[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]






                     REIGNITING AMERICAN GROWTH AND 
                    PROSPERITY SERIES: INCENTIVIZING 
                 ECONOMIC EXCELLENCE THROUGH TAX POLICY

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

                                HEARING

                               before the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, D.C., JUNE 22, 2023

                               __________

                            Serial No. 118-5

                               __________

           Printed for the use of the Committee on the Budget















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                       Available on the Internet: 
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                        COMMITTEE ON THE BUDGET

                  JODEY C. ARRINGTON, Texas, Chairman
RALPH NORMAN, South Carolina         BRENDAN F. BOYLE, Pennsylvania,
TOM McCLINTOCK, California             Ranking Member
GLENN GROTHMAN, Wisconsin            BRIAN HIGGINS, New York
LLOYD SMUCKER, Pennsylvania          JANICE D. SCHAKOWSKY, Illinois
MICHAEL C. BURGESS, Texas            EARL BLUMENAUER, Oregon
EARL L. ``BUDDY'' CARTER, Georgia    DANIEL T. KILDEE, Michigan
BEN CLINE, Virginia                  SCOTT H. PETERS, California
BOB GOOD, Virginia                   BARBARA LEE, California
JACK BERGMAN, Michigan               LLOYD DOGGETT, Texas
A. DREW FERGUSON IV, Georgia         JIMMY PANETTA, California
CHIP ROY, Texas                      JENNIFER WEXTON, Virginia
BLAKE D. MOORE, Utah                 SHEILA JACKSON LEE, Texas
DAVID G. VALADAO, California         ILHAN OMAR, Minnesota,
RON ESTES, Kansas                      Vice Ranking Member
STEPHANIE I. BICE, Oklahoma          DAVID J. TRONE, Maryland
LISA C. McCLAIN, Michigan            BECCA BALINT, Vermont
MICHELLE FISCHBACH, Minnesota        ROBERT C. ``BOBBY'' SCOTT, 
RUDY YAKYM III, Indiana                  Virginia
JOSH BRECHEEN, Oklahoma              ADRIANO ESPAILLAT, New York
CHUCK EDWARDS, North Carolina

                           Professional Staff

                      Gary Andres, Staff Director
                  Greg Waring, Minority Staff Director 
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                                CONTENTS

                                                                   Page
 Hearing held in Washington, D.C., June 22, 2023.................     1

    Hon. Jodey C. Arrington, Chairman, Committee on the Budget...     1
        Prepared Statement of....................................     4
    Hon. Brendan F. Boyle, Ranking Member, Committee on the 
      Budget.....................................................     7
        Prepared Statement of....................................     9
    Hon. Sheila Jackson Lee, Member, Committee on the Budget, 
      statement submitted for the record.........................    13
    National Association of Manufacturers, statement submitted 
      for the record.............................................    17
    Dr. William McBride, Vice President of Federal Tax Policy and 
      Stephen J. Entin Fellow in Economics, Tax Foundation.......    22
        Prepared Statement of....................................    24
    Mr. Kyle Pomerleau, Senior Fellow on Tax Policy, American 
      Enterprise Institute.......................................    36
        Prepared Statement of....................................    38
    Mr. Kevin Kuhlman, Vice President of Federal Government 
      Relations, National Federation of Independent Business.....    51
        Prepared Statement of....................................    53
    Hon. Mark Mazur, Former Assistant Secretary for Tax Policy, 
      U.S. Department of the Treasury............................    59
        Prepared Statement of....................................    61
    Hon. Rudy Yakym, Member, Committee on the Budget, submission 
      for the record.............................................    88
    Hon. Lloyd Smucker, Member, Committee on the Budget, 
      submission for the record..................................   119
    Hon. Lloyd Smucker, Member, Committee on the Budget, 
      submission for the record..................................   214
    Hon. Michael Burgess, Member, Committee on the Budget, 
      submission for the record..................................   256
    Hon. Michael Burgess, Member, Committee on the Budget, 
      submission for the record..................................   263
    Hon. Michael Burgess, Member, Committee on the Budget, 
      submission for the record..................................   269
    Questions and Answers submitted for the record...............   276

 
    REIGNITING AMERICAN GROWTH AND PROSPERITY SERIES: INCENTIVIZING 
                               ECONOMIC 
                     EXCELLENCE THROUGH TAX POLICY

                              ----------                              


                        THURSDAY, JUNE 22, 2023

                          House of Representatives,
                                   Committee on the Budget,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 12:04 p.m., in Room 
210, Cannon Building, Hon. Jodey Arrington [Chairman of the 
Committee] presiding.
    Present: Representatives Arrington, Norman, McClintock, 
Grothman, Smucker, Burgess, Carter, Cline, Good, Bergman, 
Ferguson, Moore, Estes, Yakym, Brecheen, Edwards, Boyle, 
Higgins, Schakowsky, Blumenauer, Kildee, Panetta, Omar, Balint, 
and Scott.
    Chairman Arrington. I want the record to reflect we are 
waiting on my Democrat Ranking Member.
    And I also want to take this opportunity to wish one of our 
Committee Members, Mr. Blake Moore, a happy birthday. So, 
please join me in wishing him a happy 55 years.
    Mr. Moore. It has been a lovely 30 years.
    Chairman Arrington. 55 years. He is----
    Mr. Moore. Thirtieth, my 43.
    Chairman Arrington. It was the fifth anniversary of an 
announcement of our budget resolution when I was a freshman on 
the Budget Committee, and sad to say and report that I was 
unrecognizably younger and more vibrant than I am today. So, we 
are going to do----
    Voice. Did you say vibrant or violent?
    Chairman Arrington. Yeah, and violent. Yeah, and violent.
    Thank you all for appearing today. We will get started 
momentarily.
    The hearing will come to order. Today's hearing will focus 
on tax policies that will strengthen our economy, our balance 
sheet, and our Nation's financial health now and into the 
future.
    And I would like to now yield myself such time as I may 
consume for an opening statement.
    I want to thank our members and the witnesses for being 
here today. This hearing is the second in a series on growth, 
entitled Incentivizing Economic Excellence Through Tax Policy.
    Economic growth and prosperity, I believe, is the tide that 
lifts all boats with more and better jobs, higher wages and 
income, lower unemployment, lower poverty rates, and an overall 
improved standard of living for all Americans.
    As we have discussed, and I think most of us believe, a 
vibrant and flourishing economy would also strengthen our 
balance sheet and improve our Nation's fiscal health by 
generating revenue to the Treasury, as we have witnessed since 
the Tax Cuts and Jobs Act of 2017. Also, that revenue will help 
us pay our bills and fund our priorities, it will also reduce 
our financial risk, lower our interest payments by bringing 
down our debt-to-GDP ratio, and then ultimately helping us 
stave off a debt crisis.
    Last hearing, we examined the effects of excessive and 
overreaching regulations and how they compromise our freedom, 
quench the entrepreneurial spirit, and suppress economic 
growth. We noted that President Biden, his regulatory track 
record at this point is two times the previous President Obama 
and the overall cost is at $360 billion. That is a major drag 
on the economy.
    We are going to focus today on the relationship between tax 
policy and economic growth, and again its fiscal impact on our 
country and our country's future.
    Unfortunately, we are far from a rigorous and thriving 
economy today, as our Nation continues and our working families 
continue to suffer from sustained 40-year high inflation, and 
inflation is coming down, I want it to come down, but core 
inflation is sticking, and it is about the same as it was over 
the first year of this Administration. We have seen the fastest 
pace of interest rate hikes in history. We have experienced 
three consecutive quarters of economic decline with the most 
recent quarterly output at just around one percent.
    This is a direct result, in my opinion, of too much 
spending and wrong-headed policies, and I will spare you all 
the litany of failed economic policies and the $11 trillion in 
spending that I believe it put us in this tough spot, and then, 
for me, and I think most of our members, it has added $6 
trillion to the national debt, which is already on an 
unsustainable course.
    We have to examine the relationship between good tax policy 
and our budget process. Congress has the power to tax. In 1913, 
the 16th Amendment gave us the power to tax directly, through 
income, but what we pay for, scope, mission of our Republic, 
who we tax, and how we tax, is of the utmost importance as we 
seek to responsibly pay our bills and encourage growth and 
ensure the financial health of the United States.
    History is replete with the evidence that when you reduce 
the tax burden on job creators and consumers, the economy 
grows. Kennedy did it. Clinton did it. Bush did it. Reagan did 
it, and whether it was significant or modest, the result was, 
the economy grew.
    In fact, President Kennedy said that economic growth in the 
post era was, post-war era rather, was the most urgent task 
facing our Nation, which is why he proposed a tax reform 
package that, by the way, included a significant reduction in 
the corporate rates. He said it was to step up the growth and 
vigor of our Nation's economy, increase job and investment 
opportunities, and improve our productivity. As President 
Kennedy said, completing this task was about protecting the 
security of our people.
    Let me jump to the most recent example, the Tax Cuts and 
Jobs Act. Very proud of what we did. Would it have paid for 
itself? It is a good question. I think that will probably be 
raised by some of my colleagues. I don't know. I know that the 
economic feedback is positive. I know that we brought in more 
revenue than was projected and had to be upwardly revised 
several times by CBO.
    I think Republicans made a mistake not to include spending 
cuts. I will say it and I will continue to say it. For a party 
that is so obsessed with out-of-control spending, for us to 
have the House and Senate and the Presidency, and to pass tax 
cuts and tax reforms and not reduce spending, which I think is 
the preponderance of the problem, certainly one of the two 
pieces of the equation here, growth and reduction in spending, 
I think is more than disappointing. I think it is shameful, 
actually, and we can't repeat that if we are given the 
opportunity.
    But what tax cuts and tax reform did was to generate more 
capital investment than we have ever seen, more R&D investment 
than we have ever experienced. We had the lowest unemployment 
rate. We had the lowest poverty rate in recorded history. Six 
million people lifted out of poverty. A lot of benefits accrued 
to this country, namely, people were having better 
opportunities, higher paying jobs, and they kept more of their 
money, and that we experienced an economic renaissance.
    Rather than to go through all of my notes here because I 
know I have filibustered before, I would just say we have to 
have the most simple and efficient tax code. We have to find a 
way to make it more simple and, simpler and more efficient. We 
have to have a fair and equitable tax code.
    And there is going to be debate about what that means. For 
me, to have 40 percent of the American people not having any 
stake in their country is a problem. To have the top ten 
percent paying 75 percent of the taxes, I think that is 
inequitable, but we can debate that and we should.
    And then, finally, we need a productive, the most 
productive, and most competitive tax rate. We can't have China, 
Communist China, have a lower tax rate on their businesses, 
their job creators, than we do in the United States, and even 
today, after lowering the corporate rates, you combine the 
state taxes on businesses and Federal taxes, we are paying more 
than businesses in Communist China, our competitor, and our 
adversary. That is a problem.
    So, let's work together, try to figure out how to get this 
right. We know the formula for success after World War II. Cut 
spending, right size the government, the bureaucracy, take on 
entitlement reform. That will be a fun discussion. We haven't 
gotten there yet, but let's figure out how to grow this economy 
and leave our children a better country and a better spot with 
a brighter future.
    And with that, I yield to my Ranking Member for such time 
as he may consume for his opening remarks.
    [The prepared statement of Chairman Arrington follows:]
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    Mr. Boyle. Well, thank you, Mr. Chairman, and glad to have 
this hearing today.
    A number of things I wanted to respond to, maybe some other 
occasion or some other format we will have a chance in a 
respectful, of course, way to go back and forth on some of 
these points that you raise.
    First, I would say, before I even get to my opening 
statement, we know definitively the answer to the question 
whether or not the Tax Cuts and Jobs Act paid for itself. The 
answer is no, and don't take my word for it. Sitting right at 
that chair, our guest at a previous hearing, Douglas Holtz-
Eakin, clearly a well-respected right-of-center economist, his 
exact quote, so I don't misquote him here, when asked the 
question whether or not--actually I believe I was the one who 
asked him the question--whether or not tax cuts entirely pay 
for themselves, he said, ``No serious economists would make 
such a claim.''
    Now, tax cuts do have some stimulative effect, more of an 
effect when they are targeted in the right way versus others, 
but no, of course, they never entirely pay for themselves. 
Heck, if they did, then why not have a tax rate of 0.00001 
percent if we thought that they were--oh, wait, some of my 
friends might take me up on that. Oh, geez. I think I just won 
the 2024 Republican nomination, but of course, they don't pay 
entirely for themselves. Money does not grow on trees.
    And the reality is when we--another witness testified to 
this, if people recall. I like to do callbacks for those 
longtime viewers of our hearings. When you add up the two Bush 
tax cuts, 2001 and 2003, and then of course they were extended 
jointly under split rule--President Obama and the Republican-
led Congress--and then you add in the TCJA, we are missing $10 
trillion. So, when you look at that national debt figure, 
recognize that's where some of that debt comes from.
    I would also point out, since a favorite president of mine, 
JFK, was invoked, it is true he did push for a tax cut. I am 
not sure my Republican friends would like us to go back to what 
the marginal rates were after those tax cuts. They were 
significantly higher than the taxes we have today. Indeed, we 
have some of the lowest tax rates right now that we have ever 
had since having this modern system of taxation.
    Now, part of the title for this hearing is ``Reigniting 
American Growth.'' I have good news. It is already happening: 
more than 13 million jobs created over the last two and a half 
years, the lowest unemployment rate since the 1960s, more jobs 
have been created in this presidential term than any other 
single term in American history.
    On inflation, with the latest data that came out last week, 
inflation has now dropped for 11 consecutive months. It is 
still higher than what we would like it to be, but my goodness, 
are we in a different world than our friends in Europe. Their 
situation is much worse on inflation, without the signs that it 
is necessarily going to get better soon.
    On this point, I had a German parliamentarian, a member of 
the Bundestag, in my office last week, a good ally of the 
United States. He was talking about the situation they are 
facing in terms of inflation and expressing the wish that 
inflation was in Germany what it is in the United States right 
now, with it dropping so heavily.
    So, once again, as I have said here many times, the United 
States continues to lead the worldwide recovery coming out of 
COVID, and we need to make sure we don't do anything that would 
jeopardize that.
    Now, finally, let me say on the other half of what I think 
this hearing will be, the trade picture, I am glad that we are 
having a hearing talking about trade. We are four percent of 
the world's population. Sometimes, you know, being Americans, 
it is very easy to forget that 96 percent of the world lives 
outside our shores. Mark Twain once said, ``America's two best 
friends in the world are the Atlantic and the Pacific.'' So, 
sometimes, you know, we can have a more parochial view.
    The reality is being only four percent of the world's 
population, we do need trade. However, I think it is clear, and 
in some ways there might be Democrats and Republicans who agree 
on this, I think there have been trade deals over the last 
quarter-century that have not paid close enough attention to 
the needs and concerns of American workers, especially 
America's blue collar workers.
    There was a victory on that front, a bipartisan one, that 
is, you know, not really talked about that often, and that was 
the revision of NAFTA, the USMCA, a deal in which, for the 
first time, you saw a majority of organized labor in support. 
It got over 400 votes in the House of Representatives. The same 
number of House Democrats and House Republicans voted for 
USMCA.
    So, it shows that this isn't just rhetoric. I am a believer 
that we can have trade agreements that are in our national 
security interest, but also balance the need for growth and the 
balance to drive good prices for American consumers, with also 
protecting the interests of American workers.
    So, with that, I will yield back and look forward to 
hearing from our witnesses.
    [The prepared statement of Ranking Member Boyle follows:]
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    Chairman Arrington. I associate myself with the remarks of 
my colleague on trade, and I look forward to opening up new 
markets, new customers for American producers and 
manufacturers.
    With that, I want to thank my colleague and want to make 
mention that if any member has an opening statement, you can 
submit it for the record. I will hold the record open until the 
end of the day to accommodate those members who may not yet 
have prepared written statements.
    [The information follows:]
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    Once again, I would like to welcome our witnesses. Today, 
we are going to hear testimony from Dr. William McBride, Vice 
President of Federal Tax Policy at the Tax Policy Foundation; 
Mr. Kyle Pomerleau, Senior Fellow on Tax Policy at the American 
Enterprise Institute; Mr. Kevin Kuhlman, Vice President of 
Federal Government Relations at the National Federation of 
Independent Businesses; and the Honorable Mark Mazur, Former 
Assistant Secretary for Tax Policy at the United States 
Treasury Department, and we all extend our appreciation for 
your time and your insights.
    The Committee has received y'all's written statements, and 
they will be made part of the formal hearing record. You will 
each have five minutes to deliver your oral remarks.
    I now yield five minutes to Dr. McBride.

  STATEMENT OF WILLIAM McBRIDE, VICE PRESIDENT OF FEDERAL TAX 
POLICY AND STEPHEN J. ENTIN FELLOW IN ECONOMICS, TAX FOUNDATION

    Dr. McBride. Thank you, Chairman Arrington, Ranking Member 
Boyle, and Members of the Committee. I appreciate the 
opportunity to speak with you.
    My testimony will focus on the economic effects of recent 
changes to the Federal tax code, including the Tax Cuts and 
Jobs Act, and recommend ways to boost economic growth going 
forward.
    TCJA reduced income tax rates broadly, both for individuals 
and corporations, lowering taxes for every income group and 
improving incentives to work, save, and invest, through lower 
marginal income tax rates on labor and capital income.
    Lowering the corporate tax rate, in particular, improved 
the long-run health of the economy by reducing the tax burden 
on corporate investment. As a result, the Joint Committee on 
Tax and the Congressional Budget Office both predicted more 
investment, more labor supply, and faster economic growth.
    However, several temporary features complicate the law and 
reduce its impact. On the individual side, all of the 
individual income tax cuts expire in 2025. On the business 
side, the ability to immediately deduct R&D expenses ended last 
year. So, businesses are now required to delay those deductions 
for five years. Likewise, bonus depreciation initially allowed 
businesses to immediately write off the full cost of equipment, 
but now, depreciation rules are returning and require 
businesses to delay those deductions for up to 20 years.
    We found TCJA's positive impacts on the economy would build 
in the first few years, resulting in a three percent increase 
in GDP and a 1.7 percent increase in wages by 2025, with 
smaller impacts in the long run. Comparison to actual outcomes 
is difficult due to confounding events, such as the pandemic. 
However, at a high level, several measures point to a 
strengthened economy post-TCJA. GDP investment and labor 
compensation all improved in the two years after enactment of 
TCJA and before the pandemic, relative to historic averages.
    Regarding tax revenue, while TCJA was estimated to reduce 
revenue initially, both our analysis and that of the JCT 
indicated it would raise revenue by the end of the budget 
window. Actual tax collections have exceeded expectations, 
hitting an all-time high in nominal terms last year of 4.9 
trillion and 19.6 percent of GDP, which is a 22-year high. 
Average Federal tax collections in the five years since TCJA's 
enactment are higher than forecasted by the CBO, higher than 
most years leading up to TCJA, and higher than the long-run 
average.
    In contrast to TCJA, President Biden's tax proposals would 
raise marginal income tax rates. While the proposals are 
ostensibly aimed at high-income earners and businesses, they 
would depress economic activity generally and reduce 
opportunities for workers at every level. Revenue raised with 
these tax hikes would in part be spent on tax credits and other 
subsidies for specific industries and taxpayers, further adding 
to the complexity of the tax code and expanding the scope of 
the IRS.
    Going forward, lawmakers should focus on simplifying the 
Federal tax code, creating stability, and broadly improving 
economic incentives. As a first step, lawmakers should 
permanently extend R&D expensing and bonus depreciation. The 
policy, which would boost GDP by 0.5 percent over the long run, 
would add about 87,000 jobs.
    As 2025 approaches, when much of the TCJA expires, 
lawmakers should consider fundamental tax reform to 
systematically address the tax code shortcomings. While there 
are many options, we have recently detailed and analyzed a 
proposal that would substantially boost economic growth and 
opportunity. It follows along the lines of the Estonian income 
tax system, which tops our annual ranking of most competitive 
tax systems.
    The reform would fully integrate the corporate and 
individual income taxes to avoid double taxing corporate 
income. Instead of a complicated corporate income tax and 
separate rules that apply to passthrough businesses, all 
businesses would be subject to a simple 20 percent tax on 
distributed profits. At the individual level, a simple flat tax 
of 20 percent applies to all individual income, except 
dividends, since they are already taxed by the distributed 
profits tax. Capital gains are taxed as ordinary income, also 
at 20 percent. Rather than a complicated estate tax like ours, 
the taxes accumulated savings at death, bequeathed assets are 
simply taxed as capital gains when sold by the heir, with 
deductible basis determined only by cost incurred by the heir.
    We find if such a system were implemented in the U.S., it 
would greatly simplify the tax code, saving taxpayers more than 
$100 billion annually and reduce compliance cost. In addition, 
our modeling indicates it would increase GDP by 2.3 percent in 
the long run, raise wages by 1.3 percent, and add 1.3 million 
jobs.
    My written testimony goes into other ideas along these 
lines. I am happy to answer any questions you may have about 
that. Thank you for your time and attention.
    [The information follows:]
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    Chairman Arrington. Thank you, Dr. McBride.
    I now yield five minutes to Mr. Pomerleau.

   STATEMENT OF KYLE POMERLEAU, SENIOR FELLOW ON TAX POLICY, 
                 AMERICAN ENTERPRISE INSTITUTE

    Mr. Pomerleau. Chairman Arrington, Ranking Member Boyle, 
and Members of the Committee, thank you for the opportunity to 
testify today. I am Kyle Pomerleau, Senior Fellow at the 
American Enterprise Institute.
    In my testimony, I am going to put the Tax Cuts and Jobs 
Act's corporate tax proposals in an international context. I 
will make three points.
    The first point is prior to the TCJA, the U.S. Corporate 
Tax Code was an outlier among the 38 countries of the 
Organization for Economic Cooperation and Development, the 
OECD. Two, the TCJA brought the U.S. Corporate Tax Code more in 
line with those of our major trading partners. And three, 
lawmakers should be cautious about some of the proposals in 
Biden's budget that could once again make the U.S. corporate 
code an outlier.
    Before the TCJA, the U.S. corporate tax code was an outlier 
in the developed world in a few important ways. The statutory 
corporate tax rate was 38.9 percent, which was the highest in 
the OECD. At the same time, the U.S. also levied high effective 
tax rates on corporate investment. The U.S. was also one of the 
last OECD nations to tax U.S.-based multinationals on their 
worldwide income.
    The pre-TCJA corporate income tax created several issues. 
First, the high statutory tax rate combined with the ability to 
defer additional U.S. tax on foreign profits encouraged 
corporations to shift profits and headquarters to lower tax 
jurisdictions. Second, high effective tax rates discouraged 
investment in the United States and encouraged corporations to 
locate highly mobile assets, such as intellectual property, 
overseas. And third, the high statutory tax rate combined with 
the ability to deduct interest expense resulted in a large bias 
in favor of debt-financed investment.
    The TCJA addressed many of those issues and brought the 
U.S. code more in line with those of our major trading 
partners. Reducing the Federal statutory tax rate to 21 percent 
brought the combined statutory rate to about 25.8 percent, 
which is slightly below the OECD average of 26.2 percent. The 
lower rate reduced the tax burden on new investment and, in 
combination with the limitation on net interest expense, also 
reduced the bias in favor of debt-financed investment. In 
current law, tax treatment of U.S. multinationals' foreign 
activity, which exempts the returns to tangible assets but 
places a minimum tax on intangible assets, is more aligned with 
how other OECD countries treat their multinational 
corporations.
    But by no means were the TCJA's corporate tax revisions 
perfect. For example, some of the TCJA's tax cuts for new 
investment were temporary, such as 100 percent bonus 
depreciation, and the Tax Cuts and Jobs Act raised the tax 
burden on research and development in the United States. And 
second, the new provisions aimed at preventing base erosions 
and profit shifting of U.S. multinationals have several known 
shortcomings, and the tax rate on these provisions are 
scheduled to rise after 2025, creating uncertainty for 
corporations.
    Lawmakers are right to want to extend both 100 percent 
depreciation and delaying amortization of R&D, but those 
changes should be made permanent and prospective, not temporary 
and retroactive. In looking forward, lawmakers should continue 
to expand expensing further and limit the deductibility of 
interest expense.
    The last point I want to make is that lawmakers should be 
cautious about some of the proposals in the Biden 
Administration's budget. In his last couple budgets, the 
Administration proposed raising the statutory corporate income 
tax rate from 21 percent to 28 percent and proposed significant 
reforms to the tax treatment of multinational corporations' 
foreign profits. Under these proposals, the U.S. corporate tax 
rate would be 32.5 percent and the second highest in the OECD. 
Effective tax rates on new investment would also be among the 
highest, and despite new limitations on interest expense, the 
proposal would also increase the bias in favor of debt-financed 
investment.
    The Biden Administration argues that its proposal to reform 
the tax treatment of multinational corporations would align the 
U.S. Code with the global minimum tax, or Pillar Two, the 
OECD's proposal, but there would remain meaningful differences. 
In fact, their proposal would place a heavier burden on 
multinational corporations headquartered in the United States 
in Pillar Two. So, under the Biden budget proposals, it would 
be less attractive to be a U.S.-headquartered corporation, even 
if all countries enacted Pillar Two.
    Thank you, and I look forward to any questions.
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    Chairman Arrington. Thank you, Mr. Pomerleau.
    Now, we would like to yield to Mr. Kuhlman five minutes for 
your opening remarks.

     STATEMENT OF KEVIN KUHLMAN, VICE PRESIDENT OF FEDERAL 
   GOVERNMENT RELATIONS, NATIONAL FEDERATION OF INDEPENDENT 
                            BUSINESS

    Mr. Kuhlman. Thank you, and good afternoon, Chairman 
Arrington, Ranking Member Boyle, and Members of the Budget 
Committee. My name is Kevin Kuhlman. I am the Vice President of 
Federal Government Relations at the National Federation of 
Independent Business, NFIB. I appreciate the opportunity to 
share the small business perspective today.
    Small businesses face economic challenges, including 
stubbornly high inflation and pervasive workforce shortages. 
Additionally, small businesses face a very uncertain tax future 
that makes business planning extremely difficult.
    Beginning this year, certain business provisions of the Tax 
Cuts and Jobs Act of 2017 expire. In about two and a half 
years, the vast majority of the provisions that benefit 
individuals and small businesses will also expire. If Congress 
fails to act, there will be a detrimental and substantial tax 
increase on millions of small businesses. Further, proposals to 
increase taxes on businesses cloud business optimism and 
complicate business planning.
    Small businesses received significant tax relief upon the 
enactment of the Tax Cuts and Jobs Act. More than three-
quarters of businesses organize as passthrough businesses, 
either S corporations, LLCs, sole proprietorships, or 
partnerships. Business income is passed through to the 
individual owner's income tax, Form 1040, where individual 
income tax rates are applied. For passthrough businesses, the 
20 percent small business deduction, also known as Section 
199A, combined with the lower individual tax rates and broader 
income brackets provided tax relief that was invested in small 
businesses and their employees.
    For example, Lana Pol, owner of Geetings in Pella, Iowa, 
testified before this Committee a couple years ago that, ``The 
new small business deduction will provide around $40,000 in tax 
relief for our businesses. This tax relief provides crucial 
cash flow that allowed us to provide up to $4,000 raises for 
our employees, the largest compensation increases we have been 
able to provide in recent years. Retaining highly valued 
employees is key for our businesses to function.''
    The small business tax relief was ploughed back into people 
and production, not owners' pockets. Unfortunately, these 
provisions expire on December 31, 2025. Nearly half of small 
business owners reported that uncertainty of expiring tax 
provisions is impacting their current and future business 
plans.
    Fortunately, Congressman Lloyd Smucker, a Member of the 
Budget Committee, will reintroduce the Main Street Tax 
Certainty Act during the next congressional work period. This 
legislation would make permanent the 20 percent small business 
deduction, providing tax certainty for small business owners to 
grow their businesses. NFIB urges Members of Congress to 
support this legislation by joining as an original cosponsor.
    Further clouding business planning are proposed tax 
increases on small businesses. President Biden's Fiscal Year 
2024 budget request would increase taxes on small businesses 
organized as corporations and passthroughs.
    I included a list of certain tax increase proposals in my 
written testimony, but I would like to focus on the proposed 
five percent small business surtax on passthrough business 
income. The President's budget request describes this small 
business surtax as ``closing a loophole.'' The tax was 
originally created as part of the Affordable Care Act's 
reconciliation bill as a tax on investment or passive income. 
It was a deliberate policy choice to not apply the tax to 
active business income, which of course is not passive income. 
As former chairman of President Obama's Council of Economic 
Advisers, Jason Furman described, it was not applied to active 
business income ``because it could be demonized as a tax on 
small businesses and doctors.''
    A deliberate policy choice is not a loophole. The proposed 
expansion of the tax would more than double the revenue 
collected, further demonstrating that the tax increase proposal 
does not close a loophole. If it is ultimately enacted, this 
substantial tax increase would reduce the ability of 
passthrough business owners to invest in their businesses and 
employees, as well as leaving them at a further disadvantage 
relative to corporations.
    Over a few months, NFIB collected over 21,000 signatures 
from small business owners throughout the country opposing this 
small business surtax, and stating emphatically that small 
business is not a tax loophole.
    Small business owners shared their concern. For example, 
John Sullivan, owner of Dana Wallboard in Westford, 
Massachusetts, wrote that, ``As a passthrough entity, we pass 
through a million dollars, but that doesn't mean we keep it for 
ourselves. We still pay out of that, long-term debt, mortgages, 
truck leases, et cetera. We don't take it home. When all is 
said and done, we take home less than 400,000. By taxing us on 
everything over 400,000, assumes we are keeping that money for 
personal consumption, and that is just not true. I recommend 
rethinking this 3.8 percent small business surtax on small 
businesses who are hanging on with all the issues they've had 
to deal with over the past two and a half years.''
    In conclusion, small businesses continue to face economic 
headwinds. Congress can help mitigate economic challenges by 
extending beneficial small business tax provisions, reducing 
paperwork, and rejecting tax increases on small businesses. Tax 
certainty will help businesses plan for the future and increase 
small business confidence.
    I appreciate your time and attention to these concerns. 
Thank you for this opportunity.
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    Chairman Arrington. Thank you, Mr. Kuhlman.
    I now yield five minutes to Dr. Mazur.
    Dr. Mazur. Mazur.
    Chairman Arrington. Mazur. You know, I asked that question 
and I still couldn't get it right. So, I apologize.

    STATEMENT OF THE HONORABLE MARK MAZUR, FORMER ASSISTANT 
   SECRETARY FOR TAX POLICY, U.S. DEPARTMENT OF THE TREASURY

    Dr. Mazur. No problem. Chairman Arrington, Ranking Member 
Boyle, Members of the Committee, thank you very much for having 
me here today to discuss this important topic concerning the 
Federal tax code.
    The Federal tax code administered by the Internal Revenue 
Service is responsible for raising four and a half trillion 
dollars a year. That pays for all the goods and services 
provided by the Federal Government.
    Just to review some basics, when we think about any taxes, 
there are four main criteria we use to evaluate it. One, 
revenue adequacy. Does it raise enough revenue to pay for the 
goods and services that are demanded by the population? Two, 
efficiency. Is the revenue raised in a way that minimizes 
distortions? And distortions accompany any tax system, so 
minimize them in that context. Third, is it equitable? That 
means two things. One, are similarly situated taxpayers treated 
roughly the same, horizontal equity? And are taxpayers with 
greater ability to pay asked to contribute a larger share of 
their resources than those with less ability to pay, vertical 
equity? And finally, simplicity, where taxpayers know what the 
obligations are, know what the rules are, and can comply with 
the system without too much burden. Those are the ideals. 
Obviously, our system falls short on all four dimensions.
    We can talk about revenue adequacy to start. In the late 
1990s, early 2000s, the last time the Federal budget was 
balanced, the Federal Government raised about 20 percent of GDP 
in terms of revenues. Since then, as a country, we have decided 
to increase spending on things like national defense, and 
demographically, we have way more retirees than we used to have 
who claim benefits from Social Security, Medicare, Medicaid, 
and so on.
    And so, if we are serious about balancing the budget, we 
would be looking at something above 20 percent of GDP, not 
below. Last year, we had a one-time apparition to get up to 
19.6 percent GDP. That would be a good start if we were able to 
maintain that, but that would take some action from Congress to 
actually raise revenues relative to the baseline in order to do 
that.
    In my testimony, I just do a quick little example of my 
personal situation. So, in 1988, I looked at my effective tax 
rate. It was 21 percent. In 2018, 30 years later, my adjusted 
gross income was about 50 percent higher in inflation-adjusted 
terms. My effective tax rate was 19 percent. It was actually 
lower. So, I was paying less to the Federal Government for the 
services I was getting, which are roughly the same level of 
services 30 years later, even though my income was 
substantially higher.
    Why is that? Because we have had a series of tax cuts that 
have occurred over a long period of time, in 2001, 2003, they 
were extended again in 2012, in 2017, and several other times, 
and those outweighed the tax increases in 1993 and with the 
Affordable Care Act.
    And so, really, we are asking people, relatively well-off 
people, to pay less than they used to pay to support the 
Federal Government. That doesn't seem like a strategy for 
getting the budget balanced.
    I know the hearing today is focused on tax incentives. 
Largely, one of the things that you should keep in mind is 
almost all the tax incentives we have in place are inefficient, 
that they are not the most cost-effective way to generate the 
behavior that Congress is trying to generate. What we do with 
the current set of tax incentives is largely pay taxpayers to 
do what they would have done anyway.
    And so, just one example, bonus depreciation, which I know 
my colleagues here like. Basically, bonus depreciation says if 
you are investing in your business to maintain it and keep it 
profitable and so on, completely deduct the cost of those 
investments. You would have done that anyway. We are not 
encouraging people to do much more than they would have done.
    Similarly, I talk a little bit in my testimony about things 
like 529 plans, which basically have people shift investments 
from taxable accounts into tax-favored accounts. Really doesn't 
change their behavior very much, but it does cost the Federal 
Government revenue.
    And so, if we are looking about designing tax incentives, 
what we would focus on is where the behavior occurs, and then 
try very hard to focus attention on changing that behavior in a 
very cost-effective way, and as Kyle Pomerleau said, one of the 
things that we would certainly not do is do retroactive tax 
cuts because, frankly, that behavior has already occurred in 
the past. We are not changing it by changing the tax law with 
that. So, really, you would want to try the minimum, not do 
those things that will not change behavior.
    And with that, I will just conclude here. Thank you for the 
opportunity to be here. Happy to take your questions.
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    Chairman Arrington. Thank you, Dr. Mazur.
    We will now begin our question-and-answer session. I will 
yield myself five minutes.
    Let me start with you, Dr. Mazur. I think your comments 
were very thoughtful. I want to know, as a tax policy expert, 
is there a point at which--because you mentioned some of the 
tax incentives don't have the return on investment that some--
--
    Dr. Mazur. Mm-hmm.
    Chairman Arrington [continuing]. Would say they do, but 
where is the point at which you have diminishing returns? And 
is there a point at which you tax either businesses or 
individuals where you get less revenue because you have reduced 
investment, growth, et cetera? Is there such an inflection 
point, in your mind?
    Dr. Mazur. Well, for sure. You have heard of the Laffer 
Curve, right? You have seen that picture drawn. So, surely at 
100 percent, that is not giving you much incentive, right? And 
so, as you move back a little bit from that, you are able to 
generate additional revenue, but where we are looking at in 
today's world, with tax rates of, between 20, 30, 40 percent, 
that is not even close to where an inflection point occurs. We 
are really far away. I think when President Kennedy talked 
about cutting tax rates, maybe we were close to it then, but 
really, we are not there now.
    Chairman Arrington. I am not an expert on tax policy, but I 
am on the Tax Subcommittee of Ways and Means, and I have 
pondered what is the right rate for many years now, and I am 
not dogmatic.
    Dr. Mazur. Mm-hmm.
    Chairman Arrington. It is not theology for me, but 
practically speaking, you look at our competitors around the 
globe and you say to yourself, do we want to be the highest 
taxed business, job creators in the world or do we want to be 
the most competitive, or somewhere in between? Because capital 
is going to flow in this global market to where it is going to 
get the best return, and I think about pre-TCJA and how much 
capital was overseas and how uncompetitive we were from a tax 
code standpoint.
    So, you touched on this, Mr. Pomerleau, about bringing us 
in line. Let's just say, you know, nobody knows the magic rate, 
but we know our rates relative to our competitors, and you said 
that if we implement President Biden's tax rates that he 
proposes in his budget, number one, it is almost $5 trillion 
dollars in new taxes, but you said it would bring us to the top 
taxed corporate rate or business rate in the OECD field, with 
the exception of one country. Who is the one country that would 
be taxing higher than the United States in that scenario?
    Mr. Pomerleau. It is actually a small country, Colombia.
    Chairman Arrington. Colombia. Who is in the top five with 
the United States in that scenario where we would increase the 
corporate rates to 28 percent?
    Mr. Pomerleau. So, the countries that would be up there 
with us would be some of the larger countries, like Germany, 
France, Japan.
    Chairman Arrington. I read from a progressive, more liberal 
tax policy think tank where corporate rates, the majority of 
corporate rate increases are passed onto consumers. It is as 
high as 70 percent, but we can debate that, but are corporate 
rate increases passed to consumers in lower wages, in higher 
prices, and to what extent does that dynamic occur?
    Mr. Pomerleau. Yeah, this is a complex issue, and it also 
depends on what the base of your tax looks like, how much it 
distorts investment, but it is generally true that, you know, 
any tax is going to fall on either workers or owners of 
companies, and the corporate tax is no exception, but the exact 
share really depends.
    Dr. Mazur. But the----
    Chairman Arrington. Go ahead. Yeah.
    Dr. Mazur. But the Treasury Department and Joint Tax 
Committee, who have studied this, basically show that 70 or 80 
percent goes to capital.
    Chairman Arrington. Goes to what?
    Dr. Mazur. Capital. Not labor, not consumers.
    Mr. Pomerleau. One reason for that, by the way, is because 
the base of the corporate tax has a lot of expensing, which 
makes the corporate tax more neutral and less distortive for 
corporate investment.
    Chairman Arrington. Dr. McBride talked about the 
progressivity of the tax code, and many would say it is the 
most progressive of the OECD countries. Did the TCJA make the 
tax code less progressive or more progressive?
    Dr. McBride. A couple of studies on this indicate that it 
was basically a wash or made it slightly more progressive 
actually.
    Chairman Arrington. Okay. So, it wasn't less progressive?
    Dr. McBride. No. No. Certainly demonstrably, when CBO 
looked at it, there were tax cuts across the entire income 
scale.
    Chairman Arrington. And we have heard the tired talking 
point about it was a giveaway to the rich, but my understanding 
is that lower-income and middle-income folks benefited as a 
percentage more than the higher income in terms of retained 
income, retained earnings. Is that correct?
    Dr. McBride. I believe that is correct, but I am not 
entirely sure. I don't have the numbers in front of me here.
    Chairman Arrington. Well, my time has expired and I yield 
to my Ranking Member for his Q&A.
    Mr. Boyle. And so, on the TCJA, Dr. Mazur, you may know 
this, but am I correct when I recall that the Congressional 
Budget Office found that by 2026, 83 percent of the tax cut 
from the TCJA went to the wealthiest one percent?
    Dr. Mazur. I am not aware of the actual numbers, but I do 
know that the benefits tended to go to higher income people, 
especially when you considered the corporate benefits being, 
going to capital.
    Mr. Boyle. And not just the richest one percent, but the 
richest one-tenth of one percent received a majority of the tax 
cut in the TCJA.
    Now, for most of this year, actually all of this year up 
until a few weeks ago, the major issue in the Capitol was the 
debt ceiling and whether or not it would be raised, whether or 
not the United States would suffer a first-ever default. The 
alleged driver for those who didn't want to raise the debt 
limit was to win cuts because they were so concerned about the 
size of the national debt.
    Well, here we are just last week, the House Ways and Means 
Committee passed a piece of legislation that would extend the 
TCJA, the GOP tax scam, and extend those tax cuts. Are you 
aware perhaps of how much that would cost in terms of adding to 
our national debt?
    Dr. Mazur. Tens or perhaps hundreds of billions of dollars.
    Mr. Boyle. Yeah. I believe over $2 trillion is what was 
found. Sorry, I am not----
    Dr. Mazur. No, it just depends----
    Mr. Boyle [continuing]. Intending to put you on the spot.
    Dr. Mazur. No, no. It depends how long you do the 
extension.
    Mr. Boyle. Extension for. That is correct. Yeah. So, I 
believe this was an extension that would cover ten years or so, 
or at least make them permanent, as far as the budget window.
    So, I mean, it is remarkable to me that the majority for 
months and months and months was talking about national debt, 
national debt, national debt, and then, as soon as the debt 
ceiling is raised, they immediately pivot to making tax cuts 
for the richest one percent permanent that would add trillions 
of dollars to our national debt. It certainly calls into 
question the extent to which some are really concerned about 
our national debt.
    Now, you had, you know, I think an interesting point in 
your written testimony, and you talked about it just kind of 
orally here. The level of taxation that you were paying decades 
ago, same individual, right, relatively I think same income----
    Dr. Mazur. Same house.
    Mr. Boyle [continuing]. Not to pry, but that was what I 
read.
    Dr. Mazur. Yeah.
    Mr. Boyle. And just how much less you are paying now versus 
decades ago, and looking at that in relation to our deficit and 
debt issue, and I was wondering if you could just kind of 
expound on that because I thought it was very interesting.
    Dr. Mazur. Sure. So, I am a pack rat and I do keep my old 
taxes, and probably some of you older people do as well, and I 
looked when I did my 2018 tax return, it was after the Tax Cuts 
and Jobs Act, and looked at what my effective tax rate was, 
taxes paid over adjusted gross income, and it was 19 percent, 
and I compared it to what it was in 1988. Roughly same 
household composition, but my income in 2018 was like 50 
percent higher in inflation-adjusted terms, and my tax rate was 
two percentage points lower. My effective tax rate was two 
percentage points lower.
    And so, I guess what I took away from that was I am 
benefiting at least as much from the Federal Government now as 
I did 30 years ago in terms of public goods that have been 
provided, and I am paying less for it, and frankly, I could 
afford to pay more, right. I am not near the poverty level or 
anything like that.
    So, really, I think what it shows is just as a country, we 
have kind of shirked our responsibilities for ensuring that we 
are paying for the goods and services that our Nation demands.
    Mr. Boyle. And to be clear, it is just reclaiming my time 
because this was something else that needed to be corrected, 
and we have two sides of this obviously, the corporate income 
tax side and the personal income tax side. Personal income tax 
side, our top marginal rate 37 percent, significantly lower 
than where it was in the 1940s, 1950s, 1960s, 1970s. Brief 
period in the 1980s it was a little bit lower, but for most of 
Reagan's Presidency it was higher, and then, of course Clinton 
when he came in raised the top marginal tax rate, and what 
followed was a remarkable period of economic growth for most 
Americans, as well as our stock market and reduction in 
poverty.
    Now, on the corporate side, in the 15 seconds I have left, 
the TCJA of course lowered the top tax rate, nominal rate, from 
35 percent to 21 percent. Compared to what CBO predicted we 
would be getting in corporate tax revenues before the TCJA 
versus what happened afterwards, $119 billion shortfall a year 
after the TCJA took effect, another $100 billion shortfall, 
$160 billion shortfall. Those were all in the next three years, 
again according not to my figures but the nonpartisan 
Congressional Budget Office.
    So, there is no question that the so-called Tax Cuts and 
Jobs Act was a massive tax reduction for corporations and the 
richest one percent.
    With that, I yield back.
    Chairman Arrington. Thank you, Mr. Boyle.
    We will now yield five minutes to the gentleman from 
California, Mr. McClintock.
    Mr. McClintock. Thank you, Mr. Chairman. The Ranking 
Member's view of the Trump tax cuts reminds me of the story of 
the economist who said, well, that might work in practice, but 
it will never work in theory. My Democratic colleagues seem to 
believe that taxes are simply a cashbox with a dial. Turn it 
up, they produce more revenue. Turn it down, it produces less.
    But Dr. Mazur touched on this, the Laffer Curve, which 
explains why that view is so wrong. A zero percent tax rate of 
course produces zero revenues, but so does a 100 percent tax 
rate produce zero revenues because it utterly destroys the 
incentive to produce. So, as the tax rate rises, the incentives 
to produce new wealth slowly diminish and the incentives to 
avoid or evade the tax slowly increase at the same time, until 
the curve reaches a point of equilibrium, in which any increase 
in tax rates actually produces lower tax revenues.
    Dr. McBride, do I have that right?
    Dr. McBride. That is correct. That is certainly a real 
thing.
    Mr. McClintock. And history teaches us very clearly that 
this is the case. In the last 60 years, the top income tax rate 
has been as high as 91 percent and it has been as low as 28 
percent, but Federal tax revenues have stayed remarkably steady 
at between 13 percent and 20 percent of GDP, and indeed, some 
of the lowest tax revenues came when the top tax rate was at 
its highest and some of the highest revenues came when the top 
tax rate was quite low.
    But although the tax rates within this envelope has 
remarkably little effect on revenues, I do think that it has a 
big impact on economic growth, and experience, practice, tells 
us that that is the case as well.
    We keep hearing that the Trump tax cuts favored the 
wealthy. Well, Dr. McBride, you are Tax Foundation, right?
    Dr. McBride. Correct.
    Mr. McClintock. Didn't you folks report that the taxes paid 
by the top one percent went up while the other 99 percent of 
Americans saw their taxes go down with the Trump tax cuts?
    Dr. McBride. The share of taxes paid by the top one 
percent, yes, reached a, I believe at least a 20-year high.
    Mr. McClintock. The top one percent actually saw their 
share rise from 38 percent to 40 percent. Correct?
    Dr. McBride. Correct.
    Mr. McClintock. And the top one percent of taxpayers, they 
earned 19 percent of all income in the country, and yet they 
ended up paying 40 percent of all of the income tax revenues. 
Do I have that right?
    Dr. McBride. That is right.
    Mr. McClintock. So, when they say the wealthy ought to pay 
their fair share, what they are really arguing for is to cut 
their taxes in half. Do I have that right?
    Dr. McBride. Sounds right. Yes.
    Mr. McClintock. Dr. McBride, when we cut taxes during the 
Trump Administration, did tax revenues go up or go down?
    Dr. McBride. They certainly went up, and they went up 
beyond expectations.
    Mr. McClintock. But the deficit also went up. Why was that?
    Dr. McBride. Spending went up.
    Mr. McClintock. And faster, right?
    Dr. McBride. Much more. Yes. It remains considerably 
higher.
    Mr. McClintock. I have been trying to point out to my 
friends on the other side it is the spending, stupid, and that 
is the point, deficits are simply a deferred tax. We borrow now 
and then we have to pay it back in the future or we simply 
inflate the economy and everybody pays it back at the grocery 
store and the gas station, and this Administration has made a 
science of both of those.
    When Reagan cut taxes, did tax revenues go up or go down?
    Dr. McBride. They went up eventually.
    Mr. McClintock. Yeah. Well, eventually because the tax cut 
was postponed for two years, and as Art Laffer had explained to 
President Reagan at the time, Mr. President, how much shopping 
do you do at a store the day before they have their year-end 
sale? But the point is the economy responds to these things, 
and the Democrats used to understand that. When Truman took 
office, he abolished the excess profits tax, he slashed Federal 
income tax rates, and we had the post-war economic boom.
    Look, the Ranking Member is right, Clinton did raise taxes 
shortly after taking office, and he took such a drubbing at the 
polls, they lost the congressional majority. He completely 
reversed course, came to the Congress, and declared the era of 
Big Government is over, and what did he do? He provided what 
amounted to the biggest capital gains tax cut in American 
history. He restrained Federal spending, actually reduced 
Federal spending as a percentage of GDP, and we had explosive 
economic growth and four years of balanced budgets.
    You would think that with that practice in hand, the left 
would abandon their socialist theories, which have never 
worked, here or anywhere else they have been tried.
    I see my time is up. I yield back.
    Chairman Arrington. I thank the gentleman from California, 
and yield five minutes to my friend, Mr. Higgins, from New 
York.
    Mr. Higgins. Thank you, Mr. Chairman. Just a couple of 
things. You know, America remains the world's richest, most 
dynamic, and productive economy. It is the largest economy. It 
is 25 percent of the world's economy. It is a $24.5 trillion 
economy. America was 40 percent of the world's seven largest 
economies in 1998. Today, it is 58 percent, or an 18 percent 
increase. America is home to 11 of the top 15 universities in 
the world. Tech investment raised $150 billion, or 49 percent 
of the global total, and more than double that of China.
    In the United States today, as the Ranking Member has said, 
that U.S. recovered from the coronavirus pandemic faster than 
any major economy in the world. Unemployment is at a stunning 
low, 3.4 percent. Biden's economy grew three times the average 
pace of the previous economy. Real incomes are rising. 
Manufacturing is booming with 800,000 new jobs. Employment has 
grown under this Administration by 14 million jobs. Even 
inflation, which this month was at 4.1 percent, is lower than 
the global average of 5.2 percent, and two percentage points 
lower than the average inflation in Europe. Even the budget 
deficit, 15.6 percent of the economy at the end of the Trump 
Administration, has dropped to 5.5 percent at the end of last 
year.
    Now, I was just looking at the last 34 years. You have had 
three Republican administrations and you have had four 
Democratic administrations. We have had four recessions and 
four recoveries.
    Under George H.W. Bush, Bush one, the deficit grew by $300 
billion and drove the economy into recession.
    Under the Clinton Administration, he fixed the broken Bush 
economy and grew the economy by four percent each year, 
sustained over an 8-year period, a $400 billion in debt 
reduction and left Bush two, George W. Bush, with a $260 
billion surplus.
    Bush two took the Clinton surplus and turned it into a $1.2 
trillion deficit and drove the economy into its worst recession 
since the Great Depression in 2008.
    Obama came in, cut the Bush deficit by $600 billion.
    Trump increased the deficit by nearly $2 trillion, lost 
three million jobs, including 200,000 manufacturing jobs, and 
accumulated $8 trillion in debt, which necessitated the raising 
of the debt ceiling three times.
    Biden created 14 million jobs.
    I mean there is a trend here, and each of these 
Administrations that failed economically adopted a supply side 
economic policy that disproportionately gave tax cuts to the 
very wealthy, and each time, those economies have failed 
miserably and then were saved by the Democratic Administrations 
that came in, invested in the growth of the American economy, 
and that is what the economy did under those Administrations.
    Dr. Mazur, what am I missing here?
    Dr. Mazur. I think one thing that we all tend to do is 
overstate the role of the tax system in what is going on in the 
U.S. economy. It is a contributor, but it is not the driving 
force.
    The U.S. is a very strong economy, as you point out, four 
percent of the population, 25 percent of the world's economic 
output. That means we are in a position where we have lots of 
strengths: a good labor force, good capital markets, good rule 
of law, supportive Federal Government, supportive rules, and so 
on. So, the tax system is just part of the process.
    I guess I might quibble a little bit with assigning blame 
to each of these Administrations or credit. It is true that the 
economic policies of the Democratic Administrations tended to 
raise taxes and put you in a better fiscal position. That part 
is true, but whether----
    Mr. Higgins. Does infrastructure investment grow the 
economy?
    Dr. Mazur. Yeah. I think that one of the major benefits of 
the infrastructure bill that was passed is it allows there to 
be high rates of return investment in every state of the 
country.
    Mr. Higgins. Because that is an investment in the growth 
and the productivity of the American economy. Tax cuts that end 
up as stock buybacks do not contribute to the growth of the 
economy, and what I am simply pointing out here is that there 
is a trend that is historical and factual.
    Mr. McClintock [presiding]. The gentleman's time has 
expired. Mr. Estes.
    Mr. Estes. Well, thank you, Mr. Acting Chairman. I 
appreciate the opportunity. Thank you to our witnesses for 
being here today. I am glad we are having this hearing today. 
Talked a lot about last week's CPI numbers and confirmed that 
the American economy does need help to be reignited.
    The Kansans I represent are still suffering under 
Bidenflation, and tax policy lays an important foundation for 
helping economic growth for everyday Americans. You know, 
families and small businesses have suffered for more than two 
years under the failings in these economic policies of the 
Biden Administration.
    Inflation is up five and a half percent since Joe Biden 
took office in January of 2021, much higher than any of his 
predecessors over the same period of time, and instead of 
addressing this issue, the President in his budget proposed 
$4.7 trillion in tax increases at a time when Kansans are 
already paying 14 cents out of every dollar they earn in direct 
Federal taxes, not including the taxes they have to pay through 
the purchases of businesses, that ultimately pay taxes, from 
the income from Kansans. You know, this is the opposite of 
incentivizing of economic growth, if we want to increase that 
amount.
    I do have a couple of ideas about tax policy that the 
President could put in place to make that important, and I want 
to talk about that a little bit, but one of the things I want 
to at least touch on that was brought up earlier and, you know, 
talking about the difference between in theory versus in 
practice. You know, the Tax Cuts and Jobs Act that was passed 
in 2017 obviously is sort of like an investment that you might 
make in a business, is that you change the tax code to make 
sure that you incentivize the behavior you want, and as a 
result, we have seen the economy take off and grow.
    So, the first few years you may have lower tax revenue, as 
mentioned by my friend, the Ranking Member, for the first 
couple of years, first three years that that went into place, 
the tax revenue was down over prior years, but the last two 
years we have already seen we have turned a corner. That 
investment from the Tax Cuts and Jobs Act, I mean, raised over 
$200 billion more than the CBO estimated in 2021, and in 2022 
raised over $900 billion in actual tax receipts more than what 
the CBO had estimated. So, obviously we are seeing some 
positive results out of that by making sure the economy keeps 
going.
    I mentioned there are a couple bills that the President 
could consider to help get the economy going. One is a 
bipartisan bill, the American Innovation and R&D 
Competitiveness Act. That restores immediate expensing for 
research and development cost. This legislation was part of the 
larger tax cut and economic growth package that we passed 
through Ways and Means last week, the Build It in America Act, 
and it has already been reported out of committee.
    It is a promising start. I mean, it will change our tax 
code to help generate innovation and foster job growth, so that 
we don't cede any more ground to our adversaries. You know, 
just as a point of reference, you know, our main competitor, 
China, has seen its R&D investments increase 400 percent in 
just two decades. While the United States' share of global R&D 
investment in 2019 was 30 percent, China's was 24 percent. You 
know, that is a far cry from where we were in 1999 when the 
U.S. was at 40 percent and China was at nine percent. So, 
obviously we have seen a huge growth making those smart 
investments.
    Mr. Kuhlman, will restoring R&D expensing reduce the tax 
burden on new investments, and how will that help spur economic 
growth?
    Mr. Kuhlman. Yeah. I think, yes, R&D spending will. It is 
especially a big deal when cash flow is tight and as interest 
rates are increasing. That is certainly the case. I have been 
hearing particularly from manufacturers, engineering firms, 
architecture firms, technology companies that it certainly 
would be helpful.
    Mr. Estes. Well, thank you, and a second thing we need to 
do, talking about tax policy, we need to focus on what is being 
bantered about by the Biden Administration on the OECD Pillar 
Two tax scheme that the Administration has been pursuing. 
Basically, what their proposal is that the OECD would dictate 
what U.S. companies pay as a tax rate on operations inside the 
United States, and actually would be detrimental to U.S. tax 
receipts.
    So, according to the Joint Committee on Taxation, if this 
global implementation of the global minimum tax as defined in 
Pillar Two is implemented, the United States will lose $120 
billion in tax revenue that will be lost, and even if the 
United States changes its tax code to match and to copy what 
the rest of the world does, we would still lose $58 billion in 
tax revenue. So, businesses are going to lose money and we are 
going to get less tax revenue in the United States. That is 
just a poor policy, and we need to make sure we don't proceed 
down that route.
    So, I know I could go on for a whole lot longer, but I am 
out of time, and I yield back, Mr. Chairman.
    Mr. McClintock. Mr. Blumenauer.
    Mr. Blumenauer. Thank you, Mr. Chairman. I hesitate to 
contradict my Ranking Member, but there were actually----
    Mr. Boyle. Ms. Schakowsky is now recognized.
    Mr. Blumenauer [continuing]. There were actually more 
Democrats who voted for the NAFTA revision than Republicans. 
Just keep the record straight, but I do appreciate you and Mr. 
Higgins laying out what the facts are regarding whether or not, 
somehow the economy is some sort of rapid decline as a result 
of 29 months of the Biden Administration. There have, in fact, 
been more jobs created, 13 million additional jobs, compared to 
the miserable experience that we had under the four years of 
the previous President. Those are facts that can be verified. 
We have 28 consecutive months of job growth under the 
``failed'' policies of President Biden. Doesn't seem to make 
sense. We are at historic low record of unemployment, and for 
Black Americans, it is an all-time record. Hardly the 
characteristics of failed policies. To the contrary, in terms 
of growth, in terms of jobs, those are examples of where it is 
in fact working, and as have been pointed out here before this 
panel, problems of inflation are not unique to the United 
States, but in fact, the record of the United States is that we 
have done a better job of dealing with inflation than the other 
major economies around the world. I mean, again, Germany, 
France, Italy, the United Kingdom have experienced far more 
unemployment and inflation than we have, and I would suggest 
that it is important to try and put this--we can go ahead on 
our rhetorical flourishes and talk about theories about what 
would work or what not, and make rhetorical attacks based on 
socialist policies and communism and other delusional theories, 
but the fact is our democracy and its economy are doing better 
than any other major economy in the world, and it is time that 
we will be able to reflect on the performance of the Biden 
Administration.
    It seems to me as we are talking about taxation and 
generating revenues, I am saddened to say that my colleagues, 
when they got their hands on the levers of power and be able to 
advance policies, one of the first policies they advance would 
increase the deficit by slashing enforcement of our taxes. Now, 
we can debate about what the right level is and who should pay 
it, but I think it is unconvertible that people should pay the 
taxes they owe now under the existing system, and those of you 
who purport to represent small business, I would think that you 
would want to make sure that they are protected by making sure 
that people who owe taxes pay what they are responsible for 
doing. That should not be an item of contention. The tax system 
that has the least friction is collecting the taxes that are 
already due and are not being paid, and sadly, the evidence is 
the further up the food chain you get, the richer you are, the 
larger the corporations, they have less compliance, not more. 
We ought to embrace those investments to inject a sense of 
fairness, so that they are not disadvantaged by people who 
cheat. That is not in anybody's interest.
    Finally, it seems to me that the recent proposal from my 
Republican colleagues to gut the inflation reduction proposals 
to incent investments in alternative energy, which are working, 
there are billions of dollars that are being committed, largely 
in red states, to take advantage of those provisions, and it is 
sad that the majority wants to strip those out of the tax code. 
Mercifully, they won't be successful and they shouldn't be 
because they are working for the American people.
    Thank you and I yield back.
    Mr. McClintock. Mr. Bergman.
    Mr. Bergman. Thank you, Mr. Chairman. I find it interesting 
that too many of us in our 435-member body spend the five 
minutes of valuable oxygen consumption time talking rather than 
listening, but it is what it is. We all run every two years and 
we have to figure out a way to get back here.
    So, let's talk to the folks that are sitting somewhere in a 
mom-and-pop restaurant today or in a machine shop that maybe 
employs four or five folks, and so, if they were listening to 
this, it is on their lunch break, and all their employees are 
listening, how much of what has been said here today do you 
think they would understand, as it relates to their daily 
lives? And are we, whether it be us here on the dais or you at 
the table, are you actually, not necessarily thinking in terms 
that they will understand, but utilizing examples that a small 
mom-and-pop business understands?
    Anybody want to offer comment? Are we in our own little 
bubble here as we have these high-level, philosophical, a lot 
of cases nondecision-making discussions? Anybody want to offer 
comment?
    Mr. Kuhlman. Congressman Bergman, thank you. Just last 
week, there were about 200 NFIB small business owner members in 
town. Met with many offices, including yours and you. So, thank 
you for meeting with them, but it was, we just encouraged them 
to tell their story, share their story about it. We follow it 
at a macro level but we always think that the individual 
stories are much more important, and it was, you know, how tax 
relief was reinvested back into the people and into their 
production, and not into their bank accounts.
    Mr. Bergman. Have we as the Federal Government made it too 
complicated?
    Mr. Kuhlman. Yes, and they do acknowledge that things are 
very complicated.
    Mr. Bergman. So, the point is if we have made it too 
complicated, if we looked at and when we talk about corporate 
taxes, where we talk about taxing the wealthy, which is I 
think, if I remember in my first term in Budget seven years 
ago, the math was said if you taxed the wealthiest one percent 
115 percent of their income, which seemed a little weird, that 
it still didn't even come close to beginning to reducing the 
national debt. The numbers don't match. It is a nice soundbite 
to play, but the math doesn't work.
    So, I would like to hear from whoever wants to offer 
comment on the following statement. If we eliminated--well, is 
it a fair statement to say that corporate income tax is very 
simply passed along to the end to the consumer? If I am a 
business and I pay corporate tax and I do my structure and I do 
what my market forces will allow me to do as a business, is it 
fair to say that corporate taxes are passed--those expenses and 
paying the corporate taxes, eventually are passed along to the 
consumer?
    Mr. Kuhlman. Yes, and especially in an environment now 
where businesses have become as efficient and productive as 
they possibly can. They are dealing with stubbornly high 
inflation. Certainly the costs do have to be passed along.
    Mr. Bergman. So, the point is, is it time that we--should 
we just consider getting rid of the corporate income tax 
because the consumer pays it anyway? And if you are a corporate 
executive making $20 million a year, you just pay that tax on 
it and that revenue comes direct to the Government?
    Dr. Mazur. I think I want to disagree with that, that the 
literature shows, and we talked about this a moment ago, from 
Treasury, Joint Tax Committee, Congressional Budget Office 
shows that about 80 percent of the corporate income tax is 
borne by capital. So, shareholders generally pay for that, not 
consumers. Now, the other 20 percent, 20, 30 percent is borne 
by labor and consumers. So, there is a portion of it, but the 
largest portion----
    Mr. Bergman. Okay. So, but you said borne by capital.
    Dr. Mazur. Yeah. The shareholders.
    Mr. Bergman. Okay. So, the point is in the long term, if we 
are trying to create an economy that is streamlined so that 
people working, whether you are the business owner or just that 
employee working there and paying your personal income tax, 
that you can live the kind of life that your grandparents had 
hoped for when they were struggling through the 1930s and 
1940s, and I see my time has run out, so I guess we will have 
to take that for another time, but I always appreciate, I will 
always defer to Mr. McClintock because of his ability to take 
these complex things and break them down for folks like me.
    Mr. McClintock. As much as it pains me to interrupt the 
gentleman in such a compliment, the gentleman's time has 
expired.
    Ms. Balint. Ms. Balint.
    Ms. Balint. Thank you, Mr. Chair. Thank you all for being 
here today to talk about these issues. They are very important 
to me.
    I come to this hearing as a teacher from Vermont who has 
worked in four different rural public schools, and have really 
direct experience with dealing with rural poverty, and right 
now, one in 18 Americans live in what writer Matthew Desmond 
has called deep poverty. One in 18. He said it is so low he 
refers to it as subterranean level of scarcity, and rates of 
poverty in this country have really not changed since the 
1970s, and today, a minimum wage full-time worker cannot afford 
a two-bedroom apartment anywhere in America. Anywhere. So, in 
all of our districts, and this obviously should trouble all of 
us, that people are working as hard as they possibly can and 
they--you know, we can talk about investments, we can talk 
about stocks, we can talk about, you know, who is better off. I 
can tell you most folks are not better off right now.
    Dr. Mazur, as you know, for decades, the Republican Party 
has carried out essentially the same playbook of cutting taxes 
for the rich and then feigning concern over the deficit. We 
just went through this. It is really fresh in our minds, and 
then, proposing spending cuts to vital programs, such as Social 
Security and Medicare, and I know my colleagues are also teeing 
up part two of the Trump tax cuts when we haven't even been 
able to pay for the first phase. First phase cost us a whopping 
$1.9 trillion and has led to a proliferation of billionaires in 
the United States, and in 2018, for the first time ever in our 
country's history, the richest class of Americans paid a lower 
tax rate than working Americans and the average effective tax 
rate of the top 0.1 percent of households dropped by 2.5 
percentage points. The greatest legislative achievement did 
nothing to address the unbelievable wealth inequality in this 
country, and according to April data from Forbes, the United 
States now has 735 billionaires, the highest number of 
billionaires in the world, who consistently use our tax code to 
the maximum advantage at the expense of American working 
families, like the Vermonters in my district.
    And just this week, we learned that one of these 
billionaires may be exerting influence over the Supreme Court. 
According to ProPublica, hedge fund billionaire Paul Singer 
spent some of his vast fortune to take Justice Samuel Alito on 
a luxury fishing trip, and he repeatedly had cases concerning 
his company in front of the Supreme Court.
    Now, I am a daughter of an immigrant, and my parents, like 
so many others, sought to achieve the American Dream here. 
However, the current American Tax Code has rendered the 
American Dream basically unattainable for most people.
    Dr. Mazur, it is difficult for many of us to imagine it, 
but what would a more equitable tax structure look like today? 
What is possible?
    Dr. Mazur. So, a couple things are possible, I guess. One 
is that you could rebalance the tax code so that higher income 
people pay a larger share of their income for taxes, and that 
could be either through payroll taxes for Social Security and 
Medicare or through income taxes.
    You could look at the preferential rate on capital gains 
and dividends. There is a lower rate put on dividends that was 
supposed to account for the 35 percent corporate tax rate. It 
did not get changed when the corporate tax rate went to 21 
percent. You could imagine changing that.
    Ms. Balint. Can you unpack that a little bit more for 
people? Because I think it is really important.
    Dr. Mazur. Sure. So, Congress passed a lower tax rate on 
dividend income back when the corporate tax rate was higher 
than it is today, and part of the stated reason was that, well, 
corporations already pay a high rate of tax. You are being 
double taxed on this dividend as it comes through, but when the 
corporate tax rate was dropped, the preferential rate wasn't 
changed at all. So, you kind of get a double benefit from that.
    So, that's just a few things. One point that you made that 
I think deserves emphasis is looking at the minimum wage.
    Ms. Balint. Yeah.
    Dr. Mazur. We have not increased the minimum wage in the 
United States in decades.
    Ms. Balint. It is disgusting is what it is. It is 
disgusting.
    Dr. Mazur. Yeah, and you are right that you can't afford to 
live on a minimum wage job.
    Ms. Balint. No. You can work 40 hours a week in this 
country making minimum wage and not be able to afford housing, 
basic housing, not great housing, basic housing for your 
family. This should not be happening, and we should not be 
letting it happen.
    So, I yield back.
    Mr. McClintock. The gentlelady yields back. Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman, and thank you all 
for being here today.
    So, I just want to go through a couple of things here that 
just kind of make my brain hurt a little bit. We have got, my 
colleagues on the other side of the aisle are screaming about 
corporate America paying their fair share, okay. Whatever that 
number is, okay, because of the Inflation Reduction Act and the 
infrastructure plan, there have been over a trillion dollar's 
worth of tax credits made available to corporate America, 
right? So, the very people that my colleagues on the other side 
of the aisle say they want to pay higher taxes, the wealthiest 
corporations and the wealthiest individuals can now buy these 
tax credits and their effective rate becomes zero. Correct?
    Dr. McBride. That is correct. Yeah. That is----
    Mr. Ferguson. All right. So, we are screaming about 
corporate America paying more taxes, and yet we are going to 
turn around and give them what now is about a $1.2 trillion tax 
credit to offset the tax rates. So, we are going to raise you, 
but we are going to allow you to pay zero. I just want to make 
sure I am right on that, right?
    Dr. McBride. That is absolutely correct.
    Mr. Ferguson. Okay. I got that.
    Dr. McBride. It is called----
    Mr. Ferguson. Number two----
    Dr. McBride [continuing]. Subsidizing and penalizing at the 
same time.
    Mr. Ferguson. Exactly. So, that is number one. Number two, 
Pillar Two, OECD, that is going to remove $300-plus billion 
from the revenue stream if that goes through. $300 billion. So, 
now, we are telling corporate America we want you to pay more 
in higher taxes but we are going to give you a $1.2 trillion 
offset, and then, by the way, we are going to give about $300 
billion of our taxing authority away to other countries. Now, 
that to me just is a really bad policy.
    I then hear my colleagues talking about raising tax rate, 
lowering tax rate, doing it with Clinton, doing it after 
Clinton, before Clinton. We need to recognize that we are in a 
global economy and we need to be doing everything that we can 
with our economy to make America the best place in the world to 
invest, create jobs, and sell around the world, period. So, we 
can have a lot of discussions over spending, where things 
should go, but the unifying philosophy for this body should be, 
are the decisions that we are making make America more 
competitive or less competitive? Do they create more jobs, do 
they take away more jobs? Are we doing more to invest in 
research and development and come up with new ideas or are we 
trading that away to other parts of the world?
    So, when we look at all of this debate about revenue and 
spending, raise the corporate rate ten percent. Raise the 
individual rate to 40 percent. These folks are going to take 
advantage of the refundable credits and make their effective 
tax rate zero. So, how in the heck does that make sense? I 
mean----
    Dr. McBride. It doesn't make a lot of sense. I agree. The 
major outcome of that approach is complication, further 
complication of the tax code. So, lots of measures of how 
complex the tax code is, but one is the number of words, about 
four million words and counting.
    Mr. Ferguson. All right. So, for folks that have not lived 
in an area or that currently do live in an area without a 
manufacturing base, okay, it is incredibly difficult to sustain 
a community or a county or a state unless you have 
manufacturing there, okay. I mean it just is, and when I say 
manufacturing, a major job creator that is the economic 
backbone of a county or a city or a region. That is what feeds 
off all of the other small jobs and small businesses that we 
see growing in a community.
    So, if we raise the corporate tax rate, okay, and we don't 
move off the snide on this trade policy that we have got, we 
are falling further behind, and by the way, we are going to see 
less tax revenue coming in because we are giving people 
refundable credits and we are giving away part of our taxing 
authority to the tune of about $300 billion, and by the way, 
does that do anything for American competitiveness and job 
creation? Dr. McBride, I will let you answer that question.
    Dr. McBride. No. What it does is you could say level the 
playing field, but it levels the playing field across the world 
with a higher level of corporate taxes, which dozens of studies 
show are----
    Mr. Ferguson. But let me add----
    Dr. McBride [continuing]. Detrimental to economic growth.
    Mr. Ferguson [continuing]. Level it with higher taxes, but 
our biggest corporations aren't going to be paying taxes 
because they are going to use the refundable credits.
    Dr. McBride. That is right. So, what we are getting is a 
high marginal rate that applies generally combined with a bunch 
of preferences for specific companies, industries, and 
taxpayers.
    Mr. Ferguson. Time has expired, but thank you for helping 
me expose the hypocrisy of this conversation. Thank you.
    Mr. McClintock. Ms. Schakowsky.
    Mr. Ferguson. Yield back.
    Mr. McClintock. Ms. Schakowsky.
    Ms. Schakowsky. Thank you.
    So, you know, this Committee comes up with very interesting 
titles. The second part of the title of today's hearing is 
Incentivizing Economic Excellence Through Tax Policy, but I 
would think that it is more accurate by saying what we have 
right now is incentivizing economic inequality through tax 
policy, and, you know, we are the richest country in the world, 
except that we are also, I think, number one in the world of 
industrialized nations of the inequal distribution of that 
wealth right now. There are three American families, it is 
Bezos and, let's see, what are the three, Musk. No, it isn't 
Musk. It is Buffett and who was the third? Okay. Anyway, three 
American families, I don't want to take my own time, that has 
as much wealth as the bottom half of Americans. Think about 
that, and you heard, I thought, a really good explanation and 
examples of how this has affected Americans in our country, and 
so, it just seems to me that we need to focus, if we are really 
concerned about not just equity--and let me ask you, Secretary 
Mazur. You mentioned what it takes to have--and I don't want to 
blame everything on tax policy, but you did say that you 
thought the people that have the most ought to pay more. How 
would you justify this to some people in this room?
    Dr. Mazur. I think one of the basic criteria of good tax 
policy is vertical equity, and what vertical equity means is 
higher income people pay a larger share of their income than 
lower income people. That is reflected in a progressive tax 
rate schedule, but there could be other ways to do that as 
well, and it really is just a basic sense of fairness, that 
those who get the most from the system sort of pay the most for 
maintaining that system.
    Ms. Schakowsky. So, right now, what we are seeing is that 
the Republicans are coming up, as you have heard, with a 
proposal of a major tax cut, it looks like it will also go to 
the wealthiest Americans, and at the same time talking about 
paying for it through things like, that have been suggested, 
cutting Social Security, raising the age to now 69 is the 
proposal by the majority of the Republicans right now, and 
looking at so-called entitlements, which of course people pay 
for through every paycheck, and is this, in your view, as 
someone who deals with the economy, going to make our economy 
stronger, these choices of lowering the tax cuts mostly to the 
wealthy and cutting the benefits and the programs that help 
lower income people?
    Dr. Mazur. I mean, I think making the country stronger from 
a fiscal perspective requires two things: one, more revenue, 
and two, some breaks on spending, and I think Chairman 
Arrington talked about that as these are the two levers that 
you can move, and really, it is a matter of balance getting 
that right. Our revenues today are too low to pay for the goods 
and services that we as a country demand. If we want to demand 
less, that is okay, but we still need to raise the revenues to 
pay for the ones that we demand that are out there, and you are 
right about some of the entitlements. People have paid into 
them with the understanding that they will be there for them 
when they retire, Medicare and Social Security in particular, 
and so, those are promises to future generations that we as a 
country need to redeem.
    Ms. Schakowsky. The other wealthiest person was--let me 
see, they are, thank you, I appreciate that, Gates, Warren, and 
Buffett.
    But--oh, time. Okay. I yield back.
    Mr. McClintock. Mr. Moore.
    Mr. Moore. We know it is not me and probably anybody in 
this room.
    Ms. Schakowsky. Thank you.
    Mr. Moore. I wish the Chairman was here because I don't 
like to give other people compliments on my birthday. I try to 
reserve those solely for myself, but I will be remiss if I 
didn't just hit on the topic of credibility. It is a currency 
that is dwindling in this place of Congress, unfortunately, and 
I really appreciated his opening statements. To be able to 
stand in front of a sitting Committee and fully state that he 
wishes his party, my party, and I share the sentiment, could 
have done more and would have done more about spending, overall 
spending, mandatory direct spending or discretionary spending 
across the board, wished in 2017 when we had majorities in the 
White House, the House, and the Senate, wish we would have done 
more, and we would have had an even stronger argument, in my 
opinion, of what I think is a pretty strong argument with 
respect to the Tax Cut and Jobs Act, but I truly wish that 
would have been the case, and I appreciate his willingness to 
be--he is somebody that has always led that way. He has 
inspired me. It is why I want to be close. I am on both of the 
major committees that he is on, and it is a currency that we 
just don't have much of back here, and I appreciate that from 
our Chairman, and also, the minority witness, Dr. Mazur, you 
earlier said I would quibble or I would hesitate to just fully 
lay blame or cast the context that it is, you know, laid out 
that it is this President did this, this President did this. I 
have heard it communicated oftentimes sometimes the economy is 
what makes the President actually, and, you know, our economic 
cycles go in a certain way that sometimes you catch the tail 
end. I don't blame the entire 2008 financial crisis on 
President George W. Bush. No way. Right. That has been policy 
that has gone on for years and neglect of a lot of different 
things with lots of players. So, I appreciate, you know, that 
concept of credibility.
    I was back in Utah with my colleague from the third 
District, John Curtis, Representative Curtis, and he actually 
put it better than I have ever heard anybody say it, and I am 
going to talk about calling the tax scam, calling the Tax Cut 
and Jobs Act the tax scam for the rich. I am going to just 
emphasize the way he communicated it. He said, it is uncanny to 
me that when the Democrats have an--you know, they can 
communicate a message and stay on that point so much that 
ultimately the media and a large group of people will 
ultimately believe it, and, you know, we will stand up as 
Republicans and list out all this data. I am going to do it 
again. List out all this data and all this good information 
that refutes that fact, and oftentimes, my colleagues from the 
other side of the aisle, all they have to do sometimes is stand 
up and say, this is a tax cut for the rich, and literally that 
is the narrative that continues on.
    I resent and I would hope that we could actually agree that 
the Child Tax Credit is not a tax scam, that real wage growth--
because the Tax Cut and Jobs Act didn't create an enormous 
amount of inflation. It didn't create any. We were able to see 
real wage growth take place. You had a doubling of the standard 
deduction. Is that a, you know, direct benefit to the wealthy?
    In fact, I will ask the question. Dr. Mazur even, asking 
the minority witness a question. Would you say that the 
standard deduction is a benefit to the wealthy? Would you also 
say that SALT, the way we address SALT, by saying what was the 
average across the country of state and local taxes in that 
deduction, let's double it, and is that a benefit to the 
wealthy, what we did on SALT?
    Dr. Mazur. There are pros and cons to all these things, 
right. So, if you take individual items, you can say they 
benefited high-income people or lower-income people. The Tax 
Cuts and Jobs Act had lots of moving parts. So----
    Mr. Moore. Yeah. Oh, it is a very large piece of 
legislation. In fact----
    Dr. Mazur. And so, when you talk about the SALT deduction, 
you also largely repealed the alternative minimum tax, and many 
people who feel that they lost the deduction for their state 
and local taxes actually lost it under prior law through the 
alternative minimum tax.
    Mr. Moore. Right. So, I don't disagree with any of that, 
and I am trying to make the point here that so many provisions 
in the Tax Cut and Jobs Act weren't just this benefit to the 
wealthy, and I think it is a disingenuous narrative, but this 
place is what it is, I get it, and I would like to just, with 
my remaining time that I used way too much, focus on just one 
last thing. We had the R&D tax credit. To Dr. McBride, the R&D 
tax credit, can we look at that and say this is something we 
have got to preserve and work together? Would you suggest that 
Congress try to work together on a bipartisan way to make this 
happen, so we can make sure that we can write off these 
expenses in that first year?
    Dr. McBride. Well, you mentioned R&D credit. I think you 
mean R&D expensing, and that is the item that----
    Mr. Moore. R&D expensing, yes.
    Dr. McBride [continuing]. Has now expired and we are now 
faced for the first time ever in this tax code we have had for 
100 years where businesses are required to wait for those 
deductions and suddenly figure out how to amortize R&D 
expenses, which are primarily labor expenses, about 70 percent. 
So, this is, yeah, paying scientists and stuff like this.
    Mr. McClintock [continuing]. Sadly, the gentleman's time--
--
    Mr. Moore. Thank you.
    Mr. McClintock [continuing]. Has expired.
    Mr. Moore. Appreciate it.
    Mr. McClintock. Even more sadly, they have called one of 
these pesky annoying votes that just disrupt the schedule and 
are just very annoying, but there it is. So, I think there are 
three votes scheduled, so it will probably be about 30, 35 
minutes or so. So, you all go out and get a cup of coffee or 
whatever and I apologize for that, but it is an occupational 
hazard at this job. We are all going to go vote. You go out to 
coffee and we will all come back in about a half-hour or so. 
Thanks. Committee stands in recess.
    [Recess.]
    Chairman Arrington. We now have the requisite Members of 
the Committee from both sides of the aisle. So, we are going to 
reconvene here. The Committee will come to order, and now, Mr. 
Scott, I know you are getting yourself situated. So, I don't 
want to start the clock on you. He is walking up here ladies 
and gentlemen of the upper deck. He is going to take full 
control of the Ranking Member's chair and let's hope he doesn't 
drive us into the ditch like Brendan Boyle has done too many 
times. This is what you get. It is an open mic when everybody 
else is gone.
    Mr. Scott. He made it.
    Chairman Arrington. Yeah, so----
    Mr. Scott. He got away.
    Chairman Arrington [continuing]. Feel free to pick on a few 
of my guys that aren't here.
    Mr. Scott. Well, I will pick on--thank you, Mr. Chairman.
    Chairman Arrington. Ranking Member Scott, the floor is 
yours. I yield five minutes for your questions and answers.
    Mr. Scott. Thank you, Mr. Chairman. Well, I hope I don't 
put us in the ditch like every Republican President since Nixon 
has done. Everyone, every Republican Administration since Nixon 
has left for the Democratic successors a worse deficit than 
they inherited. Every Democrat Administration since Kennedy has 
left for their Republican successors a better deficit situation 
than they inherited. President Trump was on the way to doing 
that before the pandemic. President Biden is doing that 
already.
    So, let me see, Dr. Mazur, we have heard about inflation 
and blaming the President. How is the United States' inflation 
rate compared to the rest of the world?
    Dr. Mazur. Generally, the U.S. inflation rate now is lower 
than other developed countries like in Europe for instance.
    Mr. Scott. So, we have got a global inflation problem and 
we are actually doing better than most.
    Dr. Mazur. Relatively better, yeah.
    Mr. Scott. Dr. Mazur, do tax cuts affect the budget?
    Dr. Mazur. By arithmetic, yes, they affect the budget.
    Mr. Scott. Well, some don't apparently believe in simple 
arithmetic like adding and subtracting because you know that 
the, under PAYGO, that Democrats have as a budget rule, if you 
have new spending, you have to pay for it with either new taxes 
or other spending cuts. You got to pay for it. If you have a 
tax cut, you got to pay for it. Either raise somebody else's 
taxes or spending cuts to pay for it.
    Under the Republican plan, if you have a new spending plan, 
you have to pay for it, but if you have a tax cut, you don't 
have to pay for it. As if they didn't understand what you just 
said that it is simple arithmetic. So, we have heard about 
taxing policy, different tax cuts or different spending 
initiatives can stimulate the economy but on a differential 
basis. Isn't it true that reducing taxes on dividends has a 
negligible effect on, as a stimulus to the economy?
    Dr. Mazur. Yeah, I would think that relative to other 
potential tax cuts, given who the owners of shares are, giving 
them a lower tax rate probably doesn't boost the economy that 
much, and probably doesn't change corporate behavior that much 
in terms of dividends paid.
    Mr. Scott. And you said compared to other tax cuts like 
what?
    Dr. Mazur. Well, if you are thinking you want to boost 
consumption, then you would probably want to provide resources 
to people who are going to consume those tax cuts. So, lower-
income, middle-income people.
    Mr. Scott. Like the Child Tax Credit?
    Dr. Mazur. Child Tax Credit would be one example and I 
think you saw when it was a refundable credit paid monthly that 
it had a pretty substantial benefit to the recipient families.
    Mr. Scott. And the Earned Income Tax Credit?
    Dr. Mazur. Earned Income Tax Credit is similar though one 
caveat in the Earned Income Tax Credit is that for many years, 
the Earned Income Tax Credit has been used as a replacement for 
increasing the minimum wage. Largely to say, we are not going 
to increase the minimum but we are going to give a tax credit 
instead. That works for the people who are eligible for the tax 
credit but not those who don't have qualifying children living 
in their household.
    Mr. Scott. And certain spending would have the same thing, 
like if you increased unemployment benefits, it would have a 
very good stimulus, or food stamps, increase that, that would 
go right back into the economy.
    Dr. Mazur. Generally true.
    Mr. Scott. So, we know which tax policies work and which 
ones don't work. Who basically benefitted from the 2017 Tax 
Cuts and Jobs Act, better known as the Trump tax scam?
    Dr. Mazur. So, the Tax Cuts and Jobs Act that was passed in 
2017 had lots of moving parts. Basically, two-thirds of people 
in the country probably got a tax cut. The tax benefits for 
corporations were generally permanent. The tax benefits for 
individuals were generally temporary. I think there was a 
slightly larger proportional benefit to higher-income people in 
part because they benefit from the corporate tax cuts.
    Mr. Scott. Thank you, Mr. Chairman. I yield back.
    Chairman Arrington. I thank my new Ranking Member, and now 
I yield five minutes to the gentleman from Wisconsin, Mr. 
Grothman.
    Mr. Grothman. I got ten questions so you got to answer 
quick. We didn't get all we wanted in our tax cut, or I didn't, 
and one of my concerns was I thought the purpose of the tax cut 
was to a degree, to make us more competitive with countries 
abroad and there are segments of the population that are more 
important than other segments.
    Manufacturing was always treated special in this country 
through a special credit. That disappeared with the tax cut. We 
only have so much money to pay for tax cuts. Somebody even said 
we don't have enough money to pay for any more tax cuts, but I 
do have a problem if we target it at manufacturing, which has 
to compete with other countries abroad, and maybe if we have to 
target it even more, the machines that are used in the factory 
to make other machines. I tour my manufacturers all the time. 
There is always very important machines printing, that sort of 
thing. Where do they make that machine? It is always Germany, 
Italy, Belgium, Korea, or Japan. Do you think there is a 
problem with targeting the tax cut to those manufacturers as 
opposed to say retail, which is going to be here anyway?
    Dr. McBride. I will take that one. I have a problem with 
that. I mean, I think targeting manufacturing is, first of all 
not a very small target, right? Manufacturing is a huge sector. 
There was a manufacturing deduction years ago that----
    Mr. Grothman. Before we got rid of it, it was a 
manufacturing credit.
    Dr. McBride. That is correct, and it was taken by all sorts 
of taxpayers including publishers. You know, coffeemakers, 
stuff like this. So, manufacturing is just a huge sector, and 
the other thing is that I agree that they are subject to 
competition from abroad. So are other sectors like information 
technology. There is lots of mobility in a lot of sectors.
    Mr. Grothman. Okay.
    Dr. McBride. I suggest----
    Mr. Grothman. I am going to cut you off.
    Dr. McBride [continuing]. Generally lowering the corporate 
rate.
    Mr. Grothman. Yeah, I am going to cut you off a little bit. 
There is an economic argument if you are solely concerned in 
the short term that one business is the same as another 
business. I thought we saw a little in the COVID that there are 
some businesses that are more important for our national 
security than for our wealth. Which is why I wondered about 
targeting manufacturing as opposed to retail or say law 
offices. Do any one of you want to comment on that at all? I 
mean, we used to treat manufacturing better.
    Mr. Pomerleau. Yeah, so it is possible that you could make 
an argument that for national security purposes, certain types 
of production should be in the United States, but I don't think 
that the tax code is a good tool to accomplish that. I think 
tax systems should be primarily used to raise revenue in a 
neutral manner, but if there are national security concerns----
    Mr. Grothman. Okay.
    Mr. Pomerleau [continuing]. That should be dealt with 
elsewhere.
    Mr. Grothman. You can tell me how later, but okay, next 
question we have, we are sometimes criticized for having our 
tax cuts favor the rich. That is inevitable I think because the 
poor don't pay any taxes in the first place, but I do think it 
would be good if to a degree we went after credits that clearly 
are benefitting the wealthy. One of those is carried interest. 
Does anyone want to say that we should get rid of carried 
interest? You can do it if our guys won't.
    Dr. Mazur. No, you should. I think this is an area where 
basically it is ordinary compensation to people in various 
businesses and it is treated in a preferential way.
    Mr. Grothman. Yeah, we are helping the hyper wealthy with a 
different tax treatment. Well, thank you. Any of our guys agree 
with that? Any of our guys, I mean the left three?
    Mr. Pomerleau. I agree with Mark. I think that the----
    Mr. Grothman. Okay, well we----
    Mr. Pomerleau [continuing]. Treatment is under current law 
do support----
    Mr. Grothman. We will try to do that, and I will give you 
another one. Section 42, low-income housing. That is, you know, 
you are giving some guy or gal 85, 95 percent of the value of a 
new building if they rent to low-income people. It offends me 
out of my mind because you have this group of people, who 
probably gives a lot of money up here to, who are getting 
wildly generous tax cuts. Maybe they sell these credits to 
other businesses. Do you feel that is something we should get 
rid of? Or is that, I mean, just say it, you are just 
overwhelmingly benefit very wealthy developers. You want to 
comment on getting rid of that?
    Dr. Mazur. I mean I think the important thing to recognize 
is that that is pretty much the only low-income housing 
project----
    Mr. Grothman. So, you don't think we can----
    Dr. Mazur [continuing]. The Government has.
    Mr. Grothman [continuing]. First of all, low-income housing 
isn't a Federal problem. It is a state problem, but you don't 
think there is any way to get money for housing for poor people 
other than to, in essence give very wealthy developers----
    Dr. Mazur. No, no, if you want to do it through a spending 
side program it could be way more targeted, way better targeted 
than it is, but Congress decided to do it through the tax code 
and as Kyle has said, the tax code's a very blunt tool.
    Mr. Grothman. Any of you other guys? I hate Section 42 more 
than anything that is why I bring it up. Will anyone of you 
guys say it is wrong? It is not good to make the wealthiest of 
developers wildly more wealthy? That is the only way we can----
    Dr. McBride. Yeah, I say it is wrong. I mean, I think most 
of us probably would say that. It is wrong in the same way that 
targeting manufacturing with a special provision is wrong. I 
think the general principle is that the law should apply 
generally, and so, this thing for low-income housing should go 
in favor of lowering rates generally for all taxpayers.
    Mr. Grothman. I guess I am up. I can talk forever if you 
want me to, Chair.
    Chairman Arrington. No, well, we----
    Mr. Grothman. You are going to cut me off, okay. That is 
okay. That is good.
    Chairman Arrington. The gentleman's time has expired. I 
appreciate his comments and questions. I will now yield five 
minutes to my friend Dan Kildee from Michigan.
    Mr. Kildee. Thank you so much, Mr. Chairman, and to 
temporary Ranking Member Scott. Good to see you, thank you. 
Listening to my friend from Wisconsin, it is obvious that there 
are some areas where we have significant disagreement, but 
interestingly enough, some areas where we might find agreement 
when it comes to tax policy. So, I do think it would make sense 
for us as a body, and I serve on the Ways and Means Committee, 
the tax writing committee, to try to focus on tax policy that 
is a bipartisan approach. It is very difficult to do, I 
acknowledge it, but if we are going to have sustainable policy, 
we are going to have to figure out a way to do this in a 
bipartisan fashion that ensures that people and organizations 
pay their fair share and that the obligations for those who 
have significant resources are applied to them, and also, that 
we do have incentives built into the code.
    Now, we can argue about whether or not we do a direct spend 
approach or we use the tax code as a way to get at it. It is a 
blunt instrument, but I don't think we can deny that there are 
priorities that are Federal priorities that we ought to focus 
upon, and I do believe that housing, a fundamental aspect of 
the hierarchy of human needs, ought to be on the agenda for the 
Federal Government, and whatever method we want to use to get 
at it, I am interested in a conversation on that, but I think 
unfortunately what we have seen most recently in the 
legislation that House Republicans have advanced doesn't meet 
those tests. It doesn't substantially cut taxes for working 
families. It certainly doesn't deal with some of the needs of 
the most at-risk people that we face, and we have had 
conversations about the low-income individuals. We certainly 
had conversations about the Child Tax Credit but that didn't 
make it into the legislation. Instead, it overwhelmingly would 
cut taxes for the largest and wealthiest corporations. So, it 
is not a fiscally responsible approach. It increases our 
deficits and exacerbates the inequities in the tax code.
    So, I mean, obviously we may not all agree on that 
particular point, but I think any thoughtful analysis of the 
Republican plan would cause that conclusion to be drawn. For 
example, as a result of Republican tax legislation in 2020, 55 
of the largest Fortune 500 companies don't pay Federal taxes. I 
don't think anybody can defend that when those organizations 
and high wealth individuals pay less in Federal income taxes 
than a teacher in my communities of Bay City or a nurse in 
Saginaw or a factory worker in Midland. So, I am disappointed 
in that, but, Dr. Mazur, I wonder if you might just take a 
moment to comment on the economic and fiscal benefits of first 
cutting taxes for workers in middle-income families to grow the 
economy, and second, making sure that those large corporations 
and wealthy individuals pay more, just to be blunt, more 
meaning their fair share in order to reduce our deficit. I 
mean, it is a fundamental question but that really is the 
question before us.
    Dr. Mazur. Oh, let's start with the second part. Basically, 
if you have a set of goods and services that the Federal 
Government is providing, you should find a way to pay for them, 
and the system that we have in place does not raise an adequate 
amount of revenue to meet that, and so, you need to find 
sources of additional revenue, and you are right to focus on 
large corporations who are paying nothing or small amounts of 
tax and high-income individuals who similarly pay less tax than 
folks further down the income distribution. So, that would be 
the first place to start.
    I guess in terms of tax cuts, I would put that a little bit 
aside before you got the fiscal house in order. Tax cuts are 
not going to be a driving force for making the economy work 
better, right? You want to have a good labor force, good 
infrastructure, well educated population, and so on. Tax cuts 
are sort of secondary to that.
    Mr. Kildee. But in that context though, when I think about 
tax obligations, if you could just briefly address the economic 
impact of, say for instance, the refundable Child Tax Credit.
    Dr. Mazur. So, the refundable Child Tax Credit we saw this 
occur when it was paid on a monthly basis, we saw it improve 
the life situations of the recipients significantly, and so, 
that is a situation where getting additional money into the 
pockets of those people was a good thing. Whether the tax code 
has to do that or if it is some other way, is a discussion. I 
mean, I would be much more in favor of increasing the minimum 
wage than increasing the Child Tax Credit by a similar amount.
    Mr. Kildee. Well, I appreciate that. I appreciate this 
conversation. Obviously, we have a lot of work to do, but I 
would like to pursue some areas of common ground. Mr. Grothman 
made a mention of a particular tax provision that I think we 
all could maybe have a conversation about, and I appreciate the 
fact that the witnesses at least share some common ground when 
it comes to that subject. With that, thank you, Mr. Chairman. I 
yield back.
    Chairman Arrington. I thank the gentleman from Michigan, 
and yield five minutes to my friend Rudy Yakym from Indiana.
    Mr. Yakym. Thank you, Mr. Chairman. I ask unanimous consent 
to submit into the record a report from the Heritage Foundation 
titled, The Tax Cuts and Jobs Act: 12 Myths Debunked.
    Chairman Arrington. So ordered.
    [The information follows:]
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    Mr. Yakym. Thank you, and thank you to our witnesses for 
being here today to share your expertise on this critical 
issue. It is no secret that state and Federal tax policies 
strongly impact economic growth and opportunities for all 
Americans. Every tax dollar that the IRS collects is a dollar 
that hard working families don't get to put towards food on the 
table or a night out at the movies, and it is a dollar that 
businesses don't get to put towards raises for their employees 
or capital expenditures. Repeatedly, we have seen the positive 
impact of tax cuts on everyday Americans.
    For example, in the two years after the passage of the Tax 
Cuts and Jobs Act, real median household income increased by 
over $5,000. Yet President Biden and congressional Democrats 
continue to push for higher taxes and spending with complete 
disregard for the impact on inflation, the impact on long-term 
economic growth, and the impact on American, and even more 
specifically, Hoosier families and businesses.
    The American Rescue Plan, which was rammed through without 
a single Republican vote, supercharged inflation, saddled 
everyday Americans and small business owners with burdensome 
new paperwork requirements on transactions over $600. The 
Inflation Reduction Act, was also rammed through without a 
single Republican vote, imposed American manufacturers with 
over $100 billion in new taxes.
    Meanwhile, the Biden Administration's loose regulatory 
interpretations have ballooned the costs of new tax credits to 
over 700 percent of their original projected costs. What we 
should be focused on is how to incentivize growth, how to 
incentivize more research and more development within the 
United States. For example, a study published in the Journal of 
Public Economics estimated that when a business received a ten 
percent reduction in their R&D costs, they increased research 
spending in intensity by about 19.8 percent. Additionally, they 
found that most of the increased spending went to increases in 
wages and supplies. This clearly illustrates the broad benefits 
in allowing businesses to expense or receive tax credits for 
research and development.
    So, my question for Dr. McBride to start, can you speak to 
the economic impact of R&D tax credits and deductions on 
everyday Americans?
    Dr. McBride. Sure. So, this gets to the discussion we were 
having earlier about consumption being a driver of the economy. 
It is true that consumption is about 70 percent of GDP for 
instance, but it is investment that happens first to get to 
that consumption. It is investment that creates the income 
ultimately out of which we consume, and so, it is investment 
that should be prioritized here and that is what we should be 
discussing here, and it is R&D investment in particular that is 
incentivized by R&D expensing. So, yes, it is a very important 
provision.
    Mr. Yakym. And how would that help everyday Americans or 
even Hoosiers that, you know, just median income Hoosiers?
    Dr. McBride. So, it leads to greater R&D expenditures. R&D 
leads to innovation. Innovation leads to better products, 
better consumer products, more efficiencies in the workplace, 
which in turn leads to higher productivity ultimately, and 
workers are paid based on their productivity. So, that means 
higher wages.
    Mr. Yakym. All right. Estimates by the Cato Institute show 
that ``if Congress confiscated every dollar earned by 
individuals, and businesses past their first $500,000, it would 
still be about $200 billion short of covering the cost of next 
year's projected $1.7 trillion deficit.'' Dr. McBride, do you 
believe that this shows that we have a spending problem or a 
revenue problem in Washington?
    Dr. McBride. I think the clearest picture is from the CBO 
when they simply do their 10-year projection. Looking forward, 
they are showing on average, spending is going to be about 24 
percent of GDP over the next ten years. It is about three to 
four percentage points higher than the historic average, okay? 
And then we have revenues also higher than the historic 
average, coming in about 18 percent. So, I think that is all 
you need to know going forward if it is spending or revenues 
that are the problem.
    Mr. Yakym. Thank you, and, Dr. Mazur, part of my job is 
ensuring that Hoosiers and small businesses and families don't 
pay higher taxes that is the result of Washington's 
overspending, and in your opening testimony you stated and 
complained that you now pay less taxes today as a percentage 
than what you did prior. So, I just want to make sure that you 
are aware that the Treasury Department actually has a program 
where if you don't feel like you are paying enough taxes, you 
can send in additional dollars and that would help make sure 
that my constituents don't bear the cost of the overspending 
here in Washington. Thank you, Mr. Chairman. I yield back.
    Dr. Mazur. I am well aware of that program. I also don't 
have a Roth IRA for a similar reason that I enjoy paying my 
taxes because like they say, tax is the price you pay for a 
civilized society.
    Chairman Arrington. I thank the gentleman from Indiana, and 
now yield five minutes to my colleague from Oklahoma, Josh 
Brecheen.
    Mr. Brecheen. Thank you, Mr. Chairman. I heard earlier 
today one of our colleagues, one of our Democrat colleagues. I 
wrote down the comment. They were concerned about ``a 
proliferation of billionaires in our country.'' That is an 
exact quote from what they said. They were also concerned 
``that we have as the United States, the highest number of 
billionaires in the world.'' It made me think about John F. 
Kennedy and his famous commentary that a rising tide lifts all 
ships, all boats, and how this ideology of wanting to weaken 
our country's ability to have people invest and create jobs, 
how it has taken over and it misuses facts.
    I greatly enjoyed studying the Tax Foundation's state by 
state comparisons, and with the Tax Cuts and Jobs Act, what we 
know is the corporate income tax rate, which made America have 
among the highest corporate income taxes in the world, with the 
Tax Cuts and Jobs Act we went back to the average, and then 
last year if you look at the 2022 income tax collections, what 
you find is, is that the top one percent paid 42 percent of all 
income taxes, and the top 50 percent paid 97--of income 
earners, paid 97 percent of all income taxes, and the bottom 
income earners in the United States only paid 2.3 percent of 
all income taxes.
    So, it is amazing to me the rhetoric that continues to come 
out when we already have seven graduated tax rates. We are 
totally in contrast to what in 1935 William John Henry Boucher 
once said, you can't hit the poor man by destroying the rich 
man. You can't strengthen the weak by weakening the strong. You 
can't lift the wage earner up by pulling the wage payer down. 
It is just an astounding contrast in America that we don't want 
to create an environment that makes people successful, and then 
when you actually look at who is paying taxes, as I just 
recited, it doesn't match the rhetoric of, we got to get them 
to pay more.
    So, Dr. Mazur, you made a comment about vertical equity. 
You defined it a minute ago about vertical equity is to get 
those who do better to pay more. With 97 percent of the income 
tax burden paid by the highest 50 percent of earners, and the 
bottom 50 percent of earners pay only 2.3 percent, and the top 
one percent that is talked about all the time pay 42 percent of 
all income taxes, and we are at the average of corporate income 
tax rates and you look at where we are at historically in terms 
of our gross domestic product and the amount of tax collection, 
that we are on par with history of our Nation. Can you explain 
to me where do you expect people to pay more when we have this 
system already in place?
    Dr. Mazur. Sure. So, you are focused on income taxes. If 
you would go back to your constituents, probably more than half 
of them pay way more in payroll taxes than income taxes, and 
you are leaving payroll taxes out of the calculations here when 
you are going through who pays how much.
    Mr. Brecheen. Can I ask you a question?
    Dr. Mazur. Sure.
    Mr. Brecheen. Payroll taxes, you are talking about FICA and 
the----
    Dr. Mazur. I am talking about, yeah, Social Security and 
Medicare.
    Mr. Brecheen. Yeah, Medicare.
    Dr. Mazur. Yeah.
    Mr. Brecheen. So, what we know by looking at that is, is 
that when we look at our budget deficits----
    Dr. Mazur. Yeah.
    Mr. Brecheen [continuing]. Our annual budget deficit is 
$1.5 trillion this year, that is not inclusive of the 
insolvency of those programs you are discussing. Most of us, 
you know, we know we have got to solve that problem.
    Dr. Mazur. Yeah.
    Mr. Brecheen. But that is a totally different conversation 
than when we are looking at budgets.
    Dr. Mazur. Not totally different. It is part of the entire 
fiscal package.
    Mr. Brecheen. Of unfunded obligations I agree with you 
there.
    Dr. Mazur. And you are right. Then you know how to solve 
this. There is like six dials you can turn, and you can get the 
Ways and Means Committee together to figure out how you want to 
address Social Security. Whether you want to do something on 
the benefits side, the tax side, the retirement age side, cost 
of living side. There aren't that many dials.
    Mr. Brecheen. Can I pivot once?
    Dr. Mazur. Sure, please.
    Mr. Brecheen. I just need to pivot because there is limited 
time here. I want to go back to something that, it was part of 
your introductory testimony where you talked about the ability 
for us as a Nation to look at a simplification of our tax code. 
We have about a $100 billion expense to just pay our taxes in 
the United States, and the Tax Foundation has got some ideas 
and I want to give you just a moment to talk about Estonia and 
what they are doing to simplify within minutes to be able to 
file your taxes, and, you know, what we can learn--what I love 
about what the Tax Foundation has done, state-by-state 
comparison to help states get an idea of how you can improve 
the ability to find out what is working and look at the 
laboratories of experimentation, laboratories of democracy 
state by state, but also, by looking at different countries. I 
would like to have you speak in my time limit here. You got 20 
seconds if you can talk about Estonia.
    Dr. McBride. 20 seconds, I think some people from Estonia 
might actually file their taxes in 20 seconds. The claim there 
is that you can file your taxes in five minutes or less, and we 
have talked--my friend Kyle here--we had talked to the folks in 
Estonia at the Ministry of Finance and they confirmed that, 
indeed, it is five minutes or less to file your taxes, which 
is, should be mind blowing for Americans, but they do it 
because they have a very simple system. A simple system that 
actually collects plenty of revenue about the same----
    Mr. Brecheen. It is not 72,000 pages when you talk----
    Dr. McBride. Absolutely not.
    Mr. Brecheen [continuing]. Look at court cases like the----
    Dr. McBride. It is about----
    Mr. Brecheen [continuing]. United States.
    Dr. McBride [continuing]. 88 pages, the entire Federal tax 
code. So, it can be done.
    Mr. Brecheen. Mr. Chairman, I yield, and thank you for your 
indulgence.
    Chairman Arrington. You bet. I thank the gentleman from 
Oklahoma. I now yield five minutes to my friend from North 
Carolina, Chuck Edwards.
    Mr. Edwards. Thank you, Mr. Chair. Dr. Mazur, I heard you 
mention something a while ago that seems to be a typical 
political talking point and that is there are corporations in 
America that do not pay any taxes. Do you think they are doing 
anything illegal?
    Dr. Mazur. I don't know. The situation you know that they 
are taking advantage, full advantage of the law and shipping 
income to other tax jurisdictions, and they are taking 
advantage of the tax incentives that are provided. Whether 
they, as Mr. Grothman was talking about, some of the tax 
credits that they have available or the deductions that they 
have available.
    Mr. Edwards. And so, do you think that is wrong that they 
take advantage of----
    Dr. Mazur. So, Congress used to have an alternative minimum 
tax for corporations, and part of the reason for having 
alternative minimum tax was that it provided a backstop. It 
said no matter how many deductions or credits you get you 
still----
    Mr. Edwards. Dr. Mazur----
    Dr. Mazur [continuing]. Have to pay this much.
    Mr. Edwards [continuing]. Thank you. Thank you for that. 
Have you ever paid alternative minimum tax?
    Dr. Mazur. Yes, I have paid alternative minimum tax many 
times.
    Mr. Edwards. Yes, and you recognize that the reason that 
one would pay that is because there was no income in the first 
place. I mean that is----
    Dr. Mazur. No, that is not true. I paid alternative minimum 
tax personally----
    Mr. Edwards. Yeah.
    Dr. Mazur [continuing]. When my income was probably around 
$200,000 a year, similar to your income, and it was because I 
had a lot of state and local taxes that are not allowed as a 
deduction under the alternative minimum tax.
    Mr. Edwards. I can tell you as a businessperson I paid lots 
of alternative----
    Dr. Mazur. Mm-hmm.
    Mr. Edwards [continuing]. Minimum tax, and it is because 
there was no income, and I believe that is what is the case 
with most businesses out there today. The goal of every 
business is to have income to be able to pay taxes. Would you 
not also agree that even those companies that do not generate 
income to the level to pay the income taxes that you might want 
them to pay do pay Social Security taxes.
    Dr. Mazur. Yeah.
    Mr. Edwards. They do pay FICA taxes. They do pay property 
taxes. They do pay unemployment taxes. There are still plenty 
of taxes out there for those companies that have not generated 
the income to pay. You do recognize----
    Dr. Mazur. No, agreed they pay----
    Mr. Edwards [continuing]. There is a----
    Dr. Mazur [continuing]. A whole range of taxes.
    Mr. Edwards. Yeah.
    Dr. Mazur. I agree with that.
    Mr. Edwards. All right, thank you. Mr. Pomerleau, the TCJA 
reduced the Federal corporate tax rate from 35 percent to 21 
percent. What did that do for international competitiveness?
    Mr. Pomerleau. So, as I described in my testimony, prior to 
the Tax Cuts and Jobs Act the U.S. had the highest statutory 
tax rate in the developed world, and the Tax Cuts and Jobs Act 
brought that down to roughly about average. That had a couple 
benefits sort of internationally. So, the first one is that it 
just, it reduced the incentive for corporations to locate their 
profits in low tax jurisdictions. The amount a company can save 
depends on the differential in tax rates, and when the U.S. had 
a very high tax rate and other jurisdictions had lower rates, 
companies could save more by shifting overseas.
    The second benefit is it also reduced the incentive to 
locate intellectual property offshore as well. When a company 
is deciding where to place a highly mobile asset, they are 
going to ask themselves, all right where can I get the highest 
after-tax return on this investment? And a lot of that is 
determined by the statutory tax rate that the U.S. levies, and 
bringing that down also discouraged companies from shifting 
those abroad.
    Mr. Edwards. As any CEO would do, they are trying to 
generate income for their shareholders, their owners, and so, I 
appreciate you calling attention to the fact that if we want 
more American jobs, if we want more investment in the United 
States, as opposed to places like China, then we need to create 
the environment for them to do that. Thank you very much.
    Mr. Kuhlman, what did the Tax Cuts and Jobs Act of 2017 do 
for small businesses?
    Mr. Kuhlman. I think from an overall environment, the 
passage of the Tax Cuts and Jobs Act combined with some of the 
emphasis on reducing regulations, we saw small business 
optimism at or near all-time highs right before the pandemic. 
Of course, the pandemic turned everything upside down, but 
business owners took the benefits and just reinvested it back 
in the business. According to a survey we did in 2019, one in 
four increased compensation, nearly identical number increased 
business investment, 16 percent hired new employees, 20 percent 
paid down debt. Overall, they plowed it back into the business 
so their obligations for the overall economic benefit of the 
small business to have.
    Mr. Edwards. Thank you. One more question I would like to 
get to before I run out of time. 32 percent of small business 
owners reported raising their selling prices. Would raising 
taxes help the inflation that Americans are already 
experiencing today?
    Mr. Kuhlman. Short answer, no.
    Mr. Edwards. Okay, all right. Mr. Chair, I see I am out of 
time. I yield back.
    Chairman Arrington. I thank the gentleman from North 
Carolina. I yield five minutes to my friend Lloyd Smucker from 
the Commonwealth of Pennsylvania.
    Mr. Smucker. Thank you to the Chairman. Dr. Mazur--Mazur--
Mazur, sorry about that. In response to a question earlier, you 
said we could make the tax system more fair by making it 
progressive.
    Dr. Mazur. It already is progressive, making it more 
progressive.
    Mr. Smucker. Yeah, okay. That is the point I wanted to 
clarify, and in fact, I would like to enter into the record a 
report from the Joint Committee on Taxation, Mr. Chairman.
    Chairman Arrington. So ordered.
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    Mr. Smucker. This is from 2018, and this report identifies 
the U.S. tax system as the most progressive in the developed 
world. Do you agree, generally?
    Dr. Mazur. I am not going to quarrel with JCT since I used 
to work there.
    Mr. Smucker. Okay, yeah. So, I think it is important we 
establish that.
    Dr. Mazur. Yeah.
    Mr. Smucker. Because if I had listened to your answer and 
not had more context, you know, I would have thought that the, 
you know, the individuals on the lower economic scale are 
paying a higher percentage than lower, but I will give you some 
numbers in here.
    Dr. Mazur. Okay.
    Mr. Smucker. And your point excluding payroll taxes is a 
good one because they pay payroll taxes, but without payroll 
taxes, the bottom 50 percent are paying -0.6 percent, -0.6.
    Dr. Mazur. In that year perhaps, yeah.
    Mr. Smucker. What is that?
    Dr. Mazur. In that year perhaps, yeah.
    Mr. Smucker. Yeah, -0.6 because of the refundable tax 
credit they are literally getting money back rather than paying 
it. That is the bottom 50 percent. Now, with payroll taxes, to 
your point, their average rate according to----
    Dr. Mazur. Yeah.
    Mr. Smucker [continuing]. JCT, is 6.3 percent. Compared to 
the top tenth of a percent are paying on average 33 percent of 
their taxes. So, it is the most it could be----
    Dr. Mazur. Interestingly though, if you were to break that 
top tenth even finer, so like the Treasury Department used to 
put out the top 400 and now----
    Mr. Smucker. Yeah.
    Dr. Mazur [continuing]. They put out maybe the top .001 
percent, but basically, the top sliver pays less than the top 1 
percent. So, it kind of goes down at the top end.
    Mr. Smucker. They don't have that on here but----
    Dr. Mazur. No, but----
    Mr. Smucker [continuing]. I am willing to look at that----
    Dr. Mazur [continuing]. You could ask JCT about where.
    Mr. Smucker [continuing]. Because that would be 
interesting, but, you know, one of the statistics that they 
list on here is that the top .01 percent, top tenth of a 
percent pay 30 percent average Federal income tax rate while--I 
am sorry I just made this point, while the bottom 50 percent is 
less than zero. Here is the point I wanted. Separate research, 
and this is from the Tax Policy Center, which is sort of a 
liberal----
    Dr. Mazur. I used to work there too.
    Mr. Smucker [continuing]. Entity. Okay. Yeah, you worked at 
all of them. They say, research that the top one percent of 
income earners shoulder 25 percent of all Federal taxes paid. 
In contrast to 53 million households in the U.S. that pay 
nothing at all, and in fact, six out of ten households actually 
receive more in direct government benefits than they pay into 
the system.
    Again, just want to be sure that we understand what we are 
working with here, and the point about the Tax Cuts and Jobs 
Act making the system benefit more for higher income earners is 
false, because CBO in 2021, and I would like to enter this into 
the record as well. This is a 2021 report by CBO.
    Chairman Arrington. So ordered.
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    Mr. Smucker. And they state that the provisions of the 2017 
Tax Act reduced the total estimate of benefits from income tax 
expenditures by nine percent, and on that those provisions made 
the distribution of tax expenditures more progressive because 
most of the benefits that were reduced by the Tax Act would 
have accrued to households in the highest quintile. So, we 
started with the most progressive, according to JCT, of 
developed countries, and we made it even more progressive with 
the Tax Cuts and Jobs Act.
    Dr. Mazur. I am going to have to quarrel with CBO on that. 
You might want to look at the Tax Policy Center's work that was 
done on the Tax Cuts and Jobs Act. I think they come to a 
somewhat different conclusion, and it really depends on the 
timeframe you look at.
    Mr. Smucker. Sure.
    Dr. Mazur. And it depends on--because the individual ones 
expire, and it depends on what you do with the corporate income 
tax.
    Mr. Smucker. Yeah, I am just telling you what----
    Dr. Mazur. Yeah.
    Mr. Smucker [continuing]. CBO said in their report. They 
said that our tax structure got more progressive after the Tax 
Cuts and Jobs Act, but, Mr. Kuhlman, you know, I was a small 
business owner myself, understand the impact of tax policy and 
the benefits of growing a business, and I have heard from so 
many small businesses in my area who benefitted from the Tax 
Cuts and Jobs Act, and I am not talking about the top one 
percent or top tenth of a percent. I am talking about people 
who maybe, you know, they had $10,000 more in their pocket at 
the end of the year that they could reinvest back into the 
business, grow jobs, and so on, and I just wonder what is the 
top provision that you hear about? What are some of the things 
that you hear about that have been most beneficial, and then 
how concerned are you about some of those provisions expiring?
    Mr. Kuhlman. Sure, yeah, what we call the small business 
deduction, Section 199A, the 20 percent deduction for pass-
through businesses, it added great benefit for small business 
owners, NFIB members. 91 percent of them support making it 
permanent. 81 percent thinks it is very important, and just a 
quick example is a Pennsylvania business owner, David Cranston, 
Jr. of Cranston Material Handling Corporation said it is only a 
couple employees, but he said in real terms, this means I will 
be able to keep between $1,200 and $2,500 a quarter in my 
business that I would otherwise have paid in taxes. The ability 
to keep $5,000 or $10,000 in a year in my company is a big deal 
to a small business owner like me. Moreover, the cumulative 
effect over several years is substantial. They allowed him and 
millions of other businesses like him to be in a better 
position to take advantage of opportunities to grow and 
improve. They are going to take the----
    Mr. Smucker. Thank you. I know I am way out of time. Thank 
you for your indulgence, Mr. Chair.
    Chairman Arrington. I go from thumping to gaveling.
    Mr. Smucker. Yeah, sorry about that so, yeah.
    Chairman Arrington. Thank you, Mr. Smucker, and now we will 
yield five minutes to Dr. Michael Burgess from the Great State 
of Texas.
    Mr. Burgess. I thank the Chairman. Actually, let me start 
with a unanimous consent request for two documents. One being 
the Democrats' Corporate Tax Plan Threatens Higher Bills for 
Manufacturers. The second, Chinese Communist Party Linked Solar 
Panel Company Could Reap Inflation Reduction Act Handouts with 
U.S. Factory.
    Chairman Arrington. So ordered.
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    Mr. Burgess. Thank you, Mr. Chairman. You know, staying 
with the Inflation Reduction Act for just a minute. It created 
two new corporate taxes. Dr. McBride, two new corporate taxes 
were created in the Inflation Reduction Act. 26 tax credit 
programs on top of an already complex and burdensome tax code. 
So, I think your colleagues at the Tax Foundation have 
estimated that over $300 billion a year is lost in productivity 
due to the complexity of the United States tax code.
    So, every Congress that I have been here I have introduced 
H.R. 1040. You know, this is a flat tax, a version of the same 
flat tax that was created by my predecessor, Leader Armey, when 
he was here, and honestly, I mean, you referenced the Estonia 
tax code and how people can file their taxes in under five 
minutes, and wouldn't reducing the complexity of the tax code 
and perhaps flattening the rate a little bit, would that not 
have a positive effect on people's compliance with the tax 
code, as well as overall tax collections?
    Dr. McBride. Absolutely would. So, the real-world examples 
we have not just in Estonia, but a lot of their neighbors in 
Eastern Europe, that is where flat taxes really took off in the 
1990s. Many countries there implemented flat taxes, and they 
did so because one reason, they were having a big compliance 
problem. They were having all sorts of, you know, major tax 
evasion with a complicated income tax like ours. So, they came 
upon a solution which is to simplify the rules. Flatten the 
tax, you know, toss out all the special provisions, and low and 
behold they found it generated better compliance and more 
stable and reliable revenues over the years, and so, they stuck 
with those flat taxes, and Estonia went further and eventually 
with their business tax, they simplified it even further to 
this distributed profits tax. There is basically no taxable 
income. There is no calculation of taxable income at all. 
Instead, it is just a tax on whatever is distributed to 
shareholders. You know, taxing one stream rather than 
calculating all items of income and all items of expense, et 
cetera and sending it to the tax authorities.
    Mr. Burgess. As a practical matter have they suffered from 
not bringing----
    Dr. McBride. Sorry, say that again.
    Mr. Burgess. As a practical matter, has Estonia suffered 
from not bringing in enough tax revenue?
    Dr. McBride. No, absolutely not. They generate revenues 
today 20 years into this new system that have essentially, are 
pretty typical across the developed world in terms of income 
tax collections.
    Mr. Burgess. So, just my own observation, living and 
working in this country in 1986, when the Reagan tax cuts were 
introduced and passed, the Bush tax cuts in 2004, and Chairman 
Brady's tax reform in 2017. My observation is you seem to have 
an increase in compliance. You didn't have to hire 87,000 new 
IRS agents but you made things more straightforward and people 
complied because it was easier to comply than it was to hide 
your income and try to not comply. Is that a valid assumption?
    Dr. McBride. It is absolutely valid. When we have a tax 
code today that is four million words, I don't think any person 
on earth has the ability to understand something like that.
    Mr. Burgess. Now, Mr. Chairman, in the time I have 
remaining, I am going to have another unanimous consent 
request. It also deals with the Inflation Reduction Act. This 
is a page from the Federal Register from October 14, 2022, from 
the Department of Health and Human Services, and reports the 
establishment of the Medicare Drug Rebate Negotiation Group 
within the Center for Medicare. Most people did not realize 
that with the passage of the Inflation Reduction Act, the 
Federal Government will now have the largest and most secretive 
PBM that has ever been developed.
    Now, a lot of us decried the PBM because we say they only 
add complexity and they don't bring anything of value to the 
system. When you read through these words in the Federal 
Register, it absolutely describes a nightmare going forward, 
and, of course, their enforcement mechanism is the tax code, a 
1,900 percent tax on any profits--not profits, I am sorry--
gross revenues that the company may create. So, Mr. Chairman, 
this is a very serious matter and we haven't talked about it 
enough, but I do want to introduce this for the record and 
perhaps at some point in the future we can have a hearing on 
the deleterious effects on what is happening in the United 
States with the so-called mislabeled Inflation Reduction Act.
    Chairman Arrington. I thank the gentleman from Texas. So 
ordered.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T3465A.088
    
    Chairman Arrington. I now yield five minutes to my friend 
from Virginia, Mr. Bob Good.
    Mr. Good. Thank you, Mr. Chairman, and thank you to our 
witnesses. I think you are starting to see the light at the end 
of the tunnel here. I appreciate your investment of time today. 
I wanted to touch with the limited time that we have on a 
couple of the President or the Administration's key policy 
priorities, energy, or climate, as well as immigration/border 
and how they impact the economy, and a couple of questions to 
Dr. McBride first. Dr. McBride, the President has stated many 
times that his proposed tax reforms would help average 
Americans. How would you reconcile that or contrast that 
perhaps, with the estimate that 80 percent of the electric 
vehicle tax credits are going to households with incomes of 
$100,000 or higher?
    Dr. McBride. Well, clearly that is, like you describe and 
like anybody can recognize when they look at the sticker prices 
on electric vehicles, that those are luxury goods. They are not 
targeting a low-income community with those products. Those are 
luxury goods that, as good as they are for the planet, perhaps, 
they are very expensive, and they have been expensive for, you 
know, ever since they have been produced, and so, these tax 
credits, of course, then go to high income individuals that can 
afford a 50,000, 60, 70, up to $80,000 is what is allowed under 
these new tax credits towards--that is the sticker price of an 
electric vehicle. Then there is a loophole around that so that, 
around that provision and then the income provision. So, that 
is the leasing loophole, and so, none of the restrictions as I 
understand it apply to vehicles, electric vehicles that are 
leased. You can get the credit. It basically flows through the 
leasing company to the consumer. So, you know, someone making 
millions of dollars a year, for instance could get a--could 
lease an electric vehicle and benefit from the credit that way.
    Mr. Good. Yeah, it is really just obscene that we would on 
the backs of regular taxpayers subsidize vehicles for the 
wealthiest of Americans and then as we are trying to force 
Americans to electric vehicles and restrict production of gas-
powered vehicles, what is going to happen to the prices of gas-
powered vehicles as their supply is limited? You know, what is 
that going to do? We can only imagine and speculate what that 
will do.
    Consistent with what you said, reports that I have read are 
that the vast majority of electric vehicle owners, you used the 
term luxury, it is a secondary vehicle because of the 
impractical nature of it. You know, it is impractical, 
insufficient number of charging stations, impractical for long 
distance travel, that sort of thing.
    The Biden energy agenda, more broadly, combined with the 
massive inflationary spending, combined with the response, I 
would suggest misguided response of massively raising interest 
tax--or excuse me, interest rates so the housing prices are up. 
Inflation is up. Grocery prices are up. Utility prices are up. 
Gas prices are up. So, let's sock the American people with 
higher interest rates to make it so they can't afford to buy 
homes where we make the average cost of the mortgage go up 
about 50 percent. So, your thoughts on how is his doubling down 
on his Green New Deal tax credits, how is that going to impact 
the economic or financial future for average Americans?
    Dr. McBride. Well, I think it was sold as an Inflation 
Reduction Act, of course, that is the title, and that was all 
premised on the idea that it would reduce deficits, which was 
what was originally thought based on the original score from 
CBO and JCT. We now know that that score was off. It was off in 
the direction of actually underestimating the cost of these 
green credits greatly, and so, we now, based on the new scores 
from JCT, it appears the IRA legislation as a whole increases 
deficits. It is not clear how much. We should hopefully get a 
new score for the entire bill to find that out, but if there is 
no deficit reduction on this bill, then there goes the idea 
that it reduces inflation.
    Mr. Good. Mr. Pomerleau, with the limited time that we 
have, I saw a study that says the net cost of illegal 
immigration in the United States, 16 million or more illegals 
in the country now, is about $150 billion last year. Roughly 
$9,000 per illegal. Could you speak to the cost to the American 
taxpayer for the flow of illegals into the country?
    Mr. Pomerleau. Thanks for your question, but this is a 
little outside of my area of expertise. I don't know if anyone 
else has any thoughts on this issue in particular.
    Mr. Good. Well, I will just say with the eight seconds I 
have got left, you know, it is funny we have a law in this 
country where, if legal immigrants can't be on the public dole, 
but illegal immigrants, if you break the law, your first act on 
the soil of the United States is to break the law, then we give 
you all the social safety nets, the social welfare, the 
healthcare, the social services that we can provide to you. So, 
it is really incredible as we reward illegal immigration. I 
yield back, Mr. Chairman.
    Chairman Arrington. I thank the gentleman from Virginia, 
and yield five minutes I think to close out our hearing, my 
friend Buddy Carter from Georgia.
    Mr. Carter. Thank you, Mr. Chairman, and thank all of you 
all for being here, and I promise you it will be brief and try 
to get through this five minutes as quickly as we can, but I 
wanted to ask you, you know, our current tax code and I think 
most people would agree it is built on government control, and 
it is built on trying to control actions of people and what 
they do. You know, I have served in a number of different 
capacities. I have been a mayor. I have been a state 
legislator, and now I serve in Congress. I started when I was 
ten so that explains that, but nevertheless, I have always 
noticed that people given the choice between a property tax or 
an income tax, that they don't like taxes, but given that 
choice, they would prefer a consumption tax. Are any of you 
familiar with the fair tax?
    Can you tell me, I am the sponsor of the fair tax. You 
know, the fair tax was started in the late 1990s by John Linder 
and then Rob Woodall, who was his chief of staff at the time, 
became a Member. After John left, Rob took his place, and then 
when Rob left, he asked me if I would carry it and I did and I 
am proud to. It was the very first bill that I sponsored when I 
became a Member of Congress, and tell me, if you will, what you 
think about a consumption tax and about specifically the fair 
tax in that proposal.
    Mr. Pomerleau. So, I think consumption taxes are good 
policy. I think that in general they are less distortive than 
the income tax. They do not discourage investment. They do not 
discourage saving, and if they are structured well, they can 
reduce noncompliance in the tax system. The fair tax in 
particular, I think the policy, you know, the heart is in the 
right place but I think structurally needs----
    Mr. Carter. Well, what would you change? Tell me, how can I 
make it better?
    Mr. Pomerleau. So, I think the fundamental weakness of the 
fair tax is that it is a retail sales tax. I think retail sales 
taxes, they are collected all at the very last point in the 
chain of production at the retailer, and as a result, all of 
the revenue is collected at that point, which creates a pretty 
significant incentive to avoid the tax, especially if the rate 
is high enough to replace current revenues, and I actually have 
a recent paper that I did that estimated how high the tax rate 
would need to be under the fair tax to replace current 
revenues.
    Mr. Carter. And what did you come up with?
    Mr. Pomerleau. And with a reasonable amount of avoidance, 
which I think might be on the low end----
    Mr. Carter. Do you think we have any avoidance in the 
current tax system?
    Mr. Pomerleau. The current tax code does have avoidance but 
I think any tax system has avoidance, and if you were given----
    Mr. Carter. But you think that the fair tax would have more 
avoidance than----
    Mr. Pomerleau. Well, in our paper we assumed that it would 
have just the same amount as----
    Mr. Carter. Okay, fair enough.
    Mr. Pomerleau [continuing]. The current tax system.
    Mr. Carter. Fair enough. Continue on.
    Mr. Pomerleau. We found the tax rate would have to be in 
the high 30 percents in order to cover current tax revenues. 
So, at a rate that high, I think a retail sales tax would also 
be high.
    Mr. Carter. And what do we have it at?
    Mr. Pomerleau. Sorry?
    Mr. Carter. In the proposal, do you know what it is at?
    Mr. Pomerleau. So, in the proposal you have two rates. You 
have a standard rate and a variable rate for the trust funds 
and those in the first year add up to a tax inclusive rate of 
23 percent.
    Mr. Carter. Right.
    Mr. Pomerleau. The tax exclusive rate is closer to 29 or 30 
percent.
    Mr. Carter. Right.
    Mr. Pomerleau. But that would be insufficient to cover 
current revenues plus----
    Mr. Carter. How do you base that assumption on that it 
would be inconsistent?
    Mr. Pomerleau. Sorry?
    Mr. Carter. How do you base that assumption to be 
inconsistent to replace what we currently have in revenue?
    Mr. Pomerleau. So, we did our estimates based on national 
accounts. So, this was using BEA data and IRS data.
    Mr. Carter. Okay. Let me cut to the chase, what would you 
do differently? How would you improve it?
    Mr. Pomerleau. So, first I think that----
    Mr. Carter. Because would you agree first of all that 
people prefer a consumption tax and that----
    Mr. Pomerleau. So, I personally----
    Mr. Carter [continuing]. People would have control?
    Mr. Pomerleau [continuing]. I would prefer a consumption 
tax over income tax.
    Mr. Carter. And this would give people control as opposed 
to the government having control.
    Mr. Pomerleau. So, I think that one of the weaknesses is 
that you are resting the entire tax code on a single tax, which 
can create problems with avoidance. I think having multiple 
taxes is good, and second, I think you could improve over a 
retail----
    Mr. Carter. You might be alone in that----
    Mr. Pomerleau [continuing]. Sales tax.
    Mr. Carter [continuing]. In that assumption.
    Mr. Pomerleau. I think you can improve over a retail sales 
tax with a value added tax. Under a value added tax, you would 
be collecting the same amount as under a retail sales tax, but 
it would be done each stage in the production process. So, if 
there is avoidance----
    Mr. Carter. Okay.
    Mr. Pomerleau [continuing]. It only ends up being a small 
amount of avoidance.
    Mr. Carter. All right. Anybody else want to comment real 
quick? I am sorry.
    Dr. McBride. I agree with those comments. I would just add 
further what the VAT does, it has a bad reputation because it 
comes from Europe.
    Mr. Carter. Yes.
    Dr. McBride. But what they are doing makes a lot of sense, 
which is removing the cascading effect of sales taxes on 
business inputs as they go through the production process.
    Mr. Carter. Well, look----
    Dr. McBride. The sales tax, you know, has the cascading 
effect.
    Mr. Carter [continuing]. I am appealing to you. I want 
help. I want to make this even better. So, help me.
    Dr. McBride. So, the best thing in my view that you could 
to that is remove that cascading effect of taxes on business 
inputs.
    Mr. Carter. Okay. All right. Well, we, you know, we are 
hopefully going to be taking this up. So, I need your help and 
I want your input. So, I am appealing to you to help me with 
that. Thank you all. I appreciate it and I yield back, Mr. 
Chairman.
    Chairman Arrington. I thoroughly enjoyed the dialog and I 
appreciate the time of our witnesses. In closing, just a quick 
thought and then I am going to ask my Ranking Member to close 
it up for me, but our first hearing was about the Fiscal State 
of the Nation. I don't think there was any disagreement that we 
have got problems, and those problems are getting worse very 
quickly, and that the financial health of the country is 
deteriorating rapidly. How we address that, I think there is 
definitely disagreement, but there is probably commonality as 
well.
    Today, we focused on one part of the equation, the revenue 
side, and the growth side, and I appreciate that good, open, 
robust discussion and debate. Here is my biggest concern that 
gnaws at me in every Committee hearing, and that is that we 
have $1.5 trillion in the gap of the funding of our government 
that we borrow on the backs of future generations of Americans, 
and it is completely unsustainable, and so, you have colleagues 
on one side that may want to raise taxes or some combination, 
and you have people like me who think we need to massively 
right size and shrink the government and cut expenses, or some 
combination, but it is immoral in my mind to rack up this kind 
of debt and to stack it and shift it as a deferred tax on our 
children, and that is the unfortunate nature of the budget 
process, is that we just continue to perpetuate this to the 
demise, I think, of future generations. With that, Mr. Scott, 
bring us home.
    Mr. Scott. Thank you. Thank you, Mr. Chairman. I think if 
we just pay for what we do we can balance the budget. I think 
Dr. Mazur pointed out that it is arithmetic. If you are going 
to have a new spending program, pay for it. If you are going to 
have tax cuts, just pay for it, and things won't get worse, and 
under Clinton they got so much better. We were on course to 
paying off the entire national debt held by the public by 2008. 
Entire debt held by the public and put all the money back into 
the trust funds by 2013, but you can't do it if you have unpaid 
spending or unpaid tax cuts. You got to pay for what you want 
to spend.
    Chairman Arrington. You know, I know this is not a 
colloquy, but I actually agree with that. See, look at, look 
here, I am in the most Republican district in Texas. Whether 
you offset through a cut to pay for tax cuts, tax reform, or 
you raise revenue, because we rarely do and we reach for the 
more expedient mechanism, which is finance it, which doesn't 
hurt anybody. You don't have to raise the tax and take any 
money out of anyone's wallet. We don't have to cut somebody's 
favorite program. When that happens and we can still grow the 
government, there is not a real rational decision as to do we 
really want that? Can we really afford that? So, those trade 
offs aren't there in this unfortunate sort of fantastical 
system that we have today.
    If we had one that considered the cost that we paid for it, 
in one way or the other, I think we would have a very different 
dynamic between the electorate and representative leaders of 
our great country.
    Mr. Scott. That was PAYGO under Democrats----
    Chairman Arrington. Yes.
    Mr. Scott [continuing]. Right?
    Chairman Arrington. Yes.
    Mr. Scott. Good.
    Chairman Arrington. Yes.
    Mr. Scott. And we can get it back.
    Chairman Arrington. Well, you know, Mr. Scott, I am going 
to invite you up here to the upper deck more often. I think we 
may have to have an executive session about the Ranking 
Member's job since he is gone.
    Thank you, Dr. McBride, Mr. Pomerleau, Mr. Kuhlman, Dr. 
Mazur, got that right, for appearing before us today. Please be 
advised that Members may submit their written questions to be 
answered later in writing. Those questions and your answers 
will be made part of the formal hearing record.
    Any member who wishes to submit their questions for the 
record may do so within seven days. With that the Committee 
stands adjourned.
    [Whereupon, at 3:23 p.m., the Committee was adjourned.]



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