[Senate Hearing 118-236]
[From the U.S. Government Publishing Office]
------ S.
S. Hrg. 118-236
THE GREAT TAX ESCAPE: CLOSING
CORPORATE LOOPHOLES THAT REWARD
OFFSHORING JOBS AND PROFITS
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
----------
January 17, 2024
----------
Printed for the use of the Committee on the Budget
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
S. Hrg. 118-236
THE GREAT TAX ESCAPE: CLOSING
CORPORATE LOOPHOLES THAT REWARD
OFFSHORING JOBS AND PROFITS
=======================================================================
HEARING
before the
COMMITTEE ON THE BUDGET
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
SECOND SESSION
__________
January 17, 2024
__________
Printed for the use of the Committee on the Budget
www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
54-922 WASHINGTON : 2024
COMMITTEE ON THE BUDGET
SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia MITT ROMNEY, Utah
JEFF MERKLEY, Oregon ROGER MARSHALL, Kansas
TIM KAINE, Virginia MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico RICK SCOTT, Florida
ALEX PADILLA, California MIKE LEE, Utah
Dan Dudis, Majority Staff Director
Kolan Davis, Republican Staff Director and Chief Counsel
Mallory B. Nersesian, Chief Clerk
Alexander C. Scioscia, Hearing Clerk
C O N T E N T S
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WEDNESDAY, JANUARY 17, 2024
OPENING STATEMENTS BY COMMITTEE MEMBERS
Page
Senator Sheldon Whitehouse, Chairman............................. 1
Prepared Statement........................................... 31
Senator Charles E. Grassley, Ranking Member...................... 3
Prepared Statement........................................... 34
STATEMENTS BY COMMITTEE MEMBERS
Senator Ron Johnson.............................................. 15
Senator Alex Padilla............................................. 18
Senator Mike Braun............................................... 19
Senator Jeff Merkley............................................. 21
Senator Tim Kaine................................................ 23
Senator Chris Van Hollen......................................... 25
Senator Ron Wyden................................................ 28
WITNESSES
Dr. Kimberly Clausing, Eric M. Zolt Chair in Tax Law and Policy,
University of California, Los Angeles School of Law............ 6
Prepared Statement........................................... 38
Mr. Roy Houseman, Legislative Director, United Steelworkers...... 7
Prepared Statement........................................... 48
Mr. John Arensmeyer, Founder & CEO, Small Business Majority...... 9
Prepared Statement........................................... 54
Dr. James R. Hines Jr., Richard A. Musgrave Collegiate Professor
of Economics & L. Hart Wright Collegiate Professor of Law,
University of Michigan......................................... 11
Prepared Statement........................................... 59
Ms. Mindy Herzfeld, Professor of Tax Practice, University of
Florida Levin College of Law................................... 12
Prepared Statement........................................... 72
APPENDIX
Responses to post-hearing questions for the Record
Dr. Clausing................................................. 89
Dr. Hines.................................................... 90
Ms. Herzfeld................................................. 95
Charts submitted by Senator Charles E. Grassley.................. 101
Statements submitted for the Record by Chairman Sheldon
Whitehouse..................................................... 104
THE GREAT TAX ESCAPE: CLOSING CORPORATE LOOPHOLES
THAT REWARD OFFSHORING
JOBS AND PROFITS
----------
WEDNESDAY, JANUARY 17, 2024
Committee on the Budget,
U.S. Senate,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:01
a.m., in the Dirksen Senate Office Building, Room SD-608, Hon.
Sheldon Whitehouse, Chairman of the Committee, presiding.
Present: Senators Whitehouse, Wyden, Merkley, Kaine, Van
Hollen, Padilla, Johnson, Braun and R. Scott.
Also present: Democratic Staff: Dan Dudis, Majority Staff
Director; Dan RuBoss, Senior Tax and Economic Advisor and
Member Outreach Director; Sion Bell, Tax Policy Advisor.
Republican Staff: Chris Conlin, Deputy Staff Director;
Krisann Pearce, General Counsel; Nick Wyatt, Professional Staff
Member; Ryan Flynn, Staff Assistant.
Witnesses:
Dr. Kimberly Clausing, Eric M. Zolt Chair in Tax Law and
Policy, University of California, Los Angeles School of Law
Mr. Roy Houseman, Legislative Director, United Steelworkers
Mr. John Arensmeyer, Founder & CEO, Small Business Majority
Dr. James R. Hines, Jr., Richard A. Musgrave Collegiate
Professor of Economics & L. Hart Wright Collegiate Professor of
Law, University of Michigan
Ms. Mindy Herzfeld, Professor of Tax Practice, University
of Florida Levin College of Law
OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
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\1\ Prepared statement of Chairman Whitehouse appears in the
appendix on page 31.
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Chairman Whitehouse. All right. The hearing of the Budget
Committee will come to order. Senator Grassley is not
available, as has been reported, he's getting antibiotics
treatment, but he and I have been in touch, and he says he is
feeling much better, and looking forward to being back soon.
And he's been courteous about encouraging the hearing to
proceed given that some of you have come some distance.
And his opening statement will be read into the record by
Senator Johnson, who is sitting for him, so let me open with
mine, and turn to Senator Johnson. Last year the Budget
Committee held several hearings addressing how tax cuts for
large multinational corporations and ultra-wealthy individuals
have worsened income and wealth inequality in this country, and
hurt small businesses, and blown a massive hole in the federal
budget, creating enormous budget deficits.
We have proposals on our side of the dais to raise revenue
from the ultra-wealthy and large corporations. These proposals
would place us on a sounder fiscal footing, and make our tax
code fairer. I've invited my Republican colleagues to put forth
their own tax fairness and revenue proposals, an invitation I
renew today.
Today's hearing is about how giant multinational
corporations avoid taxes by stashing profits in international
tax havens, and how the Trump tax laws made this offshoring
worse. One example, a few years after the Trump tax scam took
effect, United States multinational corporations reported
nearly $40 billion worth of profits in Bermuda, which is about
6 times Bermuda's entire actual economy.
The victims of this obvious tax scam are American workers
who lose jobs to overseas competition, small businesses who pay
their taxes and have to compete with big businesses that don't,
and kids and grandkids who get saddled with additional federal
debt. In the words of Dr. Clausing, who is here with us today,
the Trump laws offshoring provisions are America last tax
policy.
How is this even legal? Well, for decades loopholes in U.S.
tax law have let companies use accounting tricks to move
profits earned here in the United States to offshore tax
havens. The Trump tax scam supercharged the offshoring
incentive, claiming to set guardrails that many pointed out
were doomed from the start.
Spoiler alert, the guardrails didn't work, no surprise with
the offshore tax breaks baked into the law that U.S.
multinationals reported nearly 60 percent of their foreign
profits in 2020 in 15 tax havens, dwarfing what theyreported in
countries where they did real business.
It's fakery, and it gets worse. The new Trump tax law
didn't just help companies stash profits in sham shell
companies, it created new incentives for offshoring real jobs
and real investment. These offshoring provisions crated jobs
all right, just not in America. Here's how the scam works. If a
multinational funnels its profits offshore it gets half off
discount on its taxes in the shell entity.
Then come further exemptions. Build a factory overseas and
pay zero percent on a portion of foreign profits. The more
factories overseas, the more avoided tax. And because our
friends always take care of big oil, big oil companies get a
special added zero percent carveout.
The best dodge is a combo of factories in foreign
countries, and sham subsidiaries in tax havens like the Cayman
Islands or Bermuda. This is happening right now. Senator Wyden
investigated big pharma's tax dodging and showed how tax
gimmicks let big corporations get away with paying almost
nothing in taxes.
One example, pharma giant AbbVie is an American company
that makes 72 percent of its sales to Americans, but with a
subsidiary in Bermuda, and manufacturing facilities in Puerto
Rico, Singapore, and the Netherlands, they reported 100 percent
of its profits offshore in 2019, evidently made no money in
America.
After the Trump tax scam passed, AbbVie's CEO bragged to
investors that it would cut their tax rate in half. Sure
enough, Senator Wyden's investigation found that AbbVie had a
tax rate of just 8.6 percent in 2019, well below what small
businesses, real American businesses, or teachers and
firefighters contribute in taxes.
When multinationals make a great tax escape, everyone else
must pay the price. Offshore tax breaks hurt American workers
by sending jobs overseas. Sure enough, since the Trump tax scam
passed, multinational corporations have increased foreign
investment more than domestic investment. The tax scam hurts
small businesses, who pay their taxes, but must compete with
big multinationals using sophisticated tax schemes to game the
system.
Even large domestic companies can be hurt. I ask to put
into the record a statement from Rhode Island headquartered,
CVS, a purely American company that has to watch big,
international companies use offshore tax scams to pay less
tax.\2\
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\2\ Statement submitted by Chairman Whitehouse appears in the
appendix on page 104.
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These offshore loopholes add hundreds of billions of
dollars to the deficit every year. If you're looking for a way
to reduce federal debt, and bring jobs and investment back to
America, removing a tax scam that rewards offshoring is an
obvious solution. We can do that. My No Tax Breaks for
Outsourcing Act would shut down the scam.
It's simple. U.S. multinationals would pay the same tax
rate on foreign profits as real American businesses pay. The
Biden administration and Senators Wyden, Warner, and Brown, and
Senator Sanders all have related proposals. Each plan would
implement the global minimum tax agreement negotiated by
Secretary Yellen to end the international race to the bottom in
corporate tax rates.
We'll boost the competitiveness of American domestic
businesses of all sizes, and boost America's competitiveness as
a place for jobs and investment. It even boosts the
competitiveness of U.S. headquarters of multinationals because
foreign competitors will pay a minimum tax on foreign profits.
America can't compete with a zero percent tax rate in some
offshore tax haven. And we shouldn't let that scam persist.
Corporations should contribute a fair share to American
infrastructure, national defense, and education. Investments
that help make America the best place in the world to do
business.
When we stop the offshoring tax scam, America and Americans
will win. With that, I turn to Senator Johnson to read the
opening statement of Ranking Member Grassley.
OPENING STATEMENT OF SENATOR GRASSLEY \3\ \4\
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\3\ Prepared statement of Senator Grassley appears in the appendix
on page 34.
\4\ Senator Grassley's opening statement was read by Senator
Johnson.
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Senator Johnson. Thank you, Mr. Chairman. And if Senator
Grassley is watching I think we both wish him a full and speedy
recovery. And I'm happy to read his opening statement.
``Mr. Chairman, thank you for calling today's hearing on
our international tax system. The subject of this hearing is a
blast from the past. The issue of corporations shifting profits
and operations offshore was a problem Senator Baucus and
Senator Grassley explored regularly, as either Chair or Ranking
Member of Finance for much of the 2000s.
``Most egregious abuses, including companies switching
their headquarters offshore in name only for the primary
purpose of avoiding U.S. tax. To stem the tide of the so-called
corporate inversions Senator Baucus and Grassley spearheaded
anti-inversion legislation enacted in 2004.
``However, they understood that any inversions and other
abuses for good would require reforming our uncompetitive
corporate tax code. Over the following 12 years a bipartisan
consensus emerged a high corporate tax rate, coupled with an
outdated worldwide system of taxation needed to go, but
legislative action remained elusive.
``Our corporate tax system was being strained to its
breaking point. We faced a resurgence of corporate inversions,
tax motivated foreign takeovers, and a shrinking corporate tax
base. Then in 2017 Republicans enacted the Tax Cuts and Jobs
Act (TCJA) to modernize our international tax system and bring
our corporate tax rate in line with other developed nations.
``This included enacting strong anti-base erosion profit
shifting rules. These reforms reversed a decade's long trend of
a shrinking corporate tax base, driven in part by corporate
profit shifting and base erosion practices. As shown by this
chart, the Congressional Budget Office (CBO) now projects our
corporate tax base to be on the verge of becoming larger than
at any time in the last 20 years.\5\
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\5\ Chart submitted by Senator Grassley appears in the appendix on
page 101.
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``As explained by the 2023 paper published in the
Contemporary County Research Journal, under our previous tax
code foreign income was heavily tax favored. This research
confirms our reforms largely eliminated this tax bias.
Moreover, the adoption of a lower corporate tax rate, and other
pro-growth reforms, made the U.S. a more attractive place for
both domestic and foreign investment.
``Some Democrats have tried to demonize these reforms,
particularly the lowering of the corporate tax rate from 35
percent to 21 percent, as a supposed radical right wing
corporate tax giveaway. What they don't tell you is these
reforms merely move the U.S. from being a high tax outlier
amongst our major trading partners to the middle of the pack.
``The truth is TCJA was a thoughtful and measured response
for problems that plagued our tax system for decades, and it
worked. Upon its passage companies called off inversion plans,
and there have been no reports of major inversion transactions
since. According to a study recently released by the National
Bureau of Economic Research, TCJA significantly boosted
domestic investment contributing to higher wages and economic
growth.
``Jason Furman, who was President Obama's Chair of Economic
Advisers, responded to the robust evidence in this paper
exclaiming, `taxes actually do matter,' along with a series of
online posts praising the study.
``I support continuing to explore options to further
improve our international tax system, but proposals included in
President Biden's proposed budgets to Congress would take
America's tax code backwards. President Biden wants to take us
back to having the highest corporate tax rate amongst our major
trading partners, and back to an international tax system that
put U.S. companies at a disadvantage in overseas markets, while
also surrendering our sovereignty and tax base to foreign
nations.
``This means lower wages and lost jobs. This Senator
Grassley cannot support.'' That ends his statement. I'll just
say that from my standpoint, I would never defend the U.S.
corporate tax system. I mean it's a mess. It's complicated, and
what I would like to see is this Committee and the Finance
Committee work towards tax simplification, and tax
rationalization.
We're talking about all kinds of complex tax issues in this
hearing today, and if we just focus our attention on what we
can do to eliminate the complexity and focus on simplifying and
rationalizing a tax system, I think an awful lot of these
problems will take care of themselves.
Well with that, you know, thank you, and I look forward to
hearing from all the witnesses.
Chairman Whitehouse. I think on that point, Senator
Johnson, we may have some common cause.
Senator Johnson. There you go.
Chairman Whitehouse. And let me introduce the witnesses.
Our first is Dr. Kim Clausing, who is the Eric M. Zolt Chair in
Tax Law and Policy at the University of California, Los
Angeles. She previously served in the Biden administration as
the Deputy Assistant Secretary for Tax Analysis at theTreasury
Department.
Next is Roy Houseman, the Legislative Director for the
United Steelworkers and Vice President of the Union Label and
Service Trade Department at American Federation of Labor and
Congress of Industrial Organizations (AFL-CIO). Prior to
joining the United Steelworkers in 2011, Houseman served as a
City Council member for Ward 2 in the City of Missoula,
Montana. Presumably he's had to put up with John Tester.
Third, we have John Arensmeyer, the Founder and CEO of
Small Business Majority, the leading advocate for America's
small businesses. Prior to launching Small Business Majority 18
years ago, Mr. Arensmeyer was the Founder and CEO of ACI
Interactive, an award-winning, international interactive
communications company.
Next will be Dr. James R. Hines, Jr. of the Richard.
Musgrave Professor of Economics and the Department of Economics
and the L. Hart Wright Collegiate Professor of Law in the Law
School at the University of Michigan. He's the Research
Director of the Office of Tax Policy Research in the Stephen M.
Ross School of Business.
And finally, Mindy Herzfeld is joining us. She's Professor
of Tax Practice at the University of Florida Levin College of
Law. Since 2014 she's been contributing Editor to Tax Notes
International. She's written hundreds of articles on
international tax policy, as well as other tax policy matters.
I welcome you all, and Dr. Clausing if you could proceed.
We'll try to keep you to 5 minutes each. Your full statements
will be made a matter of the record.
STATEMENT OF DR. KIMBERLY CLAUSING, ERIC M. ZOLT CHAIR IN TAX
LAW AND POLICY, UNIVERSITY OF CALIFORNIA, LOS ANGELES SCHOOL OF
LAW \6\
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\6\ Prepared statement of Dr. Clausing appears in the appendix on
page 38.
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Dr. Clausing. Thank you Chairman Whitehouse, and members of
the Committee for inviting me today to share my views on the
international tax reform. Today I will make four key points.
First, international tax is a policy area that deeply benefits
from international cooperation.
Because capital is very mobile across borders, over the
past 4 years governments have steadily lowered their corporate
tax rates, operating out of fear that they will otherwise lose
jobs, investment and tax-base to countries with rock bottom tax
rates. Governments have been particularly generous to the
largest, most dominant, multinational companies, who often
benefit from special regimes and rates.
Fortunately, by working together with other countries, we
can counter those trends. The recent international tax
agreement now being implemented throughout the world, will levy
minimum levels of corporate tax. About 90 percent of
multinational companies are already on track to be covered by
the agreement.
The agreement reduces the pressures of tax competition, and
it helps any government that wants to protect their corporate
tax base, and have a fair and efficient tax system. Here in the
United States global minimum tax adoption gives us more policy
space to raise revenue from the corporate tax.
The Organisation for Economic Co-operation and Development
(OECD) recently did a comparison of countries in terms of their
corporate tax revenues relative to the size of their economy.
Of 115 countries, we're ranking 105th in terms of corporate
revenue, despite having more profitable corporations on the
Forbes Global 2000 list than any other country.
There is certainly room to raise more revenue from U.S.
corporations, and this agreement will help us do that. My
second point is that the Tax Cuts and Jobs Act laid some really
important groundwork for future reform, but it has a
disappointing record in terms of both offshoring and profit
shifting, which continue to be a very large problem.
The global intangible low-taxed income (GILTI) provision of
the Tax Cuts and Jobs Act favors every type of foreign income
relative to U.S. income, whether in high tax or low tax
countries, which directly encourages the offshoring of economic
activity and profit.
My third point is that the Tax Cuts and Jobs Act made a
large contribution to our high levels of deficits and debt that
we see today, while making the tax system less progressive, and
less efficient.
Deficits are now forecast to run about 6 percent of gross
domestic product (GDP)over the coming decade, and debt levels
will rise to nearly 120 percent of GDP, and of note, these forecasts do
not incorporate the nearly $4 trillion price tag of extending Tax Cuts
and Jobs Act provisions that are either scheduled to expire at the end
of next year, or the business tax provisions that are already causing
tax increases that were built into the Tax Cuts and Jobs Act.
As a whole, those extensions are simply unaffordable, and
beyond that we need to reduce the primary budget deficit.
Raising revenue is important, but it need not entail
particularly high rates. Even a returning of the corporate rate
to 28 percent, which is halfway between current law and pre Tax
Cuts and Jobs Act law, together with international reforms that
would counter profit shifting and offshoring, would raise about
$1.5 trillion.
We don't need high rates if we can get serious about
reducing the gaming that occurs when there are large rate
differentials between types of income, and in this case,
foreign and domestic income. The corporate tax rate also has a
very important role to play in building a fair and efficient
tax system. The corporate tax is a progressive tax, so
increasing it will fall more heavily on shareholders than on
ordinary workers.
Further, the tax system is often our only shot at taxing
capital income, since most capital income goes untaxed at the
individual level, or benefits from deferral. Taxing
multinational income also serves the efficiency of our
capitalism. Since Adam Smith, we've known that market economies
work best when competition is vibrant, but over the past few
decades the U.S. economy has become less and less competitive.
By taxing the largest, multinational companies at some
minimum rate, we can make it easier for small businesses to
grow and compete, and we can create a more level playing field
at home for our domestic competition. Finally, international
tax reforms are at the ready, that would help us respond to
these challenges.
Senator Whitehouse has sponsored legislation as one
promising way forward. The Biden administration and the Tax
Writing Committees, have also suggested important,
international tax reforms that would meet the moment.
Today such reforms are good, not only for revenue and
fairness and efficiency, but they are also consistent with U.S.
leadership in the world economy. Helping us work together with
our partners abroad to address global collective action
problems like profit shifting, and like offshoring, and like
tax competition.
This cooperation also builds the trust that is needed to
tackle other global collective action problems that are very
pressing today, including those surrounding climate change, and
national security. Thank you so much, and I look forward to
taking your questions.
Chairman Whitehouse. Thank you very much. Mr. Houseman.
STATEMENT OF ROY HOUSEMAN, LEGISLATIVE DIRECTOR, UNITED
STEELWORKERS \7\
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\7\ Prepared statement of Mr. Houseman appears in the appendix on
page 48.
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Mr. Houseman. Okay. Good morning Chairman Whitehouse, my
regards to Ranking Member Grassley, and Member Johnson, and
members of the Committee. My name is Roy Houseman. I'm the
Legislative Director for the United Steelworkers, or USW.
I have the honor to provide this testimony for not only the
USW, but on behalf of the American Federation of Labor and
Congress of Industrial Organizations, or the AFL-CIO,
representing 60 member unions, and their nearly 13 million
members.
As the largest manufacturing union in North America, the
USW represents about 850,000 active and retired members in a
wide range of industries from healthcare nurses to
manufacturers of paper, tires and yes, steel manufacturing. The
success of union members in really every U.S. based private
sector employer, is very much dependent on the tax and trade
policies elected leaders, like yourselves vote for and
implement for our great nation.
That is why the AFL-CIO and Steelworkers strongly support
No Tax Breaks for Outsourcing, sponsored by Chairman
Whitehouse, and in the House of Representatives by Lloyd
Doggett. The legislation reprioritizes the U.S. tax code
towards American manufacturing, and corrects policies which
currently encourage American based companies to shift
manufacturing plants overseas.
As countries across the globe compete to expand their own
manufacturing prowess, our elected leaders need to rethink tax
policy choices voted on by previous Congresses, and enacted by
previous administrations. I am certain that the Tax Cut and
Jobs Act of 2017 also known as the Trump Tax Law, remains
divisive in the United States Senate.
The AFL-CIO and the USW remain strongly opposed to the
legislation for reasons such as more than half of the benefit
of the law went to the top 5 percent of taxpayers in 2020.
However, for the purpose of this hearing, the union and
employers on both sides of the aisle need to rethink tax
incentives, which provide benefits to multinational
corporations to outsource to foes and friends alike.
My written testimony highlights problems with complex tax
terms that others on this panel have significant day to day
experience on. Within the simplest terms, tax bill drafters
created a system where the profits of U.S. multinationals
overseas firms are effectively subject to a minimum tax rate of
10.5 percent versus the U.S. corporate rate of 21 percent.
My sincere hope is that every Senator here understands the
significant incentives multinationals have over domestic
companies by paying half the corporate rate on their overseas
profits. It is important to note that foreign governments
already offer significant subsidies to companies who locate
overseas. The USW has filed legal subsidies by China, and a
host of other countries through our nation's antidumping and
countervailing duty laws with reasonable success.
One database currently highlights that there are a total of
5,977 subsidy policy changes and awards implemented by other
nations. For the regular union member, it is frustrating that
the U.S. tax code heaps a tax subsidy on top of a rack of
foreign subsidies to encourage outsourcing.
Having been a shop floor paper worker myself, I'm confident
the vast majority of USW members file their 1040 tax form,
grumble a bit about their taxes, and eagerly await any refund
entitled. However, you ask them if it makes any sense that
American corporations as a group reported to the IRS that they
earned $60 billion in the Cayman Islands in 2019, when the
entire economic output of that tiny nation was just $6 billion
that year, I am confident they would call this a tax loophole.
It is time to end this doublespeak math, and start treating
tax havens for what they are. The practice as mentioned in my
testimony, costs the United States tens of billions every year.
Similar legislation to the No Tax Breaks for Outsourcing Act
received a Joint Committee on Taxation Score.
That bill closed off nearly $1 trillion dollars in tax
loopholes over a 10 year budget window. To give perspective,
Congress and President Biden fashioned a bipartisan investment
in our domestic semiconductor industry, commonly known as
CHIPS, with the potential to create hundreds of thousands of
jobs, and maintain our global competitive edge in
semiconductors for around $79 billion. Congress could fund 12
CHIP style bills with the revenue they currently give away to
multinationals in the tax code.
It is with extreme confidence that I could go to nearly any
USW member in your states, explain the basics of No Tax Breaks
for Outsourcing, and they would see this as sensible policy to
bolster our democracy, get unproductive money out of tax
shelters, and put it to work in the U.S. economy. Thank you,
and I look forward to any questions you may have.
Chairman Whitehouse. Thank you very much. Mr. Arensmeyer.
STATEMENT OF JOHN ARENSMEYER, FOUNDER & CEO, SMALL BUSINESS
MAJORITY \8\
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\8\ Prepared statement of Mr. Arensmeyer appears in the appendix on
page 54.
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Mr. Arensmeyer. Chairman Whitehouse, Senator Johnson and
members of the Committee, I'm the Founder and CEO of Small
Business Majority, a national small business organization that
empowers America's diverse entrepreneurs to build a thriving
and equitable economy.
We engage our network of more than 85,000 small businesses
and 1,500 business and community partners to advocate for
public policy solutions and deliver resources to our nation's
primary job creators. Primarily those in under-resourced
communities. Our work is bolstered by research, and the voices
of real small business owners.
Prior to launching Small Business Majority nearly 20 years
ago, I was the Founder and CEO of an award-winning, interactive
communications company, which I ran for 12 years. So on behalf
of our nation's 33 million small businesses, and as a long-time
entrepreneur, I look forward to speaking about the critical
importance of a system of taxation that promotes inclusive
entrepreneurship as the foundation of our economy, one where
individuals and corporations pay their fair share.
In 2021, we conducted multiple surveys finding that
America's small businesses strongly believe our nation's tax
system favors large corporations and the wealthy over Main
Street. Specifically, small businesses feel disadvantaged by
loopholes that allow larger and wealthier businesses to avoid
paying their fair share of taxes.
Almost three-quarters agree that the current tax system
favors big business over small business. Nearly 70 percent
cited that offshore tax loopholes allowed bigger businesses to
avoid paying their fair share, and two-thirds said they support
setting a minimum tax rate of 21 percent on corporate offshore
profits.
While large corporations continue to outsource production,
investments and output, resulting in them paying fewer taxes,
our nation's smallest businesses, those that policymakers claim
to be the backbone of our economy, simply do not have the same
luxury.
Like small business enterprises across the country, 75
percent of small businesses in our network have fewer than 10
employees. They do not have the in-house capacity, tax
expertise, or legal counsel to help them manipulate complex tax
loopholes to their advantage, thus creating a competitive
disadvantage versus big corporations.
While we're here to discuss offshore international tax
loopholes, it should not be viewed in a vacuum. The 2017 Tax
Cuts and Jobs Act, so-called Trump Tax Law, that claimed to
bring benefits to America's smallest businesses, has failed on
that score.
Take the pass-through deductions as an example. While it is
true that 95 percent of small businesses pass their profits and
losses to their owners, a fact that is repeated ad nauseum by
those advocating for tax cuts for the wealthy, that statistic
on its own is meaningless. Based on a 2022 Tax Policy Center,
only 4.5 percent of businesses have pass through income tax at
the top two rates, and almost 70 percent of all pass-through
income is earned by those few businesses in those two rarified
brackets, not your typical Main Street small businesses.
I should note that the average pass-through revenue for
small business is $33,000. The average pass-through revenue for
those in the top 2 brackets is over $500,000. As such, we
support legislative efforts to clamp down on loopholes for the
wealthiest corporations in America, including the No Tax Breaks
for Outsourcing Act proposed by Chairman Whitehouse.
The 2017 tax law created new incentives to outsource
production and jobs by cutting the tax rate in half for
overseas investments, leaving Made in America based businesses,
large and small, to pick up the slack. Requiring multinationals
to pay the same rate on profits earned abroad, would rectify
this inequity.
The money the large corporations are writing off in tax
deductions overseas, would be better spent here at home to
reduce our deficit, and fund critical programs that
entrepreneurs rely on, including increased Small Business
Administration (SBA) lending capacity. The SBA's
entrepreneurial development programs, such as the Women's
Business Centers and Small Business Development Centers,
expansion of the Community Development Financial Institutions
(CDFI) Fund, removing the risk of further reductions in the
state's small business credit initiative, and full funding for
the minority business development agency. I'll finish with a
quote from Small Business Majority National Councilman Clifton
Broumand, owner of Man and Machine, a medical keyboard and
mouse manufacturer in Landover, Maryland, that exports its
products.
``Large businesses get to hide their taxes via overseas
shell corporations. I pay taxes in foreign locations and in the
United States on my business's profits. But if you have a lot
of money to throw at a lot of lawyers, you're going to find a
way to avoid paying those taxes.''
Clifton has not seen a penny from the promises of the 2017
tax law. Indeed, he stated that ironically if he, as a small
business owner, wanted to reap any benefits from the tax law,
he would simply buy stock in a multinational company. Thank you
for your time, I look forward to taking your questions.
Chairman Whitehouse. Thanks so much. Dr. Hines, over to
you.
STATEMENT OF DR. JAMES R. HINES, JR., RICHARD A. MUSGRAVE
COLLEGIATE PROFESSOR OF ECONOMICS AND L. HART WRIGHT COLLEGIATE
PROFESSOR OF LAW, UNIVERSITY OF MICHIGAN \9\
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\9\ Prepared statement of Dr. Hines appears in the appendix on page
59.
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Dr. Hines. Chairman Whitehouse, Ranking Member Grassley,
and other distinguished members of this Committee, thank you
for the opportunity to participate in these hearings. These
hearings concern incentives created by the tax system for firms
to offshore jobs and profits.
In thinking about jobs, it is important to bear in mind
that in an advanced, competitive economy like ours, people work
for companies, and are paid according to their productivities.
It's not a secret: as the U.S. economy becomes more productive,
as U.S. companies become more productive, U.S. workers are
better paid.
Consequently, the way to protect jobs, the way to create
good jobs, is to have a highly productive economy. The tax
system plays a role in that, since efficient tax incentives
promote economic performance, and inefficient tax incentives
impair it. In the international arena, it is inefficient to
subject the foreign operations of U.S. companies to significant
U.S. taxes.
The reason why is that U.S. taxes do not bear on the
foreign companies with which the U.S. firms compete in the
foreign markets in which they operate. All the taxes do is to
put U.S. companies at a competitive disadvantage. This impairs
their productivity, which spills over to U.S. operations,
thereby depressing job opportunities and wages in the United
States.
It can be tempting to think that foreign business activity
by U.S. companies comes at the expense of U.S. workers, but
actually what hurts U.S. workers are policies and actions that
reduce the productivity of the U.S. economy. Greater foreign
opportunities usually enhance job creation and compensation in
the United States.
The evidence indicates that 10 percent greater foreign
investment by U.S. multinational companies is associated with
2.6 percent greater U.S. investment by the same firms. And 10
percent greater foreign employee compensation is associated
with 3.7 percent greater U.S. employee compensation.
Foreign business opportunities generally make U.S.
companies more productive, thereby increasing their demand for
U.S. labor. This matters because more than one-quarter of U.S.
private sector employment is in multinational companies.
The 2017 U.S. tax legislation significantly changed
incentives facing U.S. firms, due to the reduction in the
statutory corporate tax rate from 35 percent to 21 percent, the
move to a territorial system, the introduction of GILTI, Base
Erosion and Anti-Abuse Tax (BEAT), Foreign-Derived Intangible
Income (FDII), and numerous other provisions.
These changes made it possible for U.S. firms to operate on
a more competitive basis relative to foreign firms. The 2017
legislation was directed at the problem, identified by prior
Congresses, the Obama administration, and the Trump
administration, that the U.S. taxation of foreign profits
indirectly discouraged economic activity in the United States
by making it more difficult for U.S. firms to compete in
foreign markets.
The 2017 legislation also significantly reduced incentives
to report profits outside the United States. Of course, even
with the lower statutory tax rate, GILTI, and the other new
provisions, many U.S. taxpayers would save taxes if they could
report profits in zero tax foreign locations.
People are worried about this problem, but it is important
not to exaggerate its magnitude. Even when the U.S. tax rate
was 35 percent, and there was no GILTI, most large, U.S.
multinationals had no tax haven affiliates at all. These firms
were certainly not shifting profits to tax havens, which tells
us that doing so is costly, difficult, and usually infeasible.
We need to enforce our tax laws, but should do so with the
clear sense of what the problems are, and what we are trying to
accomplish. It is in the country's interest, and more
specifically, in the interest of U.S. workers, to have a
competitive tax system that supports the economy, while
collecting the revenue that we need.
This problem is difficult enough with exaggerating any of
its components. Wise design of U.S. policy has the potential to
position the country for robust economic growth, and U.S.
economic fortunes depend on it.
Chairman Whitehouse. Thank you very much. Ms. Herzfeld, Dr.
Herzfeld.
STATEMENT OF MINDY HERZFELD, PROFESSOR OF TAX PRACTICE,
UNIVERSITY OF FLORIDA LEVIN COLLEGE OF LAW \10\
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\10\ Prepared statement of Ms. Herzfeld appears in the appendix on
page 72.
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Ms. Herzfeld. I'm not a doctor. Chairman Whitehouse,
Ranking Member Grassley, and members of the Committee, thank
you for the opportunity to testify today. My testimony will
focus on three points. The importance of protecting the U.S.
tax base as it relates to cross border income, the ways in
which the Tax Cuts and Jobs Act strengthened that base, and the
risks that the OECD agreement, the two pillar project, poses to
that base and to U.S. revenues.
Both for a mix of both foreign and domestic policy reasons,
Congress has, since the early days of the income tax, provided
favorable tax treatment for foreign earnings. It primarily does
so by allowing a credit, rather than a deduction for foreign
taxes paid.
And because both the U.S. tax and legal systems respect
corporations as separate entities, and because the income of
corporations generally isn't subject to tax to their
shareholders until received as a dividend, foreign earnings
have historically not been subject to U.S. tax until
repatriated.
Now at various times over the past century Congress has
imposed limits on this treatment in response to profit shifting
concerns. In 1962 it enacted the Subpart F regime, which taxes
certain income of foreign corporations currently to their U.S.
shareholders. Congress has also enacted exit taxes, including
an anti-inversion statute.
Beginning in the 1990s a number of trends combined to put
pressure on the system. Due to globalization, foreign markets
became more important for U.S. companies, and developments in
logistics and transportation led to the growth of global supply
chains.
At the same time other countries became more aggressive in
using tax incentives to compete for foreign investment.
Corporate tax rates worldwide decreased sharply, and tax
preferences, such as patent boxes, enacted to lure Intellectual
Property (IP) investment and assets became popular.
The pressure these trends put on the U.S. international tax
system was manifested by a rising trend in inversions, U.S.
companies reincorporating overseas, and foreign acquisitions of
U.S. companies, transfers of high value IP offshore, and an
increasing pile of offshore cash.
TCJA addressed these concerns, incorporating many
bipartisan proposals. Reducing the rate to 21 percent
significantly reduced the incentives for shifting profits,
assets and entities overseas. Inversions have essentially
stopped. A strengthened interest expense limitation minimized
the benefits of base erosion.
The participation exemption addressed the lockout effect.
The FDII deduction encouraged companies to repatriate their
IP to the U.S., and the GILTI tax reduced incentives for
outbound profit shifting. But the TCJA was mostly about
strengthening secondary U.S. taxing rights. And soon after
enactment of TCJA the OECD kicked off the second phase of its
base erosion and profit shifting project, the results of which
grant other countries primary taxing rights over profits, which
the U.S. has historically asserting taxing rights over.
With the active participation of U.S. Treasury, the project
has to date had two outcomes. Pillar one, which is primarily
focused on U.S. tech companies, represents a reallocation of
historical taxing rights from the U.S. to market economies. And
under pillar two, the global minimum tax agreement, the U.S.
has encouraged other countries to adopt minimum taxes of 15
percent.
The U.S. in doing so, essentially subsidizes these taxes
through the foreign tax credit. The Joint Committee on Tax has
estimated that the global minimum tax could cost the U.S.
hundreds of billions in revenue, while the OECD has estimated
that the primary beneficiaries of this tax are investment hubs,
low tax restrictions. No estimates for the cost to the U.S. of
pillar one have been released.
The OECD agreement also opened the door for other countries
to impose taxes on the U.S. domestic income tax base, through
the Under Taxed Profits Rule, or UTPR. Under this provision,
U.S. business credits effectively become subsidies for other
countries revenue collection.
One of the most concerning aspects of pillar two is the
extent to which the OECD has stepped into the shoes of Congress
and Treasury, in writing rules that directly impact U.S.
taxpayers without any of the oversight provided by the
legislative process, or as required by the Administrative
Procedure Act.
Congress could consider addressing process concerns
relating to the OECD project by mandating greater oversight
over international tax rulemaking, and it could address
underlying problems with the U.S. tax rules exposed by the
project by better defining the U.S. base to ensure primary
taxing rights over profits from U.S. created intangibles.
Thank you again for inviting me to testify. I'd be happy to
answer any questions you may have.
Chairman Whitehouse. Thanks, Ms. Herzfeld, I appreciate it.
Let me begin by channeling my friend and predecessor Kent
Conrad, who sat here as Chair of the Budget Committee for many
years, and was Chair when I first came to the Senate. And he
used to feature a graphic with a picture of a building in the
Cayman Islands called Ugland House, in which 18,000
corporations purported to do business.
It's only five stories high, only a couple of windows wide,
clearly as Kent would say, the business was being done in
Ugland House was monkey business, rather than real business.
And I hope that we can agree that allowing international tax
shelters like that, where companies actually aren't doing any
real business, isn't just bad policy, but it ought to be
nauseating to us to allow that kind of mischief to take place.
Let me talk a little bit about the global minimum tax rate,
Dr. Clausing, and we've heard some testimony in the Finance
Committee, and this Committee over the years that there's
advantage, and we don't want to be anti-competitive for
companies seeking lower tax rates.
The factor that that claim always seems to leave out is the
differentiation between a multinational corporation and the
American corporation, and the relative advantage of the
multinational, either of locating factories and jobs overseas,
or of playing games with Ugland Houses and fake overseas shell
companies to give themselves competitive advantage against
another American company.
And I can imagine, for instance, a big multinational that
has a subsidiary, and the subsidiary's perhaps a chain of
stores that compete with locally owned stores, tire stores, who
knows what. And because the multinational pays super low tax
rates, they can help their subsidiaries compete more
successfully against the locally owned small business.
Is that a real concern? And how much impact do you think
that fixing this problem will have in supporting both, I guess
I would call them real American businesses, both large and
small?
Dr. Clausing. Yes. Thank you for that question. I think it
illustrates that there's multiple types of competitiveness that
we should keep an eye on. One type of competitiveness is the
competitiveness of U.S. companies when they face foreign
competitors abroad, right? And those competitors abroad may
have zero tax rates, right, and our companies pay a higher tax
rate.
So one of the great things about the pillar two agreement
is it raises that tax rate abroad from 0 to 15. So that already
helps with that type of competitiveness. But a second type of
competitiveness, which I think is more pertinent to your
question, is the competitiveness of the U.S. location, and if
we think about our interests as a country, it's in having our
location be a competitive place to do activities, right?
So if our firms when they operate here in the United States
in states like Rhode Island or Wisconsin, if they're paying 21
percent on their U.S. operations, but they're getting a 50
percent discount to be abroad, that tilts the playing field in
favor of operations abroad instead of in the United States.
And it also tilts the playing field between different types
of actors in our competition, as you point out, Senator
Whitehouse, that small firms that don't have the advantage of
having these subsidiaries offshore have to pay the full
statutory rate. Whereas big firms can get their global rate
down to half that rate by managing to earn most of their profit
offshore as we saw on the AbbVie example that you mentioned in
your opening statement.
Chairman Whitehouse. Which may or may not be really earned.
Dr. Clausing. Yes.
Chairman Whitehouse. Offshore.
Dr. Clausing. Indeed.
Chairman Whitehouse. And I ask you for the record if you
wouldn't mind giving us a couple of sort of juicy examples of
where enormous profits are declared overseas without apparently
any collateral work being done there. And that it's purely an
accounting scam if you would.
Mr. Arensmeyer, you've been, you know, active in trying to
fight for small businesses against this kind of anti-
competitive advantage for big multinationals against American
small businesses. Would you care to add anything to what Dr.
Clausing has said?
Mr. Arensmeyer. Well, Chairman Whitehouse, small businesses
are looking for nothing more than a level playing field. And
clearly, you have a situation where they cannot compete tax
wise with entities that are able to get a more favorable tax
rate based on a portion of their business being offshore.
It's as simple as that, and small businesses have no--only
1 percent of small business even export, so we're talking about
businesses who are purely domestic, and they don't have if
there was any opportunity to take advantage of anything, they
don't have the lawyers and, the accountants to help them do it.
So that's all small businesses want is a level playing
field with their competitors.
Chairman Whitehouse. Senator Johnson.
STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thank you, Mr. Chairman. First of all, Mr.
Arensmeyer, I completely agree with you. Whether you realize it
or not, I wasn't a big fan of the tax reform, particularly in
its initial state because we were making a huge disparity
between C corps and pass-throughs, so I'm the guy that held out
to make sure that we got some measure of relief for pass-
throughs.
It's not the way I would have done it. I guess what I want
to talk about I think, first of all, I want to thank the
Chairman for holding this hearing, and I want to point out I
think there's potential for a lot more agreement on this issue
than there is disagreement.
Part of my frustration here in Congress is no matter what
issue you're talking about, whether it's healthcare reform,
pharmacy benefit managers (PBM) reform, tax reforms, I'm always
looking at whatever piece of legislation is being proposed as
just another band-aid on top of a dying patient.
Yeah. Our tax system is a mess. And so I guess what I want
the Chairman, colleagues, the witnesses, I'd like people to
think outside the box, and I hate the term tax reform. One of
my favorite sayings is all change is not progress. All movement
is not forward. Just because you're reforming something doesn't
make--doesn't say you're making it better.
In the end I voted for the tax bill because it's better
than what we had, but and it did stop inversions. It did
attract, you know, profit back on shore, but it's far from
perfect. So, I would like to go back to a clean sheet of paper,
and how do you design a simple and rational system. I'll just
throw it on the table, start with a concept that income is
income. I mean it is just bizarre that we take a look at a
different entity, we're going to tax you at that rate versus an
individual taxed at that rate.
In terms of capital gains you'd rather just pick a rate out
of the air. Why not index to inflation? To really account for
and then tax it at a normal rate. So yeah, Iactually did during
2017 lead up to it, I had my own tax proposal. I called it a true
Warren Buffet tax.
The basic concept is you just turn all businesses into
pass-through entities. You tax income at the shareholder level.
You tax it once at progressive rates. I'd like to see a flat
tax rate, but I think that ship has sailed. I'm not utterly
opposed to progressive tax rates, so some measure of fairness,
as long as it doesn't, you know, exceed a certain threshold,
and most Americans don't believe that the federal government
should ever take more than 30 percent of anybody's income.
So, I guess I would just like to ask all of the witnesses,
if you are looking at a simple and rational tax system, what
would be the first thing you would look at? What would be the
first thing you would eliminate? Again, I would eliminate C
Corps. I'd turn them into pass-through entities, and tax all
business income at the shareholder level. And I'll start with
you, Dr. Clausing.
Dr. Clausing. I agree that I think we can have a much
fairer, more equitable, more efficient system if we focus on
differentials between types of income, rather than keeping the
rate particularly high. On the individual side that would mean
more uniform rates between labor and capital. On the business
side, I agree that we should avoid distortions in
organizational form, and tax all large businesses similarly.
But we should also try to avoid big preferences for foreign
income relative to domestic income. And by reducing those rate
differentials, we can keep the overall rates reasonable, while
still raising enough revenue. . .
Senator Johnson. Let me interrupt. When I said income is
income, there wouldn't be differences. Everything would be
taxed at the same rates. We'd figure out how to do that. Mr.
Houseman.
Mr. Houseman. Yeah. I mean I think for our union the
concept and key piece for this discussion was really this idea
that we provide incentives through the tax code to outsource.
And I think this idea of adjusting revenue, making sure that,
you know, American based companies, like paper companies in
Wisconsin, like Graphic Packaging Corporation of America, where
domestic firms are not having to compete against global players
at a rate that on the tax side, so that they're doing this
weird competition.
So I think for us, the union, we see you know, as you say,
somewhat simplification, but ensuring that our international
tax system actually generates the revenue similar to what we
try and generate here from our American companies.
Senator Johnson. Again, I understand that competing
overseas that adds a new complexity. I mean if we just had, you
know, our country and that's all we need to worry about, I mean
now we have to have businesses compete overseas. Mr.
Arensmeyer.
Mr. Arensmeyer. Well absolutely, evening out the rate would
do a lot. I mean I don't know if you're proposing to actually
have capital gains and ordinary income rates more closely
aligned. We would agree with that. I do think there are some
practical issues of taxing shareholders who are shareholders in
big, multinational corporations.
Senator Johnson. It's imminently doable. We got computers
now. We talk to the shareholder services, we do far more
complex things than what you're contemplating.
Mr. Arensmeyer. I would be interested to hear the reaction
of a number of people, primarily shareholders in these
corporations to that, but in theory.
Senator Johnson. Well let me just say, you know, the beauty
of this scheme is if you were a low-income worker, the way you
collect the taxes through withholding, the corporation will pay
the tax for the shareholder, so if you're a low-income
taxpayer, you'll get a refund then over that backup
withholding.
If you're Warren Buffet, you're going to put more pressure
on corporations to pay dividends, which would help reallocate
capital through the economy. So, again there's a lot of--but
plus I'd also, I would treat--I would assess income based on
cash. Cash base. So you can get rid of all these other, you
know, amortization, depreciation, you know, it's cash income.
You know, a foreign tax paid is a deduction, not a tax
credit. I mean there's so many ways we can simplify this, and
that's what I'm asking people to do. Dr. Hines.
Dr. Hines. Senator Johnson, I think you should look into
options with a value added tax. A value added tax does a lot of
the things you just described. It taxes income comprehensively,
and it taxes it at a common rate. The one thing is it only
taxes the income when people spend it, so you have to wait
until then to get the revenue.
But people do eventually spend their income. More than 150
countries have value added taxes. They raise revenue, they do
so efficiently, and it's an alternative that is really worth
looking into.
Senator Johnson. They raise a lot of revenue because they
put it on top of other things. Professor Herzfeld?
Ms. Herzfeld. Yeah, thank you. I want to focus on your
question or your point, income is income. And one of the large
sources of complexity in our code, and also rising from the
global minimum tax is that we now have multiple definitions of
income. So we've got our historical tax code definition of
income, but we've got the corporate alternative minimum tax
that has another--it looks tofinancial statement income.
And then we've got the global minimum tax that requires
U.S. companies to now compute their income under that
definition of financial statement income. And so, having a
single, uniform definition of income would go a long way.
Senator Johnson. Okay. Thank you, Mr. Chairman.
Chairman Whitehouse. Thank you, Senator Johnson. Our order
at the moment is Senator Padilla followed by Senator Braun,
followed by Senator Merkley, followed by Senator Kaine. Senator
Padilla.
STATEMENT OF SENATOR PADILLA
Senator Padilla. Thank you, Mr. Chair. Good morning
everybody. The impact of foreign tax loopholes extends far
beyond just the record profits and inflated corporate bonuses
that we read about all too often. It also has a negative impact
on federal and state revenues, federal and state budgets,
driving up deficits, and limiting the opportunity for a
government to make investments in communities, and provide
support and programs that are so critical for so many families.
Now this dynamic effectively, what we're doing Mr. Chair,
is subsidizing offshoring. It's far more expensive than initial
sticker prices may lead us to believe. It risks good paying
jobs, as well as long-term reductions in GDP. The erosion of
local tax bases and increased spending on social services,
which becomes necessary to protect displaced workers.
So, it's a compounded effect here. My question is for Dr.
Clausing. How have foreign tax loopholes impacted state
budgets? Let's focus on the state impacts for a moment, and how
much state revenue is lost as a result of this offshore tax
dodging?
Dr. Clausing. Thank you so much for that question, Senator.
It has an enormous effect on state budgets, in part because
most state definitions of income piggyback on the federal
definition. So when companies shift income offshore and earn it
abroad, instead of earning it at home, that reduces federal
revenues, and it also reduces state revenues in tandem.
And there was a nice study by the Institute on Taxation &
Economic Policy (ITEP), which looked at what states could gain
from just closing simple loopholes in how they treat foreign
income. And they found a $17 billion benefit potentially from
relatively simple reforms across states. And you might be
interested that California accounts for about $3 billion of
that 17.
Senator Padilla. Yeah. So not insignificant by any means.
Now, I wanted to highlight for a moment a particular egregious
loophole within the global, intangible low-taxed income, also
referred as GILTI structure, specifically exempting income
derived from foreign oil and gas extraction.
The Treasury Department estimates the carve out amounts to
about $84.8 billion a subsidy over 10 years for multinational
drilling companies. At a time where the science is clear
though, we have to act with urgency to prevent the worst of the
climate crisis. It seems to me this carve out is unacceptable,
and has outlived whatever usefulness it might have had.
While the Inflation Reduction Act shifted several federal
incentives towards clean energy and domestic sources, lingering
carve outs for foreign oil and gas are entirely counter
intuitive to these efforts. So Dr. Clausing, what policy
changes should we consider as we work to reform the tax code in
a climate conscious and forward looking way?
Dr. Clausing. So, it's an excellent question. So, I was at
Treasury when we looked at those estimates on the acronym is
FOEGI, but the extra benefit that you get from having foreign
oil energy and gas income offshore. And as you point out, it's
an enormous benefit. $80 billion for closing that loophole. So
that is one change that should be made absolutely, and I would
point out that there's another $40 billion or so of subsidies
within our tax code for fossil fuels, right?
So if you could reverse those, you know, that would
generate a lot of revenue as well. And finally, I would just
also point out that Senator Whitehouse has legislation, the
Clean Competition Act, that's also well worth considering in
this time of global competition and climate change, that would
use our power as a market economy, and our relatively clean
production here in the United States to also encourage more
global adoption of climate mitigation policies.
So I think that that's another thing that we should be
looking at in the time ahead.
Senator Padilla. Thank you very much, and just in closing,
Mr. Chair, I don't need to tell you for all of the climate
deniers out there, for the cynics about renewable and other
clean energy sources who complain, well where would they be
without subsidy, subsidy, subsidy. Fossil fuels have benefited
from enormous subsidies over the years, especially the foreign
sources, so thank you Mr. Chair.
Chairman Whitehouse. Testimony in this Committee says that
the fossil fuel annual subsidy in the U.S. every year is over
$600 billion from the International Monetary Fund, so it's a
pretty serious number. Senator Braun. And that's billion with a
B just to be clear, Senator Braun.
STATEMENT OF SENATOR BRAUN
Senator Braun. Thank you, Mr. Chairman. I've been in so
many of these hearings, and my observation is that we have two
constants that are part of this discussion. You goback for 50
years we've never generated other than a couple three years in the
Clinton administration, maybe a couple years, more than 17.5 percent of
our GDP in federal revenues.
I'm not going to ask each one of you, but would you agree
with that statistic? Are you aware of it? Just a nod of your
head would be fine. I think it is. I mean it's black and white.
The other thing that's a constant, since the Bush years would
be that we've been running chronic deficits, and I think that's
black and white too.
It probably got started even back in the Reagan years when
we did cut taxes and paid no attention to what we were going to
do with spending. That makes perfect sense knowing how this
place works. So, given that's a constant, and whenever you I
think cut taxes, you're going to deplete Treasury revenues a
little bit. The years one and two following it. Your economic
growth generally does a little better. That might be kind of a
tradeoff stubbornness, of why revenues never get much beyond
17.5 percent.
So regardless of what we do with offshore revenues,
whatever we do here it seems like we'd want to make this place
work with the reality of what the economy is able to do. I'd
like to start over with Dr. Clausing, and then go across the
board. And I want you to make a statement. Is it tax policy
that's a bigger issue now on our trillion dollar deficits we
generate every 6 months?
When I got here it was every year about 5 years ago. Is it
tax policy, or is it spending? And try to make sense with
whatever your answer is that it doesn't violate that big
statistic that we only generate 17.5 percent of our GDP in
federal revenues. Dr. Clausing.
Dr. Clausing. I think one thing we saw in the late 1990s,
when we did move towards better and better budget situation,
and ended up once with a surplus, I had to change all my class
notes and describe it: Wow, the U.S. government can run a
surplus, is that both taxes and spending are clearly important
here.
At the time that we ran that surplus, we got taxes relative
to GDP and more in the neighborhood of 20 percent. I don't
think the 17.5 is an inviolable rule and that number does move
around quite a bit with that.
Senator Braun. It's 25 percent where we're currently at.
What do you think of it? And that's occurred through COVID,
through the present administration. When you look at spending
at its current levels, it's closer to 25 percent of GDP. I
didn't cite that earlier, but that's probably out there. You
could never raise revenues to reach that level. Would you agree
with that?
Dr. Clausing. I have a proposal that suggests we should aim
to reduce primary deficits by about half to half the size that
they are now. I do think we have a huge gap between spending
and taxation, and that's a problem, and it's one that Congress
should----
Senator Braun. And you'd have to do that on the back of
spending, just from the logic that we've been throwing around
here.
Dr. Clausing. I think taxes have an important role to play.
Senator Braun. About half of it you said.
Dr. Clausing. In increasing the deficit, and I think people
need to be able to compromise and address both sides of that
equation.
Senator Braun. Okay. Mr. Houseman.
Mr. Houseman. Yes. To your question, I think you know for
AFL-CIO and Steelworkers, we see this idea that tax policy
definition has a major factor in how we address and improve the
reduced deficit.
Senator Braun. Up to what level? I agree it may have a----
Mr. Houseman. I think that if you're looking at a fact that
in the current situation with all our foreign affairs issues
that are going on right now, the fact that we have 12 aircraft
carriers that need to be out there patrolling our seas,
ensuring the safe transit of goods across a global economy,
that we have to ensure that there may be revenue necessary to
raise to ensure that the safety and security.
Senator Braun. And I think everybody would say that's a
generally statement that categorically disagree with, but put
it in the context of running $2 trillion deficits annually.
Mr. Houseman. Well, I think if you raise revenue to help
reduce that deficit level, you're going to improve that overall
health.
Senator Braun. So you're with Dr. Clausing a little bit,
maybe 50/50.
Mr. Houseman. Yeah.
Senator Braun. Okay.
Mr. Arensmeyer. Correct me if I'm wrong, but I think the
tax revenue shrinkage since the passage of the Trump tax law,
I've seen estimates anywhere from 1 to $2 trillion. I defer to
the experts.
Senator Braun. $150 billion a year, which would be a very
small percentage of our current $2 trillion deficits. I
acknowledge that. Other than the CBO, right before COVID was
showing that that was almost neutralized, so take that into
consideration too, but I'll grant you what is real, $150
billion per year, which is a small percentage of $2 trillion.
Mr. Arensmeyer. Well, I believe there's been estimates if
the Trump tax law was continued for an additional 10years it
could be as much as a $4 trillion gap, so my only point is that tax
revenue has come down, it's certainly not----
Senator Braun. And that would kind of make sense if you're
doubling the timeframe, but it's still percentagewise, the
small part of our current borrowing and spending. I think I'm
right there on the numbers, and I agree with you that if you
double the timespan, it would be closer to $3 billion to 4, or
$3 trillion to $4 trillion.
Mr. Arensmeyer. I guess my answer to the question is that
right now given the sort of reduction in tax revenue versus,
you know, have we continued before, that it is more of a tax
issue right now than it is a spending issue.
Senator Braun. Well then I'd say you're saying 7.5 to 15
percent of the deficit, which you just blamed on the Trump tax
cuts, that's a much, much smaller figure than where the balance
of that deficit is coming from. Dr. Hines?
Chairman Whitehouse. Senator Braun, we've got three
colleagues waiting in line.
Senator Braun. Yes. Just you want to go real quickly just.
Dr. Hines. Senator Braun, I completely agree with you that
the deficit is a huge problem, and we need to do something
about it. Obviously you can either cut spending or you can
raise taxes, or some combination. Your question was is it
possible to conceive of taxing say 25 percent of the national
income?
There are countries that do it, like France. And if you
want to have the economy of France, you can have their
policies. But that's what you get in an economy like France's,
which is much less affluent than ours.
Senator Braun. Thank you. Ms. Herzfeld.
Ms. Herzfeld. Yeah, I think if you're addicted to spending
no amount of revenues will be able to make that up.
Senator Braun. I'd say you hit it right on the head. Thank
you.
Chairman Whitehouse. Senator Merkley.
STATEMENT OF SENATOR MERKLEY
Senator Merkley. Thank you, Mr. Chairman. The Trump tax law
slashed the corporate tax rate from 35 to 21 percent. And but
that didn't trickle down to ordinary people, rather than
raising wages corporations rewarded CEOs, they did stock buy
backs, increasing the wealth of wealthy stockholders.
An analysis from the IMF found that the top Standard and
Poor's (S&P) 500 companies directed just 20 percent of the
value of that tax cut towards capital expenditures or research
and development, and put 80 percent, 5 out of every 5 dollars
to buy backs and dividends.
And yet the Washington Post reports just last Friday that
Trump wants to continue that strategy of cutting the corporate
rate even further. So Mr. Houseman, how would such a cut
actually help small business and their employees when we saw
that really what the tax cuts were designed under Trump were
about helping mega corporations, and wealthy stockholders?
Mr. Houseman. Yes. So, you know, from our, from the union's
perspective, this is the smaller unionized companies that we
work with day to day. You know, they pay their taxes, they
produce a good, and then they provide it out to a larger--the
economy. And when you have these sorts of tax incentives to
build out in low tax havens, and you have the capability
through, you know, hiring legal and tax advice.
You just create this perverse incentive for the American,
you know, for regular American workers, who don't feel like
there's a fair competition. And I think that that's ultimately
what we try and address here with, you know, no tax breaks for
outsourcing, and other areas is that these issues like GILTI
and others, they need to be updated.
We need to address our Congressional--we need to approach
this from like a constant movement towards improving our
revenue to spending ratio, and it needs to be done in a timely
fashion, which is really like something that the union workers
do every 3 years when they bargain a contract.
Senator Merkley. Well, I sure would like to see ordinary
Americans benefit rather than more tax policy directed to make
the wealthy wealthier. And I don't see how doing the same thing
that provides 80 percent of the benefits to the wealthiest, is
going to serve ordinary Americans. I want to, you mentioned
that GILTI provision, which is also a provision that really
helps drive our production overseas, which means even less go
to employment here in America.
So if you want corporations to make their products
overseas, that would be a very good policy, but I'd prefer that
we make our products here and employ Americans. Would you
agree?
Mr. Houseman. Absolutely. I mean for a union that has spent
1 in 4 anti-dumping and countervailing duty orders, that is
because the United Steelworkers have been a supporter of it.
We've had to fight back against dumped and subsidized goods
that have negatively impacted jobs here in the United States
for decades.
And the idea that tax policy could incentivize further
outsourcing is absolutely atrocious. We should be using that
revenue to generate and build American factories, notfactories
somewhere else.
Senator Merkley. Dr. Clausing, let me turn to you. The U.S.
collects less in corporate tax revenues as a share of GDP than
virtually any other advanced economy. How does that disparity
in corporation taxation under the Trump tax law contribute to
increased wealth inequality here in the United States?
Dr. Clausing. Yes, the corporate tax is a very progressive
tax, and if you compare it to our other ways of raising
revenue, like labor income taxes, the payroll tax, it's by far
the most progressive, major contributor to our tax system. So
when they cut that corporate tax so dramatically in the Tax
Cuts and Jobs Act, and if you look at the other provisions of
the Act, they were also regressive, and it exacerbated the
amount of income inequality in the United States.
And that same study that was referenced in the opening
Grassley remarks, finds that 80 percent of the benefit of those
corporate tax cuts went to the top 10 percent of the
population.
Senator Merkley. Well, it seems to me that there's a
profound sense of the system being rigged, which increases
cynicism in America because we know that a large corporation
uses a tremendous amount of the infrastructure built with our
tax dollars, of our criminal justice system, of our trade
system, of our education system, of all the people they hire.
So isn't there something fundamentally unfair to have these
massively wealthy corporations using massive amount of our
infrastructure, and pay almost nothing towards sustaining it
and improving it?
Dr. Clausing. Yes. And then I would point out that it's
also inefficient. If you look at the largest companies, most of
what they're earning is above normal profits, and those profits
can be taxed without distorting labor decisions, or investment
decisions because they're earning above and beyond the normal
amount that it takes to get their businesses to function.
So I think moving the corporate tax base even more in the
direction of a pure profits tax would be helpful, but it's an
efficient way to raise revenue in addition to being a fair way
to raise revenue.
Senator Merkley. Thank you.
Chairman Whitehouse. Senator Kaine.
STATEMENT OF SENATOR KAINE
Senator Kaine. Thank you, Mr. Chair. In 2017 the Republican
theory was to cut taxes on large corporations, and cut taxes on
the profits they make overseas. And hope those companies will
put their increased profits into new investments. In '21 and
'22 we took a different direction.
We invested in the nation's infrastructure. We invested in
manufacturing, in industries that are poised to promote good
jobs in the future, clean energy, advanced manufacturing,
semiconductors and others. I'm a former mayor and governor,
which means I still kind of think of myself as an economic
developer, so I'm making pitches all the time to companies
about why to come to Virginia.
I'm on the phone at least once a week with some company
trying to make a pitch. I was on the phone with a company
yesterday who is really excited about some of the clean energy
provisions in the Inflation Reduction Act, and some of the
other estimates in the Infrastructure Bill.
Talk about these two visions, the you know, cut taxes and
count on companies making more to help grow the economy versus
direct investment in infrastructure and manufacturing. It's
going to be a great case study. It may take another 10 or 15
years for people to really write the case study, but if I could
begin with you, Dr. Clausing, talk about these two visions for
growing the economy, and growing prosperity for everyday
Americans.
Dr. Clausing. Yes. I think when we saw the Tax Cuts and
Jobs Act enacted, there was a big debate about whether it would
pay for itself, which it didn't. Whether it would spur a new
renaissance in wage growth and investment, which it did not.
There was a lot of evidence that it increased the shareholder
value, and in the runup to the legislation the stock market
soared.
It increased buy backs a lot, but there was very little
discernable effect on aggregate investment in the United
States, and I think that was partly because of the fact that a
lot of this tax cut was directed at these excess profits. When
you cut someone's tax on their excess profits, and they have
extra money they're already undertaking all the investments
that they thought were rational to take.
And so, when you look at the benefits from that
legislation, study after study has found that it mostly
enriched shareholders, and it didn't really trickle down to the
typical worker. I think the vision of more recent legislation,
starting with the Infrastructure Bill, bipartisan bill, but
also the CHIPS Act, which was bipartisan, and the Inflation
Reduction Act, these are more about what I would call a more
modern supply side economics.
Or Secretary Yellen calls it that, so I'm really borrowing
that term from her in the sense that it's focused on really
investing in the fundamentals of the United States, focusing on
the people, the infrastructure, building up the United States
to have those fundamental strengths so that we can compete in a
world economy.
And to be a fundamentally strong economy, we need adequate
tax revenue to pay for these kinds of investments, which I
think Mr. Houseman pointed to as well. So I thinkthose types of
investments are very useful in making our businesses work well if they
have the infrastructure, and the human capital that they need.
Senator Kaine. And Mr. Houseman, from worker's standpoint,
and I'm proud to be a Senator from a state where the largest
steelworkers union, and the international is located at our
shipyard in Newport News. Talk about these two strategies,
cutting corporate taxes versus investing in infrastructure and
manufacturing, and how they affect working people.
Mr. Houseman. Yeah. I mean I think, you know, historical
precedent, when we did rural electrification, when we've now
trying to do that with broadband, expansion across the country.
I mean it gets people into the economy, gets them productive,
gets them active.
And it gives them the opportunity to participate in their
democracy. And I think that that's ultimately one of the key
pieces they hear when we talk about these direct investments
towards communities in need. You know, the idea, maybe I'm a
little old school, where I think it's important that every
child gets every meal, you know, and that everyone doesn't have
to fret about the bills.
And when we do direct investment and encourage good,
quality jobs, unionized jobs, we create an incentive out there
in the economy that is so much more powerful than corporate tax
cuts for the wealthiest people.
Senator Kaine. Just one thing before I hand it back to you,
Mr. Chair. I remember the evening we voted on the bill in 2017.
We got handed the bill, you know, and were told we had to vote
on it right away. Most of us hadn't seen it. It still had
handwritten inner lineation that were hard to decipher. And
then we got a chance to make amendments where we could speak
for one minute, and then have a vote on an amendment.
My corporations in Virginia, they liked the notion of
corporate taxes going down, but they weren't ask for it at 21.
They were saying can you do it at 25 or 26. And so I proposed
an amendment that night recognizing that the corporate tax cuts
in the proposal were permanent, but the individual tax cuts
were temporary.
I said why don't you just take the corporate tax rate if
you're going to do it, and you're going to drop it, drop it to
25 or 26, and then make the individual tax cuts permanent. And
that got roundly voted down by my Republican colleagues,
demonstrating that the preference was not to really assist the
individuals in the tax code, but to assist the corporations.
I still don't know that it would have been that great a
bill, but it would have been a lot better bill if we had
rebalanced it more to focus on individuals rather than on
corporations. Thanks, Mr. Chair, I yield back.
Chairman Whitehouse. Thank you very much, Senator Kaine.
Senator Van Hollen.
STATEMENT OF SENATOR VAN HOLLEN
Senator Van Hollen. Thank you, Mr. Chairman. I know my
friend and colleague, Senator Kaine, is a very effective
economic recruiter, so long as he's not doing it from folks who
are working in Maryland companies. Really, that's why we have
peace across the Potomac.
But I want to make one point at the outset here in terms of
the conversation about 17 percent of GDP being somehow an
immutable cap on revenue. That's clearly not true. I think Dr.
Clausing, you pointed out that in the early, you know, around
2000-2001 it was about 20 percent.
And that also was the last time we actually did not run a
deficit. Isn't that the case?
Dr. Clausing. That's correct.
Senator Van Hollen. That's right. And then of course we had
the Bush tax cuts, and that erased that advantage. So the
notion that somehow we cannot add additional revenue to meet
the needs is clearly inconsistent with our own history. Let me
ask you, Dr. Clausing, about country by country reporting,
because we are focused on tax havens, and one of the challenges
in our efforts to develop responsible tax policies is lack of
information about how corporations use offshore tax havens.
The Financial Accounting Standard Boards, FASB, has issued
an international tax disclosure standard that would require
additional disclosure of foreign taxes that companies pay. I've
introduced legislation called The Disclosure of Tax Havens and
Offshoring Act, to require the U.S. Securities and Exchange
Commission (SEC) to mandate that large corporations disclose
basic tax and financial information on a country by country
basis.
I think their investors have a right to know how exposed
they are to tax havens, and how they are--how exposed they are
to changes in tax policy. Could you talk about the importance
of country by country reporting, and do you think it would
provide valuable information for investors, the public, and
policymakers?
Dr. Clausing. Yes. I think this kind of reporting is very
important, and it need not be particularly complicated if we're
not asking for the release of an entire return. It's just how
many employees, how much income, how much tax are you paying in
different countries throughout the world.
And the reason that's such useful information is while it's
very simple information, it really forces companies to be
transparent. If they're going to earn most of their income on
an offshore location where they have almost no employment, then
they should be willing to say that out loud to their investors,
to their workers, to their consumers,and to the American
public. Because what they're doing is effectively putting those tax
burdens on others.
And I think shining sunshine on this is in a way, a market
friendly nudge. It's just saying tell us what you're doing.
We're not going to regulate per se, we're just going to ask you
to share your information with the public. And I think that
sunshine might lead to useful changes in their behavior as
well.
Senator Van Hollen. No. I appreciate that, and you know,
transparency usually works for the best of everybody, so people
can't hide what they're doing from investors and the public and
others. So there's a lot of talk about GILTI. I remember when
the, you know, the Trump tax bill was on the floor of the
Senate. Many of us, including myself, warned about the
provisions that would encourage the offshoring of American
investment, and jobs.
But we talk about it in these very general ways. Could you
talk a little bit about what you've seen since the passage of
that bill with respect to its impact, and the fact that there's
a greater incentive to invest in tangible assets overseas,
rather than here at home. Mr. Houseman's spoke about that a
little bit, but if you could just shine a little bit more of a
light on how that mechanism works.
Dr. Clausing. Yes. So there are four studies that are cited
in my testimony that I would refer people to look at that sort
of document this, but let's just talk about it pragmatically.
So if you think about what a tangible investment is, It's
something like plant or equipment. And when you have more
tangible investments offshore, that generates more income
that's free of U.S. tax. It's free of that GILTI because the
first 10 percent return on those tangible assets offshore is
completely free of U.S. tax.
And we don't have anything analogous in the United States.
We don't give people the first 10 percent return, you know, on
their domestic assets in Maryland or Virginia. They don't have
that. On the contrary, the FDII provision, which is this export
subsidy, only gives the export subsidy for returns above a
certain level.
So if you take a tangible asset out of Maryland and you put
it in an offshore haven, it will both increase your export
subsidy in Maryland, ironically, and it will increase the
amount of tax-free income offshore. So those are sort of to say
the least, perverse incentives, that we've got baked into the
code, and those four studies that I cite in the testimony
document that they're having real effects on the location of
tangible assets.
Senator Van Hollen. I appreciate your walking us through
that because it is complicated, but the bottom line is an
incentive to ship U.S. jobs and investment overseas. Mr.
Chairman, with your indulgence, I'd just like to ask every
member of the panel a yes/no question. I've been doing this in
a lot of these hearings.
This discussion already came up, but because of the hype
that was presented at the time of the Trump tax cuts, claiming
that they would pay for themselves, I just ask everybody,
especially our economists, whether in fact the Trump tax cuts
paid for themselves. Let's just start with Dr. Clausing, and
just go down the line.
Dr. Clausing. They did not.
Mr. Houseman. It does not appear so.
Mr. Arensmeyer. They did not.
Mr. Hines. No. They did not.
Ms. Herzfeld. It's not something I'm qualified to speak to.
Senator Van Hollen. Got it. Thank you. Thank you, Mr.
Chairman.
Chairman Whitehouse. Senator Van Hollen is pretty good at
raising that question and getting clear answers to it.
Hearing after hearing, so well done. Let me wrap up the
hearing with my appreciation to the witnesses, and I'll close
where I began, which is with Ugland House, Kent Conrad's
favorite piece of real estate, at least for rhetorical
purposes.
And the preposterous claim that 18,000 different companies
are actually doing business out of that one small location in
the Cayman Islands. That kind of mischief ought to have no
place in our tax code. And I hope we can find bipartisan ways
to get rid of that kind of nonsense.
Not only is it nonsense, or as Kent Conrad used to say, the
business that's being done at Ugland House is monkey business.
But it's also unfair because it builds a bias in favoring big
companies that have the resources to employ the tax accountants
and the lawyers, and all the people that are necessary to
manage a fake entity in a foreign tax haven, versus the florist
or the drycleaner, or the small business that is a real small
business, the kind that Mr. Arensmeyer here is representing and
speaking for.
So at a minimum, we ought to be able to get rid of that
nonsense, and I hope we can also come to some form of
bipartisan agreement that creating an incentive for an American
company to build a factory and hire workers overseas instead of
in the United States, not because of some attraction of that
foreign country, but because we have baked into the tax code,
the U.S. tax code, that perverse incentive.
I hope we can find a way to get some bipartisan progress
there as well.
Senator Johnson. Just quickly, Mr. Chairman. Senator Kaine,
I had a great deal of sympathy for that amendment you offered,
okay. You know I was digging my heals in to saywe've got to
have much fairer treatment for pass-throughs, smaller businesses versus
the C Corps.
The problem we have right now is both sides have I would
say abused the reconciliation process. When the stars align,
you have the House, you have the Senate, and you have the
Presidency abused the reconciliation process. You ram through
whether it's tax cuts, or larger spending, at the last minute.
Nobody sees any of this stuff, whether it's a spending bill or
the tax bill, okay?
That dysfunction has to end. What I would recommend, and
why I appreciate this hearing so much is we've got a major
fiscal cliff occurring in 2026. Small businesses are going to
be really put at a disadvantage when again, I couldn't believe
you know what I held on for was only 3 years.
I would have been happy to increase the corporate tax rate
to make that permanent, so we won't face this fiscal cliff. I
guess what I'm suggesting is let's sit down now. I mean the
hearing is a good start. Let's sit down with our offices, and
let's start looking at these areas of agreement because I think
there's a lot of agreement here.
There's a lot of agreement. Starting with we've got a
really complex and broken tax system. Let's simplify and
rationalize it, so again, I've talked to the Chairman, you know
about my true Warren Buffet tax. We talked about that in 2017.
Let's start flushing these things out. Let's be honest about
the complexity of this stuff.
Let's try and set the rhetoric, condemn demagoguery aside,
and let's really focus on, you know, the areas of agreement.
I'd want to sit down with the Chairman of the Finance Committee
as well. Now I see he's attended here. Let's start working on
this now so that when we get to 2025 we actually have a
bipartisan package, something we can all agree on, and pass in
regular order, as opposed to abusing the reconciliation
process.
Chairman Whitehouse. Let me recognize and welcome the
distinguished Chairman of the Finance Committee, and yield to
him for his questions.
STATEMENT OF SENATOR WYDEN
Senator Wyden. Well, I thank the Chairman, and I see also
Senator Johnson and my colleagues here who have done very
important work on these kinds of issues. I also want to
recognize that in the house is my old neighbor, Kim Clausing,
from southeast Portland. We've got to lure her back, and we so
appreciate her being here.
Look, what we're trying to do is use this year to the
greatest extent possible for helping people, and then to tee up
for 2025. Senator Whitehouse knows this in particular because,
he is so knowledgeable about the budget. And as we try to, work
through these issues, is that we are looking at a 3 year bill.
So there will be an opportunity, for example, I very much
liked the small business provision, the expensing provision,
which is getting no coverage, and every progressive small
business group likes that. And we're going to be doing that for
3 years. And I very much like the fact that we are embarking on
a pro-family policy because right now these families, and my
understanding is about 70 percent of the eligible families have
more than one child, but they really only get credit for one
child for purposes of reimbursement policies.
So, when Chairman Whitehouse and I talk about this stuff,
you hit yourself in the head and say how in the world does that
make sense? So what we're trying to do is to help people now,
but to do smart things that tee everything up for 2025. Ms.
Clausing, you've been working in these tax precincts for a long
time. What do you see as the key priority for us going into the
2025 debate?
And as you know, you don't have to go into a lot with
billionaires for the Chairman and me, because we've introduced
the Billionaire Legislation. And Senator Johnson, by the way
has talked to me about this over the years, so if he wants to
make a billionaire income tax a bipartisan bill, I'm all in.
But tell us what you think are the priorities for 2025.
Dr. Clausing. Thank you, Senator Wyden for thatquestion,
and for your leadership in this area. 2025, as you know, is such an
important year for tax policy. And as I mentioned earlier, the price
tag for a carte blanche extension of the Tax Cuts and Jobs Act is $4
trillion, if you include the business provisions that are already
starting to bite.
So, I think my first priority for 2025 would be that we
have to take serious deficit reduction, and not just simply
extend a series of prior tax cuts that aren't necessarily
working well. A second point is that I think we need to make
progressive changes in our tax system. I think the child tax
credit improvements that you're suggesting in the legislation
under consideration right now, are a nice step in the right
direction.
I think we can afford to be even more generous with
children, and with earned income tax credit, while collecting
more from those at the top who can really afford it. A third
principle is efficiency. I think that we didn't get a lot of
bang for the buck in the Tax Cuts and Jobs Act, in terms of how
much revenue we lost relative to how much investment and other
useful things we encouraged, and there's some things like the
R&D provisions that are actually discouraging benefits to
greater society from research and development if we're having
to amortize rather than expense that.
And then finally, a fourth consideration that I think is
really near and dear to my heart, and to your work, and to
Senator Whitehouse's work, is ensuring that the U.S. can work
with partner countries abroad to address some of these global
collective action problems. And both climate change, and
international tax competition are places where U.S. policy
could better align with good policy and with what other
countries.
Senator Wyden. I'm almost out of my time.
Dr. Clausing. Yes.
Senator Wyden. And I just want to have you because you are
so expert. You know, the Billionaire Policy now is really built
on three words really ending, buy, borrow and die, which is the
three word formula that allows billionaires to go for years on
end, years and years paying little or nothing in taxes.
I heard you say something about efficiency and revenue.
Colleagues, the revenue estimate for eliminating effectively
buy, borrow and die, is by Joint Committee on Taxation, $550
billion over 10 years. Is there anything that raises more money
from 900 billionaires? Colleagues, 900 billionaires. $550
billion according to Joint Committee on Taxation, by
effectively ending buy, borrow and die. Your thoughts on that.
Dr. Clausing. Yeah, no. That is probably the most you're
going to get from that population is through that legislation.
You know, I think there are other things in the tax code that
raise a lot of revenue, and the corporate increases that I was
talking about earlier could bring in about $1.5 trillion if you
cut the offshoring and profit shifting incentives and increase
the corporate rate, but I think looking at ways in which people
avoid and defer taxation on their capital income is a really
important complement to that.
Senator Wyden. Thank you, my colleagues, for all the extra
time. Thank you for your good work, Mr. Chairman, and Senator
Johnson, I look forward to working with you on this.
Chairman Whitehouse. Yes. Thank you, Chairman Wyden. Thank
you to all the witnesses for your participation, and your
valuable help, and to Dr. Clausing for getting back to me with
any particularly nauseating misuses of the foreign shell
company scam, and as good as all the testimony was, I think the
high point was Senator Johnson's confidence that we may be able
to find some bipartisan action here.
So, on that happy note, let's put the hearing to rest.
Thank you very much.
(Whereupon, at 11:32 a.m., Wednesday January 17, 2024 the
hearing was adjourned.)
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