impacted the most.
    Another OECD study found that the corporate income tax is 
the most harmful tax for economic growth because capital is the 
most mobile factor in the economy. So raising the corporate tax 
rate would not only slow the economy, it would hurt marginal 
workers.
    The Tax Foundation's General Equilibrium Tax Model 
determined that raising the corporate tax rate to 28 percent 
would reduce long-run GDP by nearly 1 percent and eliminate 
nearly 160,000 jobs. Over the long term, we found that the 
model--or the model shows that middle- and low-income taxpayers 
would see their incomes fall by 1.5 percent.
    Raising the corporate tax rate to 28 percent would once 
again give the United States the distinction of having the 
highest corporate tax rate in the industrialized world after 
factoring in our State rates.
    This is no time to do that when France and Sweden and other 
countries are cutting their corporate tax rates to attract more 
investments and jobs. In fact, China's corporate tax rate is 25 
percent, and we do not want to lose ground against our biggest 
economic competitor either.
    Let me conclude by saying the best way to address 
inequality in America is through permanent tax policies that 
promote increased productivity, more jobs, higher real wages, 
and real economic growth. That is the kind of inclusive growth 
that all of us should be able to support.
    Thank you for your time and attention. I would appreciate 
any comments or questions that you may have. Thank you, Mr. 
Chairman.

        [The prepared statement of Mr. Hodge appears on page 78]

    Chairman Sanders. [Presiding.] Thank you very much, Mr. 
Hodge. And, again, I am going to apologize. There are a number 
of votes taking places on the floor, so you are going to see 
people disappearing for a while. Let us start the questions off 
with Professor Zucman.
    Professor Zucman, how does it happen that the top 1 percent 
in the United States are able to underreport about 21 percent 
of their true income? How do they do that? And what does that 
mean for tax revenue in our country?
    Mr. Zucman. Thank you very much, Senator, for your 
question. Indeed, according to a recent study that was 
published earlier this week, the top 1 percent underreport 
about 20 percent of its true income, and by contrast, the 
bottom 50 percent of taxpayers underreports about 7 percent of 
their true income. So income underreporting appears to rise 
quite significantly with income. And that is due to a number of 
reasons, but one reason I want to emphasize is the dramatic 
budget cuts that have happened from the IRS over the last 
decade that severely limit the ability of the IRS to audit 
high-income taxpayers extensively. And I think it is 
particularly important and, in fact, this should be the number 
one step towards a fairer tax system to increase the IRS budget 
for enforcement. This is essential to improve the actual 
progressivity of the tax system. And let me mention two areas 
where enforcement could be improved and two reasons why there 
is a significant tax gap at the top. One is that there is 
substantial evasion in complex business structures, including 
partnerships. And, second, there is continued offshore tax 
evasion, concealment of assets and income in offshore tax 
havens. These are two areas where there is a need for much 
stronger enforcement.
    Chairman Sanders. Professor, thank you very, very much.
    Let me go to Ms. Hanauer. Ms. Hanauer, in 2018, Amazon, one 
of the most profitable corporations in the world, paid nothing 
in Federal income taxes. People are shocked to hear that. How 
does that happen that a usually profitable corporation owned by 
the wealthiest guy in the world paid nothing in Federal income 
tax?
    Ms. Hanauer. Yeah, thank you so much for that question, 
Senator. I mean, I think that there are three primary ways that 
you see very profitable corporations avoiding income tax. One 
is the offshore corporate tax avoidance that Professor Zucman 
talked about, and we could address that by equalizing rates on 
domestic and foreign profits, or coming as close as possible to 
doing so. I know you have had a bill to address that, and I 
think that is a very good direction to go in.
    A second is in the more domestic way, which is that a lot 
of companies use accelerated depreciation or even expensing to 
avoid taxes on their assets, and we would favor instead having 
economic depreciation on those assets. And, again, I think that 
is something that you have proposed.
    And another way that we see a lot of domestic tax avoidance 
is having this stock options book tax gap where, when companies 
pay out compensation in stock options, they report one thing to 
the IRS and they report something entirely different to their 
investors. That does not make a lot of sense.
    So we agree with Professor Zucman that better funding the 
IRS is part of the solution, but so is addressing these three 
major forms of avoidance.
    Chairman Sanders. Thank you very much.
    Let me direct a question to Ms. Disney. Your father and 
uncle created one of the great iconic corporations in the 
world. Did the high tax rates of the 1950s and 1960s cause your 
family to work less hard and be less innovative?
    Ms. Disney. Thank you, Senator Sanders. I would offer that 
the proof for that is probably in the pudding. We know that the 
1950s and the 1960s were some of the most creative, successful 
years of the Walt Disney Company. They were never entirely 
working for the money, and so what the tax environment was 
really did not have an impact on how they went about their 
business.
    But over and above that, it is really important to remember 
that so much of what they did could not have been done without 
massive spending, for instance, on the highway bill in the 
1950s. Without the highway bill, you get no Disneyland, no 
Disney World. So, in fact, they benefited by the high-tax 
environment because of the massive Federal and State 
investments in infrastructure.
    Chairman Sanders. Thank you very much.
    Senator Graham.
    Senator Graham. Mr. Hodge, for about 30 seconds, would you 
like to comment on the Amazon situation?
    Mr. Hodge. Senator, I have never looked at Amazon's tax 
returns or their books. What I can say is that when companies 
pay very low taxes, generally what they have done is followed 
the rules that Congress has provided in the tax system. So in 
order to take things like accelerated depreciation or bonus 
expensing, they have to do the right thing. They have to buy 
new trucks, new equipment for their factories, new tools for 
their workers. That all increases GDP and economic growth, so 
that is a good thing.
    They also provide stock options for their employees, which 
makes their employees wealthier. So they are sharing the wealth 
of the company with their employees.
    All of those are in the Tax Code, and so they are doing the 
right thing, and that is all things that Congress has put in 
the Tax Code for companies to do.
    Senator Graham. Okay. Let us see if we can get a baseline 
of understanding about whether all these numbers are accurate 
or not. You say that 1 percent, the top 1 percent of the 
wealthiest people in the country pay 46 percent of income 
taxes. Is that right?
    Mr. Hodge. Forty percent of income taxes, yes.
    Senator Graham. Mr. Zucman--is that right?
    Chairman Sanders. Professor Zucman.
    Senator Graham. Professor?
    Mr. Zucman. Yes, this is correct, I believe.
    Senator Graham. Okay. That is correct. All right. That is 
good. Is it true that about 30 percent-plus of Americans pay no 
income tax?
    Mr. Hodge. Thirty-five percent of all Americans who file an 
income tax return pay zero income taxes because of largely tax 
credits such as the child tax credit, earned income tax credit, 
education tax credits and so forth.
    Chairman Sanders. That is Federal income tax, correct?
    Mr. Hodge. Federal income tax, that is correct.
    Senator Graham. Yes.
    Mr. Hodge. And according to CBO data, many of those are 
refundable tax credits, which actually completely offset their 
payroll taxes as well. Actually, according to CBO data, the 
bottom two quintiles have negative effective tax rates because 
of the generosity of those refundable tax credits.
    Senator Graham. Professor, do you agree with that 
statement?
    Mr. Zucman. Senator, I think when studying the 
progressivity of the tax system, it is important to take into 
account all taxes at all levels of Government, and----
    Senator Graham. I know. I just asked you a question. Do you 
agree with what he said?
    Mr. Zucman. Yeah, I agree with this.
    Senator Graham. Okay. Now, I understand where you are 
coming from, but I am just trying to get some data points here.
    What is the average corporate tax rate in the 
industrialized world, Mr. Hodge?
    Mr. Hodge. It is a little over 25 percent if you adjust it 
for economy size. The U.S. corporate tax rate right now, when 
you add the Federal rate of 21 percent plus the State rate, is 
about average in the industrialized world right now.
    Senator Graham. And the proposal to go to 35 percent, how 
does that affect our ability to create jobs in our economy here 
at home?
    Mr. Hodge. That would instantly make the U.S. having the 
highest overall corporate tax rate at around 32 percent, which 
would be much higher than even France right now, which is 
moving to 25 percent. Sweden is reducing their rate to around 
20 percent as well. That is the trend among global countries to 
make themselves more attractive for investment and jobs.
    Senator Graham. So, Ms. MacGuineas, are you with us? Ms. 
MacGuineas?
    Ms. MacGuineas. I am with you.
    Senator Graham. Okay. So if you took the entire wealth of 
the top 1 percent--their houses, their dogs, everything they 
own--how much money would that be for the Federal Government?
    Ms. MacGuineas. I am sorry, Senator. I do not know the 
answer to that offhand. I am hoping one of our other panelists 
does.
    Senator Graham. I think it is about $30 trillion. I cannot 
remember. But, you know, it is a fraction of what you would 
need to get us out of debt, is my question. Do you agree with 
that? If you confiscated all the wealth of the top 1 percent, 
that does not get the Nation out of debt. Is that a fair 
statement?
    Ms. MacGuineas. Yeah, I think you could not possibly 
confiscate all the wealth, and it would not be able to get us 
out of debt on the debt trajectory that we are on. That is 
correct.
    Senator Graham. Okay. And for us to get out of debt, we are 
going to have to adjust entitlement spending and maybe revenue 
generation, too. Is that correct?
    Ms. MacGuineas. Yeah, and I want to be sort of realistic. I 
do not think we are going to be able to get out of debt. I do 
not think we need to get completely out of debt. At this point, 
I----
    Senator Graham. No, a better--right, a better ratio.
    Ms. MacGuineas. Just get us to the point where the economy 
is growing faster than the debt instead of the reverse, and we 
are not going to be able to do that along with this expansive 
agenda without looking at all parts of the budget, so taxes on 
the well-off, but also probably broad-based taxes if we are 
talking about big expansions, and certainly changes on the 
spending side.
    Senator Graham. Yeah, the spending side is really driven by 
entitlements--is that correct?--mostly.
    Ms. MacGuineas. That is correct. Health care and 
retirement, and growth on interest as well.
    Senator Graham. So Social Security and Medicare have to be 
dealt with, or they are going to run into a major shortfall. Is 
that correct?
    Ms. MacGuineas. I think it is such an important point 
because by not having dealt with them over the past years, we 
have ignored the reality that we are an aging population; that 
every year we wait to deal with them, the costs become greater 
and fall more on the people who depend on them. And many of the 
things that could have helped to shore up those programs before 
are now not going to be enough, and so it is really dangerous 
how long we have waited, and we should not wait any longer. You 
are going to need to make changes----
    Senator Graham. Thank you.
    Ms. MacGuineas. --so that we do not have across-the-board 
benefit cuts.
    Senator Graham. Thank you very much.
    I am sorry, Mr. Chairman. I went over.
    Chairman Sanders. Thank you, Senator Graham.
    Senator Van Hollen will join us via video.
    Senator Van Hollen. Thank you, Mr. Chairman. I want to 
thank all of our witnesses here today.
    Ms. Hanauer, I think Mr. Hodge just acknowledged in 
response to Senator Graham's question that the figure he cited 
about 1 percent, the top 1 percent paying 20 percent--having 20 
percent of income but paying 40 percent of taxes did not 
include State and local government taxes. I think it does not 
include payroll taxes either. I know that your organization has 
looked at this. Can you tell us, when you factor those in, what 
the numbers are?
    Ms. Hanauer. Yes, thank you so much. I think that that is a 
very important point. We need to look at payroll taxes, State 
and local taxes, and sales taxes, and all of the taxes that 
people pay when looking at the progressivity of our Tax Code. 
And when we look at all of those things combined, we find that 
the Tax Code is very, very slightly progressive when we do not 
consider wealth. And so we are hardly in a position where we 
are taxing the rich. In fact, quite to the contrary, as Ms. 
Disney so eloquently pointed out, it is the wealthy who gain 
the most from our systems and our society, and we need to make 
sure that we can pay for all of the things that help to grow 
wealth in this country.
    Senator Van Hollen. Thank you. Now, I want to talk a minute 
about stepped-up basis because I am going to be introducing 
legislation in the coming days to deal with the issue of 
stepped-up basis and how very wealthy families can pass that 
wealth on from one generation to another without facing any 
taxes.
    Could you, Mr. Zucman, talk briefly to the importance of 
addressing this issue of stepped-up basis and what the 
consequences of allowing that loophole to continue would be?
    Mr. Zucman. I think this is indeed very important. Stepped-
up basis is a major loophole in the Federal Tax Code, and 
closing it would not only directly improve the progressivity of 
the tax system, but more importantly, it would make it much 
easier to increase the tax rate on capital gains, because right 
now high-income individuals can defer capital gains realization 
and benefit from this loophole stepped-up basis. By closing 
this loophole, it would become much simpler to increase capital 
gains taxation, so this is extremely important.
    Senator Van Hollen. Thank you. And, Ms. MacGuineas, first, 
thank you for mentioning the tax gap, the fact that the IRS has 
not received adequate funding. It has not only resulted in a 
lack of good service to taxpayers, but also a large annual tax 
gap. We know that about 70 percent of those unpaid taxes are 
from the very wealthy, so that would be a first important 
start.
    But I note you mention in your testimony the issue of 
looking at taxes on capital, individual capital, and what are 
your views on addressing the stepped-up basis problem?
    Ms. MacGuineas. I think looking at stepped-up basis is a 
perfectly appropriate and smart policy. We can debate what the 
appropriate tax rate would be for capital gains, but there 
should not be a huge loophole where people pay zero. And so 
improving this would be a way to raise revenues and make the 
Tax Code fairer and more efficient. And it was in the past that 
we did not have the administrative ability to do this so well, 
but I believe that now we do.
    Senator Van Hollen. Thank you. And, Ms. Disney, thank you 
for your testimony, your active participation in all these 
issues and trying to have a more fair and equitable society. 
Can you talk about how families have been able to use the 
stepped-up basis loophole over time?
    Ms. Disney. Thank you, Senator. I am a little bit of a 
poster child for the benefits of the stepped-up basis because 
my basis in--well, Disney stock is pretty nearly zero, and I 
can imagine this for someone like Jeff Bezos being an 
incredible boon to his capacity to pass wealth on untaxed to 
his children, because if I were to pass my shares off on to my 
children, with a basis of almost zero, and now at however many 
multiples of 190, whatever it is right now, that would be just 
offering them all that wealth appreciation with no tax at any 
time on its growth. So it does seem to me to be rather a big 
giveaway.
    Senator Van Hollen. Well, I appreciate that.
    Ms. Hanauer, I know we do not have much time left. Do you 
have a view on this very quickly?
    Ms. Hanauer. Yeah, absolutely, I think that this is 
absolutely the right way to go. It enables dynastic wealth to 
be passed on, and we have families in this country that cannot 
afford child care for their children. It would make much more 
sense to pass on our collective wealth in ways that enable 
every family to afford those necessities.
    Senator Van Hollen. Well, we have a draft piece of 
legislation that is almost finalized. As I said, we intend to 
introduce it shortly. I would like to circulate it to all the 
witnesses here for your comments in the coming days.
    Thank you, Mr. Chairman.
    Chairman Sanders. Thank you very much, Senator Van Hollen.
    Senator Kaine, I believe--I do not know that we have any 
Republicans on the line, so, Senator Kaine, your timing is 
perfect.
    Senator Kaine. Thank you, Mr. Chair. I wish my timing were 
always as good as it just was. And I thank you for calling the 
hearing. I think this is a very important one.
    To the witnesses, you have probably noticed we have been 
alternating between votes and other committee hearings, but I 
am glad to have you with us.
    I think there is a lot of big ideas about tax reform that 
are out there. I think Senator Wyden has an idea about tax 
reform. Senator Cardin has, I think, often introduced a 
comprehensive tax reform bill that would look at a consumption 
tax. Senator Johnson--and I do not know if he has been here 
today--has ideas about tax reform.
    I hope we might get into a big kind of theory or structural 
tax reform discussion. My worry about 2017, not only did I 
oppose the bill, but it was not really tax reform. I just 
viewed it as a set of tax cuts benefiting people at the top. 
And I am a little bit nervous. I think we will probably get a 
proposal from the White House dealing with taxes potentially as 
a pay-for for an infrastructure plan, and they might all be 
individual items that I approve. But I am not really sure it is 
going to be tax reform. I think it is just going to be a 
readjustment back from what we did in 2017. And I would love to 
have a significant discussion about tax reform.
    Woody Guthrie has this great line in a song called ``I 
Ain't Got No Home in This World Anymore.'' ``The gamblin' man 
is rich an' the workin' man is poor.'' And if you look at our 
Tax Code, I have always sort of felt that way about it, that if 
you gave it to a Martian and said, ``Tell us what it says about 
us,'' the Martian would say, ``You know, I have looked at that 
Tax Code, and it says that you like investment a lot more than 
you like work,'' because the tax rates applied to wages and 
salary are higher than they are applied to many forms of 
investment income, carried interest, capital gains, and others.
    I really like investment, but I like work every bit as 
much, and I just do not like the fact that we have a Tax Code 
that does not tax earnings at the same level as wages and 
salary, investment earnings, because it, A, skews the way we 
structure transactions, skews the way people choose to get 
paid; but it also has a significant disadvantageous and 
inequitable effect on lower-income people because they do not 
have the ability necessarily to get paid in ways that get the 
lower tax rate applied.
    So, really, my one question to you all is: Why not have a 
Tax Code that basically kind of treats income as income and 
applies the same tax rates to all kinds of income--capital 
gains, interest, dividends, carried interest, wages, and 
salaries. Wouldn't that be a better way to both simplify and 
make a Tax Code that is more equitable?
    Ms. Hanauer. Yeah, thank you----
    Ms. MacGuineas. Should I just jump in?
    Senator Kaine. Please.
    Ms. MacGuineas. I will jump in, Senator.
    Ms. Hanauer. Oh, sorry. Go ahead.
    Senator Kaine. So we will go Amy and Maya and then Scott, 
and I do not know, there might be a fourth person, too, but 
that is my only question.
    Ms. Hanauer. Thank you so much. I really appreciate that 
question, and I think you are absolutely right. The disparity 
in the way that we tax earnings from work as opposed to 
earnings from wealth does not make any sense, because, you 
know, people who get up every day and work hard deserve to have 
those earnings treated as favorably as somebody who simply 
watches their investment portfolio grow. And I think it leads 
to great economic divides in this country. It leads to wealth 
that gets passed on from generation to generation. It also 
leads to deep racial divides because we know that Black and 
Latino families have not had the same opportunity to build 
wealth in housing and in stocks in the same way that White 
families have as a whole.
    So what we really need to do is to restore that equity as 
you are describing, and I appreciate your interest in that 
issue.
    Senator Kaine. How about to Maya and then Scott? I think 
Scott wanted to say a word.
    Ms. MacGuineas. Yes, thank you, Senator. I was nodding 
through the whole question because I think it used to be so 
important that we incentivize saving and investments more so 
than it is today, and we really need to focus on incentivizing 
work. I think that is true both in the Tax Code and also on the 
spending side of the budget.
    What I really wanted to add is your point about 
comprehensive tax reform is so critical because our entire 
economy is changing massively, whether it is still ongoing 
issues in globalization, technology, the future of work. We 
have so many tax breaks that make no sense. We have to clean 
this up and do a big overhaul, keeping in mind issues of 
competitiveness, economic growth, changes in technology, and 
income inequality. So I really welcome that approach.
    Senator Kaine. Great. Mr. Hodge?
    Mr. Hodge. Yes, Senator, what you have described is the 
Estonian tax system, which has on the corporate side a 
distributive profit tax, so it is not taxed when it is kept 
within the company, but only taxed when it is distributed to 
shareholders. They have a flat income tax rate of 20 percent 
and then a flat corporate rate of 20 percent, and so you 
basically tax the same income only once, and there is no level 
of double taxation like what we have in our system.
    Senator Kaine. I like that idea. I would still have 
progressive rates, but I do like applying the same rate to 
income wherever it comes from.
    Mr. Hodge. Australia does that, and their imputation system 
has a progressive system, but it applies a credit for the 
corporate taxes paid to individual shareholders, so it 
equalizes that. It is quite a good system.
    Senator Kaine. Great. Thank you, Mr. Hodge.
    Thank you, Mr. Chairman.
    Ms. Disney. I would love if I could just----
    Senator Kaine. Please.
    Ms. Disney. Oh, thank you. I just wanted to say, as a 
beneficiary of the favorable capital gains tax rate and the way 
that just in general we privilege ownership over work, I get 
the same amount of money at the end of every day whether I have 
been sitting on my tuchus filing my fingernails or whether I 
have actually been a contributing member of society. And I 
think it is really important to remember that the Tax Code is 
as much a message as anything else, and the message that we are 
sending right now with our Tax Code only reinforces the idea 
people have of themselves at the very high end of society that 
they are somehow better, more worthy, more valuable to society, 
when, as we know, it is quite the opposite. The people we need 
most of all and called for a year now ``essential'' are the 
people who do the work every day.
    Senator Kaine. Ms. Disney, thank you.
    Mr. Chair, I just want to say my grandfather, Leo Michael 
Burns, grew up with your grandfather, Walt Disney, in 
Marceline, Missouri.
    Ms. Disney. Fabulous.
    Chairman Sanders. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman. I could not be 
more pleased to be following the comments from Senator Kaine. 
There is an awful lot of area of agreement. I think I mentioned 
in our wealth disparity hearing that income ought to be taxed 
as income. Income is income. And as a result, I do not think it 
is any secret I was not a real fan of the 2017 tax reform. I in 
the end voted for it because I think we needed a more 
competitive tax system, and I do not think we were. I do not 
necessarily agree with Ms. MacGuineas when she said that we 
overshot the corporate rate. But during that time frame, I was 
talking to people like Senator King and Senator Kaine as well 
as a lot of economists on all sides of the political spectrum 
about what I called the ``true Warren Buffett tax.'' Close to 
95 percent of American businesses have their business income 
tax at the ownership level. I think, Maya, you were talking 
about the fact that it is best to tax individuals.
    So what I was proposing is make all business income taxable 
at the individual level. Turn C-corps into pass-throughs. I 
actually talked to Mr. Buffett about this because I was going 
to call it the ``true Warren Buffett tax.'' He was intrigued by 
it. I am not saying he supported it, but he was intrigued 
enough to put me in touch with his shareholder services company 
to iron out the details. We had about, I do not know, an hour-
long meeting with three experts from Joint Committee on 
Taxation. I think at the end of that meeting, I think everybody 
decided that, yeah, this is a change, but what those 
shareholder services companies have to do for companies and 
shareholders is far more complex than what I was contemplating.
    So this is doable, and the advantage of it, let me just 
quickly lay out--and, Mr. Hodge, you obviously were working on 
this. You helped me score it. I would like for you to try and 
score this again. But the simple way of talking about this is 
let us say a little old lady in Oshkosh, Wisconsin, owns a 
share of stock, and $100 of income is attributed to that share. 
So she is going to get something like a W-2 that says you have 
to report $100 of income. But the corporation who has already 
deposited, like payroll withholding, $25 on your behalf.
    Now, the benefit here is the tax has already been paid. 
Again, Mr. Hodge, you were saying 93 percent of taxes are 
collected from corporations. So we have got the tax collected. 
But that little old lady, if she has only got a 10 percent tax 
rate, she will be able to claim a 15 percent refund.
    Now, Warren Buffett, he will have to pay more taxes, which 
means there will be a little bit more pressure for corporations 
to divest themselves of all this pent-up capital. They will 
have to pay more dividends for more efficient allocation of 
capital. This would incentivize low-income earners to become 
shareholders. Again, it will force corporations--not to pay 
tax, the individuals are paying tax, but to distribute income 
for more efficient allocation. Now, if there are all kinds of 
things for that corporation to invest, they can sell more 
stock, and they will be able to get capital. They can also 
borrow money.
    So, Mr. Hodge, I know we spoke about this. First of all, 
let me ask you, are you willing to do another round? I think I 
have got some people interested in this. I just met with my 
White House liaison and gave her all the information as well. 
They were going to have further discussions. Can we count on 
the Tax Foundation to look at this and potentially score it?
    Mr. Hodge. Absolutely, we would be delighted to work with 
your team on it. I think moving toward what you might call an 
integrated system for corporate taxation is the right approach, 
removes that double layer of taxes, and then provides some 
equity there, as you suggest, with a more progressive rate on 
the individual side.
    Senator Johnson. And, by the way, a very small percentage 
of C-corporation income is ever double taxed. So much of it is 
owned by nonprofits, foundations, pensions, that type of thing. 
So the double taxation of dividends just does not happen all 
that much. So, again, there is a lot of income that we never 
tax, and, quite honestly, some of this massive wealth has been 
accumulated because of the C-corp status, because you never pay 
dividends, the stock price just increases, and it is never 
really subjected to tax ever. So this also would eliminate that 
tax avoidance problem.
    Ms. Hanauer, your organization also does scoring. Correct?
    Ms. Hanauer. I do not know that we exactly do scoring, but 
we do analysis of the Tax Code.
    Senator Johnson. Okay. Well, I would love you to take a 
look at this as well if you are interested. I would love to 
meet with you if this----
    Ms. Hanauer. We would absolutely love that. And I just 
should say I lived many happy years in Wisconsin, had my first 
child there, so it is nice to meet you.
    Senator Johnson. Why did you leave?
    Ms. Hanauer. For a job.
    Senator Johnson. Okay. That is a good answer.
    Maya, do you want to just weigh in on this a little bit?
    Ms. MacGuineas. I would just add I have been a supporter of 
this approach forever. I read many of the old corporate 
integration approaches. There are clear problems about making 
sure people do not find different loopholes, but, yes, this is 
what we should be shooting for. And, you know, Senator, I am 
always pleased when you are working on big, bold ideas. I am 
excited to hear you are doing this.
    Senator Johnson. Well, thank you all, and thank you, Mr. 
Chairman.
    Chairman Sanders. Thank you, Senator Johnson.
    Senator Lujan.
    Senator Lujan. Thank you very much, Mr. Chair. I appreciate 
you calling this important hearing, and also Ranking Member 
Graham.
    When I talk to my constituents, many are struggling to keep 
a roof over their head, food on the table, and their businesses 
open. As President Biden has said, America is facing a national 
emergency that requires an aggressive response from Congress. 
The American Rescue Plan that I voted for puts Americans on the 
right path to recovery. Under the American Rescue Plan, 
families in New Mexico with two married adults and two children 
receive $5,600. This is a one-time payment in helping New 
Mexico families who struggle to get a car, to safely look for 
work, to pay for rent, or even to get food on the table for 
their children. However, as you know, some of my Republican 
colleagues have suggested that we cannot afford to provide 
meaningful assistance to struggling families.
    Ms. MacGuineas, in my short time that I have, and if there 
is anything you want to submit to the record, I would invite 
you to do so, but I am looking for some numbers here. I have a 
few questions for you. Do you know how much the Republican tax 
bill of 2017 provides in tax cuts to a person making $200,000 
this year, in 2021?
    Ms. MacGuineas. Okay. I am going to make sure we submit the 
proper answer, but I think it is roughly--it would be roughly 
$5,000 this year.
    Senator Lujan. So the number that I have is, on average, 
$6,500, so I would be happy to chat with you about that, and we 
will----
    Ms. MacGuineas. If you include the corporate tax incidence 
as well, I think.
    Senator Lujan. I appreciate that.
    Ms. MacGuineas. I hope that makes sense.
    Senator Lujan. Ms. MacGuineas, do you know how much these 
tax cuts helped those making $1 million? How much will they 
receive from the Republican tax bill?
    Ms. MacGuineas. And if you are counting that corporate part 
as well, probably in the neighborhood of $50,000.
    Senator Lujan. That is what I have, about $51,000. Is that 
a one-time payment, or is it annual?
    Ms. MacGuineas. That would be every year, and the past 
years, every year going forward until these tax cuts expire.
    Senator Lujan. So every year someone making $1 million gets 
about $51,000 from that tax cut in 2017. Okay.
    Ms. MacGuineas. Also, for the record, if we do SALT, a lot 
of them would be getting another $40,000 tax cut as well.
    Senator Lujan. Okay. Mr. Zucman, what is the average tax 
rate for the median taxpayer in the United States?
    Mr. Zucman. It is about 28 percent today.
    Senator Lujan. And, Mr. Zucman, which income group has the 
lowest tax rate in the United States?
    Mr. Zucman. According to our estimates, it is billionaires, 
the top 400 richest Americans who have the lowest effective tax 
rate today in the U.S.
    Senator Lujan. So the top 400 richest people in America 
have a tax rate of 24 percent, and the average tax rate for the 
median taxpayer--that is middle-income families--is 28 percent? 
It is 4 percent higher?
    Mr. Zucman. Correct.
    Senator Lujan. Is that tax system progressive or 
regressive?
    Mr. Zucman. It is a tax system that is not progressive. It 
is mildly progressive up to the very, very rich, and then 
becomes deeply regressive at the very top end.
    Senator Lujan. Can you just help middle-income families 
back in New Mexico understand this a little bit more?
    Mr. Zucman. Yes, absolutely, Senator. So what is really 
important to understand is that all Americans pay a lot in 
taxes, including working-class Americans. They pay payroll 
taxes. They pay sales taxes. Very wealthy Americans pay the 
income tax, but for billionaires the income tax is only a very 
small fraction of their true economic income. Or to put it 
differently, it is just very small compared to the profits of 
the company they own and compared to their wealth. And that is 
why at the end of the day you end up in a situation where 
billionaires as a group have a lower effective tax rate than 
the middle class.
    Senator Lujan. I appreciate that response.
    Mr. Chairman, it seems to me that the richest amongst us--
and I congratulate them for their wealth. They have done well 
for themselves. But when the richest amongst us in America pay 
the lowest rates, the richest amongst us have over $50,000 more 
every year from the 2017 tax bill, the Republicans' tax plan 
cost Americans $1.8 trillion and largely benefited the largest 
corporations and the wealthiest 1 percent of Americans, however 
our colleagues on the other side of the aisle now insist that 
the United States cannot afford to provide a meaningful relief 
to these middle-class families, including in New Mexico, it 
just seems wrong to me. The 24, 28, those numbers just do not 
add up. And I am hopeful that we can all work together to 
provide relief to families back home that I represent.
    Thank you, and I yield back.
    Chairman Sanders. Senator Lujan, thanks very much.
    Senator Toomey.
    Senator Toomey. Yeah, I would just point out to my 
colleague from New Mexico that he might want to take a look at 
the approximately $4 trillion that Republicans voted for over 
the course of last year, the large majority of which were 
direct payments in one form or another to low- and middle-
income people. To suggest that Republicans are unwilling to do 
anything is to simply choose to ignore the very recent history.
    I could carry on about the best economy of any of our 
lifetimes which occurred just before the pandemic hit and 
included a narrowing of the income gap, a narrowing of the 
wealth gap, accelerating wages, full employment, more job 
openings than there were people looking for work; and maybe 
some people would suggest that that is all a big coincidence 
that that happened right after we did a profound tax reform 
that made our Tax Code much more competitive. But I do not 
think that was the case. I think it was related very much to 
making--and I would suggest that our Democratic colleagues 
might think about wanting to go back to the best economy of our 
lifetime, want to go back to accelerating wage gains for low-
income workers, because that is what I would like to do. I 
would like to get back to the most successful economy we had in 
my lifetime, and it was very much partly a result of the tax 
reform we did.
    I also want to correct the wild mischaracterization that we 
do not have a progressive Tax Code. In 2018, if you look at the 
share of who paid Federal income taxes for starters, the top 1 
percent of income earners earned about 21 percent of all the 
income--21 percent. They paid 40 percent of all the taxes. 
Well, gee, hard to say that people are not paying their fair 
share.
    But look at the bottom 50 percent. The bottom 50 percent 
pay 2.9 percent. So the top 1 percent pay 40 percent of all 
taxes, income taxes collected. The bottom 50 percent pay 2.9. 
If you include all Federal taxes and transfer payments through 
the Tax Code, the top 1 percent in 2018 paid about 30 percent; 
the bottom 50 percent of taxpayers have a negative effective 
tax rate because they get more back from the Tax Code than they 
pay in. Those are just the facts.
    Now, you could decide that you want to make sure to punish 
successful and productive people more and more, and you could 
make that value judgment. But, please, let us at least be 
honest about this.
    Mr. Hodge, do you think it is fair to say that the U.S. Tax 
Code is not progressive?
    Mr. Hodge. It is exceptionally progressive, Senator, and as 
I outline in my testimony, there is a great deal of 
redistribution that goes on through both tax and spending 
policy. What CBO data shows is that between taxes and 
redistribution, the top 20 percent are seeing $1.7 trillion 
worth of their income being transferred from them to other 
households.
    Senator Toomey. Right. I appreciate that. I am going to run 
out of time, so just a very quick question. In your studies, is 
the American Tax Code actually even more progressive than many 
of the OECD countries, for instance?
    Mr. Hodge. An OECD study found that the U.S. Tax Code, 
Income Tax Code, is one of the most progressive tax systems in 
the industrialized world.
    Senator Toomey. So we are being told that we do not have a 
progressive Tax Code when, in fact, we have the most 
progressive Tax Code. That is amazing.
    Now, here is one of the other ironies. It is our Democratic 
colleagues that are pushing for a provision that is absolutely 
factually regressive, and that is the repeal of the SALT cap. 
Now, as you recall, SALT is the acronym for ``State and local 
taxes,'' and while I would have preferred that we not allow any 
deduction for State and local taxes, the compromise we had to 
settle for was a $10,000 limit.
    Now, our Democratic colleagues want a bigger limit or no 
limit at all, and what the ability to deduct State and local 
taxes does is it simply transfers the tax burden to lower-
income people who do not have large State and local taxes to 
pay, and it takes it away from wealthy people who do.
    So, you know, if you live on he Upper East Side of 
Manhattan and you have got a multi-million-dollar home, you 
have got a lot of State and local taxes. And if you can deduct 
all that, that means that the middle-income family in Dauphin 
County, Pennsylvania, has to pay that much more.
    Let me ask Ms. MacGuineas, am I getting this wrong, or do 
you agree that increasing the SALT deduction would be 
regressive?
    Ms. MacGuineas. Senator, you are so, so right on that. 
Getting rid of the SALT cap is really one of the more 
regressive tax cuts we could think about. I do not know why it 
is on the table. It would leave huge annual tax cuts for 
millionaires and billionaires, and the Tax Code, like you said, 
it is progressive. It is okay to want a more progressive Tax 
Code, but you should not do that while pushing for progressive 
tax cuts or imposing progressive changes on the spending side, 
I would add.
    Senator Toomey. Yeah, and if your argument is that we need 
to take the world's most progressive--one of the world's most 
progressive Tax Codes and make it still more progressive, okay, 
we can have that discussion. But, please, let us not suggest 
that we do not have a progressive Tax Code. I mean, that is 
just patently ridiculous.
    I would also again stress there is actually a lot to be 
said for having an economy where there are more job openings 
than there are people looking for work, where the income 
differential is narrowing, where it is narrowing at an 
accelerating pace. I have yet to hear someone tell me what is 
wrong with the direction we were heading in. We had a hearing 
on this Committee a few days ago where the data set that was 
presented to us was cherry-picked to create a misleading 
impression that the income differential was widening when, in 
fact, for 10 years now it has been narrowing.
    All I am saying is I think that is a good thing, and I 
would like to get back to a booming economy where people are 
experiencing that accelerated earning and narrowing the income 
and wealth gap.
    Ms. MacGuineas, you looked like you were going to say 
something?
    Ms. MacGuineas. Well, yes, but you are not going to like my 
answer because I take that differently. As you know, we have 
disagreed on the tax cuts. But I think a lot of that growth, 
which was tremendous, particularly what it was doing to the 
wage gap, was driven by the demand side and the huge deficits 
and kind of the short-term stimulus, which cannot be sustained 
over the long term. So if you are debt financing everything--
and we borrowed $4.7 trillion in taxes and spending increases 
during that period--huge burst for the economy, but not 
sustainable and damaging in the longer term would be the point 
I would make.
    Senator Toomey. Well, you are right. We disagree about 
that.
    Ms. MacGuineas. We disagree. I know.
    Chairman Sanders. Okay.
    Senator Toomey. Thank you for your indulgence, Mr. 
Chairman. I ran over.
    Chairman Sanders. Okay. Thank you, Senator Toomey.
    Senator Warner.
    Senator Warner. Well, thank you, Mr. Chairman, and let me 
just say that I have great respect for my friend Senator 
Toomey, but I have got to tell you, in the last presentation, 
there was some cherry-picking going on, and let me agree with 
him that on the SALT tax, I agree with him and my good friend 
Maya MacGuineas. But the notional idea that somehow we have 
this progressive tax system in our country, when you look at 
income tax, you are right, many Americans do not make enough to 
afford income tax. But when you look at the overall tax burden 
that low- and moderate-income Americans pay, when you add in 
sales tax, when you add in Federal Insurance Contributions Act 
(FICA), when you add in Medicare, when you add in a gas tax, 
when you add in a host of other taxes and fees, there is no 
doubt at all that our tax system does not rank as a system on 
the more progressive side. And the level of transfer payments--
now, I candidly probably a little bit agree with Senator 
Toomey. I do not want our transfer system to kind of duplicate 
the full European system, but I think, you know, let us not 
cherry-pick our numbers here when we are going to have this 
kind of overall discussion about Tax Code and fairness.
    I do want to go to my friend Maya MacGuineas, which, again, 
I agree we have spent close to $5 trillion in the last year, 
borrowed money. I think in the long run history would say it 
was appropriate to recover both from COVID and get the economy 
reworking. But that was exacerbated by the fact that we had 
spent $2 trillion of additional borrowed money on a tax cut 
that disproportionately did benefit people like me and 
businesses at the top. And as a matter of fact, we now have 
corporate tax revenues the equivalent of 1.1 percent of our GDP 
in 2019. That is the lowest of any in the G-7, and I have been 
pressing my staff on this because I thought they were saying it 
is also 33rd out of 35 on OECD. I actually thought that was our 
overall tax revenue rate, not our corporate tax rate, since 
many other countries have a nominally lower corporate tax rate, 
but they then have a VAT to make up for it. But, no, they have 
said, you know, even at the corporate rate, we are 33 out of 35 
in OECD nations.
    So, you know, Ms. MacGuineas, how are we ever going to be 
sustainable with these corporate rates and revenue coming out 
of industry at this size that is so small compared to all of 
our competitors? And how is that ever sustainable? At what 
point--now, again, we have thought that that point was going to 
happen sooner than it has, that this does not just blow up in 
our face?
    Ms. MacGuineas. Thank you for the question, Senator, and I 
agree with you on so many of those things. We did think that 
the last recovery bill was more than it needed to be and not as 
well targeted, but overall we did such an important job of 
being able to borrow to help with this, and thankfully we were 
able to borrow despite the fact that in the 3 years when the 
economy was strong prior to then, we borrowed $4.7 trillion--$2 
trillion from tax cuts, but also another $2 trillion from 
spending cuts and another $500 billion in tax cuts. It was a 
free-for-all, and this has led our debt situation to be 
unsustainable and leaving us in a vulnerable situation where if 
interest rates go up by 1 percentage point, the interest 
payments we have will go up--they are already $300 billion a 
year, $2,400 per family. They will go up by another $250 
billion per year, 1 interest percentage point.
    So we are going to have to get on top of this fiscal 
situation, and we also, frankly, are underinvesting, so there 
are going to have to be new initiatives, and we are going to 
have to reform our social contract. But I do not think we 
should overpromise how we can do this just on taxes for the 
very rich. I think it makes sense to start there. I think we do 
have to look at the corporate tax rate, which at 21 percent is 
too low, though I do not think it should go back to where it 
was before. But we are also going to have to look at the 
spending side of the budget, fixing Social Security is a must, 
and we will probably have to do broad-based taxes.
    So I feel like the more things we are talking about 
honestly, the closer we will be to ending the vulnerabilities 
we have from this unstable fiscal situation and this weak 
fiscal balance sheet.
    Senator Warner. Well, I agree with you. I also think, you 
know, when we have a Federal spend rate before COVID that had 
research and development (R&D), infrastructure, and any kind of 
training programs as less than 10 percent of our Federal spend, 
that is a bad business plan that I would never invest in.
    I know my time is out, Mr. Chairman, but I will submit for 
the record a question of Mr. Zucman about the fact that 
whatever intentions that came out of the so-called tax reform 
of 2017, the guilty in many terms that most Americans do not 
recognize unfortunately resulted, particularly in terms of R&D 
and intangible assets, in actually companies moving more of 
their operations offshore, not back to America. Senator Brown, 
Senator Wyden, and I are working on proposals to try to correct 
that. We appreciate the opportunity to have this issue brought 
to our forefront, Mr. Chairman.
    Senator Padilla. [Presiding.] Thank you.
    While Senator Sanders is off to vote, I will continue this 
hearing and begin with my statement. While millions of working 
families in California and across the Nation are struggling to 
keep up with their bills, stay in their homes, and put food on 
their tables after decades of stagnant wages and the 
devastating impact of the current economic crisis due to the 
pandemic, the Federal Tax Code clearly works well for the 
wealthy and for large corporations.
    Just looking at the last couple of decades, under 
Republican administrations Congress has passed tax cuts that 
have largely benefited top earners and business interests. The 
2017 Republican tax cut alone was particularly regressive, 
providing more than $1 trillion in tax breaks to corporations 
and the top 1 percent of earners. This law has allowed 
billionaires to pay lower effective tax rates than many working 
families. It has also--and this is equally important--failed to 
deliver on the promises of a business investment boom, even 
before the pandemic.
    By contrast, President Biden and congressional Democrats 
passed the American Rescue Plan which is delivering critical 
tax relief to working families by delivering direct payments, 
improving the earned income tax credit, and enhancing the child 
tax credit that will cut child poverty in half this year.
    As we continue our work to defeat COVID-19 and reopen our 
economy safely, pursuing a progressive tax agenda is critical 
to building a more equitable and prosperous future for all 
Americans.
    Now, I do have an area of questioning for Professor Zucman 
and Ms. MacGuineas relative to the IRS. Following nearly a 
decade of funding cuts, the Internal Revenue Service's capacity 
to enforce our tax laws, particularly for the wealthiest 
corporations and the wealthiest families, who tend to have more 
complex filings, has been severely diminished. In the past 10 
years, the agency has been forced to eliminate 22 percent of 
its staff, and funding for enforcement activities has dropped 
by about 30 percent. These cuts have primarily benefited the 
wealthiest households and corporations that failed to pay their 
taxes in full.
    A 2019 study found that 70 percent of owed but unpaid taxes 
equaling $267 billion is explained by the underpayment by the 
top 1 percent. Since 2012, the number of tax returns filed by 
millionaires that were audited fell by 72 percent. During that 
same period, the share of companies with more than $20 billion 
in assets that were audited fell 59 percent.
    Investing in the IRS would not only support fairness and 
the integrity of the Tax Code, but it would also help reduce 
the deficit. The Congressional Budget Office estimates that 
increasing IRS funding by $20 billion over the next 10 years 
would actually reduce the deficit by $40 billion due to the 
collection of additional unpaid taxes.
    So, Professor Zucman and then Ms. MacGuineas, can you 
explain how increasing funding to the IRS is critical to 
instituting a fairer tax system?
    Mr. Zucman. Absolutely, Senator. I fully agree with what 
you said. I think that there is an urgent need to increase 
audit rates and fund more thorough audits for high-income and 
high-wealth taxpayers. The data that we have today suggests 
that the top 1 percent highest earners in the U.S. underreport 
about 20 percent of their income. So that closing tax evasion 
just for that group, collecting all the taxes evaded by the top 
1 percent alone would raise more than $170 billion annually, 
each year, in extra Federal income tax revenues. To me, this is 
the number one step to making the tax system more progressive, 
and let me mention there is broad agreement among economists 
that better funding the IRS more than pays for itself. So this 
is really critically important.
    Ms. MacGuineas. Yeah, Senator, I am strongly in this camp 
in that I am very concerned that overall the sort of--that you 
can have--that the ``you do not have to pay for anything'' 
fairy seems to be taking over thinking and lawmakers on the 
idea that tax cuts pay for themselves. No, they do not, and we 
are going to start hearing that about infrastructure, and as 
much as we need to invest in this country, it does not pay for 
itself. And we have even seen studies that if you deficit-
finance it, economic growth could be negative.
    But if there is one thing that probably does pay for 
itself, it is funding appropriately for the IRS to close the 
tax gap and things like data analysis technology. And so I do 
think looking at this, particularly when you compare it to the 
other revenue options once we acknowledge we are going to have 
to raise revenues, it makes really good sense to start with 
making sure we kind of abide by the rule of law and collect the 
taxes that we are owed.
    Senator Padilla. Ms. MacGuineas, as a follow-up, are there 
any specific areas of investment to the IRS to expand capacity 
that you would recommend or prioritize?
    Ms. MacGuineas. Absolutely. I think looking at different 
kinds of technology that we can figure out where the gap is 
likely to be, understand where we have had tax gap issues 
before, and enforce an audit appropriately makes a lot of 
sense. I also think third-party reporting will play a critical 
role in all of this.
    There is a huge gap there. I do not want us to overpromise. 
We are not going to be able to collect it all. People evade 
taxes as quickly as we can figure out how to enforce them. But 
there is so much better reporting now and data tracking that it 
will be much easier to do so.
    Senator Padilla. A last question. I imagine there are a 
number of States that have taken this philosophy and this 
approach. Are there any examples, any best practices, again, 
investing in more thorough and equitable enforcement of tax 
laws and policies that have reaped good results that we should 
consider?
    Ms. MacGuineas. If you are asking me, I apologize. I do not 
know which States have the best practices. I do know we need to 
do a lot of updating in our States based on our unemployment 
issues as well. But, in general, more auditors, more customer 
service, things that are helping taxpayers so that they do not 
make mistakes in the first place, all of those investments are 
likely to have high returns.
    Senator Padilla. Professor Zucman, is there anything you 
wish to add?
    Mr. Zucman. I think Scandinavian countries are particularly 
good at enforcing their tax laws, thanks to a systematic 
collection of third-party reporting information which allows 
them to send pre-populated tax returns to taxpayers. With a 
pre-populated tax return, you will reduce evasion possibilities 
significantly, and so I think that is a good practice that the 
U.S. should try to emulate.
    Chairman Sanders. [Presiding.] Senator Whitehouse.
    Senator Whitehouse. Thank you very much. I appreciate this. 
Thank you, Chairman. I am sorry to come late, but we had some 
partisan festivities in the Judiciary Committee this morning 
that pulled us over the time.
    Let me ask Professor Zucman, if I may, fair to say that 
underreporting is rampant in our tax system and that there is 
abundant revenue that could be collected from simple 
enforcement measures?
    Mr. Zucman. Thank you, Senator. I think this is fair to 
say. According to the best available estimates, the top 1 
percent underreport about 20 percent of its income. I am not 
saying that it would be possible----
    Senator Whitehouse. That was the question I was about to 
get to, which is you agree that underreporting is rampant and 
that there is significant revenue to be collected from simply 
enforcing the existing laws. Correct?
    Mr. Zucman. I do agree with this statement.
    Senator Whitehouse. And then, further than that, your 
evidence seems to show that underreporting is bigger and worse 
higher up the income scale than it is for people who are 
ordinary wage earners. Is that also true?
    Mr. Zucman. This is absolutely correct, Senator.
    Senator Whitehouse. And if you are one of those high 
earners, what is your likelihood of being audited compared to 
that of, say, a poor earned income tax credit recipient? Where 
is the IRS dedicating its attention?
    Mr. Zucman. Unfortunately, today the likelihood is about 
the same. Due to dramatic budget cuts, the IRS has reduced its 
audit rates on the wealthy very significantly over the last 
decade.
    Senator Whitehouse. And it is likely to be a slightly more 
complicated scheme at the high-income level than from an earned 
income tax credit recipient. Correct?
    Mr. Zucman. Absolutely.
    Senator Whitehouse. So it takes a little bit more skill on 
the part of the auditor?
    Mr. Zucman. This is true.
    Senator Whitehouse. Okay. So let us move it up one last 
step, and that is people who are not just underreporting but 
are actually setting up mechanisms to avoid taxes, where there 
is really deliberate planning underway, whether it is through 
shell corporations or through offshore entities or through 
trust devices? Is that a separate and more rampant category for 
enforcement?
    Mr. Zucman. There is significant danger among the wealthy 
that involves such sophisticated schemes--offshore wealth and 
income that is not properly reported, evasion through complex 
businesses, networks of personally held businesses. And 
uncovering that form of evasion requires specific resources 
within the IRS to fund specialized audits.
    Senator Whitehouse. Precisely. This is the hard work. This 
is more complicated. Correct?
    Mr. Zucman. Absolutely.
    Senator Whitehouse. And with respect to shell corporations, 
we just gave Treasury a tool to find who the true beneficial 
owners are. What is your expectation about the IRS taking 
advantage of that information to help protect against tax 
evasion and avoidance?
    Mr. Zucman. I think there is great potential there. It is 
absolutely correct that Treasury and the IRS have access to 
more information about the owners of shell companies, about the 
owners of foreign bank accounts, and by putting resources and 
systematically using that information, it would be possible to 
reduce tax evasion among the rich quite significantly.
    Senator Whitehouse. So I do not know if your expertise 
extends this far--this will be my last question--but let us 
just say that if we were to crack down on offshore locations 
that allow people to hide their income and their assets from 
not just the U.S. authorities but from any authorities, would 
there be collateral benefits to that transparency, to shining 
that spotlight beyond just U.S. tax collection?
    Mr. Zucman. Oh, yes, absolutely there would be benefit for 
other countries as well if there was an effort on the part of 
the U.S. at fostering more financial transparency. There is a 
lot of financial opacity today. Financial transparency would 
benefit the world as a whole.
    Senator Whitehouse. Thank you, Chairman, for this. I will 
just flag we are working on this in other committees as well, 
that the way that the dark economy enterprises support 
international criminal cartels, support kleptocrats, support 
enemies of our country who are planning against our country but 
use the shelter of the banking system for the assets they have 
stolen, this goes beyond just tax collection. It gets into a 
whole variety of even national security implications. So I am 
grateful for you calling this hearing, and I apologize again 
for being a late arrival.
    Chairman Sanders. Senator Whitehouse, thank you very, very 
much.
    Senator Braun.
    Senator Braun. Thank you, Mr. Chairman.
    I was in here earlier and heard part of the conversation 
with Mr. Hodge. I have got a question for you and then one for 
Maya.
    Coming from the world where you have to pay your bills or 
else you are out of business, I noticed here from modern 
monetary theory to the fact that there are not any guardrails, 
I do not disagree with what Sheldon said in terms of, you know, 
getting more revenue out of what should be collected. But what 
I see mostly is an intractable $1 trillion deficit that we have 
kind of shrugged off, and I think we are right at the cusp of 
seeing what we do about it.
    Well, obviously there is one side of the aisle that thinks 
we can spend a whole lot more, which will inevitably raise that 
structural deficit on top of everything we have spent for 
COVID, and I am not taking on where we should spend the money. 
I would just like to keep the entity healthy in the long run 
for as many people that look to the Federal Government for what 
they want from it. It is not a good business partner in my mind 
when you control your economics the way it does.
    I want to focus on corporate tax rates, and this would--in 
my mind, there is a difference between C-corps and sub-S's, 
LLCs, partnerships, proprietorships. That is Main Street. 
Corporate tax is based upon someone that is in a huge entity 
that has got a lot of advantages that you would not have on 
Main Street.
    When it was 35 nominal rate and taken down to 21, what was 
the effective tax rate? In my mind, all the research I did, it 
was under 21. Is that true or not? What was the effective tax 
rate when it was a nominal rate of 35?
    Mr. Hodge. I believe it was around 22 percent. It varies 
every year.
    Senator Braun. Yes. That is close. So what that means is 
that there are tons of loopholes or things that have been built 
into the Tax Code that, when you have got a Main Street 
business, a small one, I bemoaned every year that my marginal 
tax rate was about the same as the effective tax rate, because 
you do not have the deductions.
    How much would we save if we eliminated every loophole or 
any special preference in the Tax Code as it would apply to C-
corps, roughly?
    Mr. Hodge. Well, on the business side, according to the 
Joint Committee on Taxation's report on tax expenditures last 
year, there are only about $200 billion worth of ``tax 
expenditures'' on the corporate side of the ledger. There are 
$1.3 trillion worth of tax expenditures on the individual side 
of the ledger. A lot of the loopholes in the corporate code 
have been eliminated over the last few----
    Senator Braun. But it still would be the difference between 
what was a 35 nominal and a 22 effective, and you cited $200 
billion. I think it makes two points----
    Mr. Hodge. But all due respect, though----
    Senator Braun. There is not as much there to bridge a $1 
trillion deficit?
    Mr. Hodge. Not at all. And many of those ``loopholes'' are 
actually things like full expensing for buying equipment and 
tractors and so forth.
    Senator Braun. And I know we all love that in business, but 
we have got a crisis here, in my mind, that we are at probably 
the worst balance sheet that we have ever had in the history of 
the country. Back when we were about like this coming out of 
World War II, we were savers and investors. Now we are spenders 
and consumers.
    Mr. Hodge. Right.
    Senator Braun. Thank you for putting some light on that 
particular point.
    The next question is for Maya. I would love to hear whether 
we have got a spending problem or a revenue problem. In a 
business, you have got to take care of both, and here in the 
Federal Government, when I look at the fact that revenues were 
going up close to 5 percent pre-COVID but spending, due to 
mandatory spending mostly, had been going up between 6 and 7 
percent, there is no way we ever catch up. And, Maya, I would 
like you to comment in two places. How much revenue do you 
think you could get that would be valid without starting to 
tank the economy? Do you think there is anything--or highlight 
the spending problem this Federal Government has?
    Ms. MacGuineas. Okay. Thanks so much for the question, 
Senator. Sort of like fairness, there is no right or wrong in 
the balance of spending and revenues, but one cannot deny, 
looking at the numbers, that both spending and revenue are on 
trajectories to grow faster than their historical levels, 
spending by much, much more. Health care, retirement, interest 
account for the vast majority, over 80 percent, of all spending 
increases over the next decade.
    Again, people have to figure out where they want to make 
those changes, but the realistic frame--and it is what I would 
like to emphasize throughout this really important hearing--is 
that our fiscal problems are already too large to really deal 
with this on only one side of the balance sheet, and that is 
more true many multiples of time if we are talking about 
expanding spending further, which seems to be a popular 
discussion right now. It would take $4 trillion just to 
stabilize the debt at 100 percent of GDP. That is already way 
too much. It would take $9 trillion to bring the debt back down 
to balance. I doubt we will be able to do that. It would take 
$11 trillion to pay for the Biden agenda. Many important things 
there, but we should not pretend those can just come from 
taxing millionaires and billionaires.
    So the point is--and I think it is what you are making--
this fiscal challenge is huge. It is really important. It 
leaves us vulnerable in so many places, and we have to look at 
all sides of the balance sheet. But you cannot ignore that the 
growth in spending has been driving this for quite some time, 
and that will become more true with the aging of the population 
and health care costs and growing interest.
    Senator Braun. Thank you for driving home that point.
    Chairman Sanders. Thank you, Senator Braun.
    I believe that Senator Braun is the last of our Senators, 
so let me take this opportunity to thank all of our panelists 
for their testimony. And I want to thank all of the witnesses 
as well. All of their written statements will be included in 
the record.
    As information for all Senators, questions for the record 
are due by 12 o'clock noon tomorrow with signed hard copies 
delivered to the Committee clerk in Dirksen 624. Email copies 
will also be accepted due to our current conditions. Under our 
rules, the witnesses will have 7 days from receipt of our 
questions to respond with answers.
    With no further business before the Committee, this hearing 
is adjourned. Thank you.
    [Whereupon, at 12:52 a.m., the Committee was adjourned.]

          ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

    [Prepared statements, responses to written questions, and 
additional material submitted for the record follow:]

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