Ripon Forum - November 2016

MIMI WALTERS ON THE ISSUE THAT NO ONE IS TALKING ABOUT “It is imperative that we put an end to reckless spending.”

November 2016 Volume 50, No. 5

A Better Way for

AMERICA’S TAXPAYERS Kevin Brady on the House GOP blueprint to reform the tax code

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“Ideas that matter, since 1965.“ Volume 50, Number 5

Debate

Cover Story (cont’d)

4 Climate Change is Occurring

By Nan Hayworth

5 Climate Change is not Generating

Extreme Weather

By H. Sterling Burnett

Politics & Perspective

16

Reform U.S. Taxes to Boost Investment & Innovation

By John Engler Over the last 10 years, other nations have dropped their corporate tax rates and improved their tax systems. It’s time for the U.S. to do the same and level the global playing field.

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Fearing the IRS: History need not keep repeating itself

By Pete Sepp With stories of overreach by the Internal Revenue Service being heard all around the nation, it is time to curb the agency’s authority and restore some common sense to the law.

21

A Tale of Three Tax Plans

By Scott A. Hodge Neither of the two major presidential candidates has proposed a plan that moves the country toward tax reform. Fortunately, a blueprint to do just that has been introduced on Capitol Hill.

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The Pence Record on Tax Relief & Tax Reform

By Richard Auxier An analysis of Governor Mike Pence’s efforts to ease the tax burden and reform the tax system in Indiana, and the impact these efforts have had on the Hoosier State.

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The Forgotten Issue of the 2016 Campaign

By Robert L. Bixby The presidential campaign is coming to a close without the candidates laying out a plan to reduce our national debt.

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For Party & Country, GOP Leaders Must Deliver the TPP

By Daniel Ikenson Although not a perfect agreement, the Trans-Pacific Partnership is a good deal for American consumers, workers, and businesses.

Cover Story 12

A Better Way for America’s Taxpayers

By Kevin Brady With Americans fed up with the broken tax code, the Chairman of the Ways & Means Committee discusses a reform blueprint that will propel America into a new economic era.

14

Families as the Sine Qua Non of Tax Reform

By Ryan Ellis A tax code that recognizes the outsized expense and value of families is one which is more likely to have a correlative benefit of reducing the unfunded liabilities of the entitlement state.

Publisher The Ripon Society

Editor Lou Zickar

President Jim Conzelman

Editorial Assistant Stephen Jackson

Editorial Board Thomas Tauke Michael Castle Billy Pitts Pamela Sederholm Judy Van Rest Jim Murtha John Feehery

Advertising Coordinator Janessa Lopez

© Copyright 2016

By The Ripon Society All Rights Reserved

Sections 3

In this Edition

26

News & Events -- coverage of a September breakfast with Chairman Fred Upton.

28

Ripon Profile - U.S. Rep. Mimi Walters

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RIPON FORUM November 2016

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THE RIPON SOCIETY HONORARY CONGRESSIONAL ADVISORY BOARD U.S. Senators: Shelley Moore Capito - Senate Co-Chair Cory Gardner - Senate Co-Chair Roy Blunt Richard Burr Bill Cassidy, M.D. Susan M. Collins Steve Daines Joni Ernst Deb Fischer Orrin G. Hatch John Hoeven Pat Roberts Mike Rounds Thom Tillis Roger Wicker U.S. Representatives: Pat Tiberi - House Co-Chair Susan Brooks - House Co-Chair Renee Ellmers - House Co-Chair Martha Roby - Vice Chair, South Erik Paulsen - Vice Chair, Midwest Bill Shuster - Vice Chair, Northeast Greg Walden - Vice Chair, West Mark Amodei Andy Barr Mike Bishop Diane Black Marsha Blackburn Charles Boustany, M.D. Vern Buchanan Larry Bucshon, M.D. Michael C. Burgess, M.D. Ken Calvert Jason Chaffetz Tom Cole Barbara Comstock Ryan Costello Ander Crenshaw Carlos Curbelo Rodney Davis Jeff Denham Charlie Dent Bob Dold Sean Duffy Tom Emmer Bill Flores Rodney Frelinghuysen Chris Gibson Kay Granger Sam Graves Richard Hanna Joe Heck French Hill Bill Huizenga Randy Hultgren Darrell Issa Evan Jenkins Lynn Jenkins Dave Joyce John Katko Mike Kelly Adam Kinzinger Darin LaHood Leonard Lance Billy Long Frank Lucas Tom Marino Kevin McCarthy Michael McCaul Cathy McMorris Rodgers Patrick Meehan Candice Miller John Moolenaar Tim Murphy Randy Neugebauer Kristi Noem Bruce Poliquin Tom Price, M.D. John Ratcliffe Tom Reed Jim Renacci Reid Ribble Tom Rice Tom Rooney Peter Roskam Steve Scalise John Shimkus Lamar Smith Steve Stivers Glenn Thompson Mac Thornberry Mike Turner Fred Upton Jackie Walorski Mimi Walters Steve Womack Todd Young

In this Edition

One of the goals of The Ripon Society is to promote the ideals and principles that, we believe, have made the Republican Party, and our nation, great.

One of the other goals of the 54-year old organization is to encourage Republicans to embrace and run on a positive agenda, so the GOP is viewed as a party that stands for something – not just against something.

Under the leadership of Speaker Paul Ryan, Republicans in the U.S. House of Representatives have been doing just that. Since June, Members of the House Majority have been fanning out across the country promoting “A Better Way” – a six point policy agenda that outlines where Republicans stand on a host of key issues.

The Ripon Forum looked at one of these issues in our last edition when we examined the House GOP plan to strengthen America’s military. In this edition, we look at another key plank in the Better Way agenda – tax reform, and the blueprint crafted by Ways & Means Committee Chairman Kevin Brady to rewrite the tax code and replace it with a system that is not only easier to understand, but one that also unleashes economic growth.

“Americans are fed up with the broken U.S. tax code and the incredible burdens it imposes on families, local businesses, and our economy,” Brady writes in his lead essay. “The only real solution is bold, pro-growth tax reform that rejects the status quo and propels America into a new era of economic freedom and competitiveness … Our Blueprint is built to unleash growth – the growth of families’ paychecks, the growth of our nation’s small businesses, and the growth of the American economy as a whole.”

To the extent that families are the foundation of our society, this edition also examines why tax reform must benefit them. “Ask any tax lobbyist in Washington what the hot topics are in today’s version of the tax reform debate, and you’ll hear a long list of answers,” writes Ryan Ellis of the Conservative Reform Network. “What is often left out or is at best an afterthought is helping working families with children. Yet this element of reform can not only improve our nation’s future economic prospects, but also make all the other tax reforms possible.”

One of the other reforms that Ellis refers to is corporate tax reform. As Business Roundtable President John Engler writes, the tax code has put U.S. companies at a competitive disadvantage around the world. “A high corporate tax rate and our self-defeating method of taxing income earned outside the U.S. has slowed our economic growth,” Engler argues. “As a result, we’ve lost up to 1300 companies in the U.S. over the last ten years – innovators that would have been spinning off their ideas for the benefit of U.S. workers and consumers.”

A key component of the Brady Blueprint is reforming the Internal Revenue Service. In an essay, Pete Sepp of the National Taxpayers Union reveals why IRS reform is long overdue.

And with this year’s election winding down, Scott Hodge of the Tax Foundation explains where Donald Trump and Hillary Clinton stand on the issue of tax reform and why, when compared with the House GOP proposal, both candidates come up short. One candidate who doesn’t come up short in this area of tax reform is Mike Pence. Richard Auxier of the Tax Policy Center examines the vice presidential candidate’s record in this regard as Governor of Indiana.

In other essays, longtime deficit hawk Robert Bixby of the Concord Coalition writes about the growing national debt and why it is the forgotten issue of the 2016 campaign, and CATO Institute scholar Dan Ikenson explains why the Trans-Pacific Partnership is a “good deal” for America and something that Republican leaders should make every effort to pass.

In our latest Debate, former Congresswoman Nan Hayworth squares off against the Heartland Institute’s H. Sterling Burnett on the issue of climate change and whether it is to blame for the extreme weather the world has seen in recent years.

And in our latest Ripon Profile, U.S. Rep. Mimi Walters shares her thoughts on the need to curb reckless spending and why passing the Better Way agenda must be a priority next year.

As always, we hope you enjoy this edition of the Forum and welcome your thoughts.

Lou Zickar, Editor louzickar@riponsociety.org RIPON FORUM November 2016

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Debate

“EXTREME WEATHER EVENTS: A NATURAL OCCURRENCE, OR A REASON TO ACT?”

Climate Change is Occurring It’s time for conservatives to act NAN HAYWORTH If you’ve seen the extraordinary imagery that’s brought over $1.1 trillion since President Reagan took office2. A the other planets in the solar system into sharp focus, you new University of Idaho study attributes to climate change a can imagine flying through Saturn’s rings and looking deep doubling in the number of acres – up to 16,000 square miles into Jupiter’s Great Red Spot.

– destroyed by forest fires during the past three decades, at The intrepid little craft we’ve sent speeding into the a cost to federal taxpayers of $2.1 billion to fight these fires universe have also looked back movingly at the planet to in 2015 alone3. which they can never return. In those images, Earth is a Scientists have also reached a consensus that global bluish, gibbous blur, the Moon a warming and climate change are nearby speck. related to human activity. Other This precious blur in the vast factors may play a role, but darkness -- this Blue Marble that human activity is important if not first took our breath away when the dispositive. men of Apollo 17 looked homeward And human activity is from space -- is all that we have. something over which we have No one who considers the celestial control. improbability of our existing Conservatives are rightly here, with continents and oceans known for taking responsibility, and atmosphere miraculously for planning sensibly, and for calibrated to support our lives, can acting to solve problems before fail to appreciate that we should be they become catastrophes. the best possible stewards of this When it comes to protecting our extraordinary home. planetary home, it makes sense In recent years, we’ve for conservatives to take the lead witnessed reminders, both dramatic in addressing climate change. and subtle, that the Earth may The conservative approach be changing in ways that could relies on American innovation Nan Hayworth make living here uncomfortable, and intelligent, marketinhospitable, or ultimately empowering, right-sized Scientists who study the impossible. Scientists who study regulation. Consumer concern the Earth’s climate, including about climate change has created Earth’s climate, including scientists from the National and growing marketplace scientists from the National aforlarge Academy of Science, have largely technologies and products Academy of Science, have reached a consensus that the planet that generate green energy, is warming1. They’ve gathered largely reached a consensus reduce emissions of carbon and evidence indicating that the other pollutants, and facilitate that the planet is warming. warming is changing our climate conservation. The United States – melting glaciers, changing the has reduced greenhouse gas composition and currents of the oceans, shifting the balance emissions to the lowest level since 19884 thanks primarily of wet and arid lands, and altering the patterns and intensity (cont’d on page 6) of cyclonic storms.

Experts enumerating these phenomena have https://www.ncdc.noaa.gov/billions/ determined that severe weather has cost the United States 2) 1) https://www.nasa.gov/feature/goddard/2016/climate-trendscontinue-to-break-records

4

3) http://www.idahostatesman.com/news/local/news-columnsblogs/letters-from-the-west/article107301532.html

4) http://www.eia.gov/todayinenergy/detail.php?id=22372&src= email

RIPON FORUM November 2016

“EXTREME WEATHER EVENTS: A NATURAL OCCURRENCE, OR A REASON TO ACT?”

Climate Change is not Generating Extreme Weather H. STERLING BURNETT Following Hurricane Matthew and the recent flooding “no evidence … for changes in extreme precipitation in Louisiana, the mainstream media parroted talking points attributable to climate change in the available observed of radical environmentalists claiming these events prove record.” that human-caused climate change is causing extreme Authors of a paper in the August 2016 edition of weather. Nothing could be further from the truth. the journal Theoretical and Applied Climatology found In multiple reports, the U.N. Intergovernmental “stronger storms are not getting stronger.” The authors Panel on Climate Change has said rising carbon-dioxide also found any changes in the strength, seasonality, and levels will cause an increase in even the increase in the number the strength and longevity of of heavy rainfall events could be hurricanes, which are ranked in explained by natural variability five categories based on wind of the Atlantic and Pacific speed, with Category 5 – sustained Oceans. winds of more than 156 miles per Concerning drought, hour – being the strongest. researchers have found no While carbon-dioxide levels increase in the frequency or have risen over the past decade, severity of droughts in the Matthew was the first Category 5 United States since 1900. hurricane to form in the Atlantic Indeed, proxy data indicate Basin since 2007, marking the mega-droughts, which can last second-longest period between 200 or even more than 1,000 the formations of Category 5 years, have occurred throughout hurricanes in the Atlantic Basin. history across the Western It is notable that Hurricane United States. The United States Matthew only topped Category 5 has yet to experience anything wind speeds for six hours, tying remotely close to such events it for the shortest-lived Category for centuries. Even the highly H. Sterling Burnett 5 hurricane on record. The record destructive dust bowl of the for the longest sustained Category 1930s lasted only eight years.

5 hurricane came in 1932 when for The Obama administration Fossil fuel use is not 78 hours Hurricane Cuba wreaked has proposed a number of causing weather extremes, havoc on the region, long before initiatives to fight climate but federal policies, inconcerns about human-caused change, which it says it climate change arose. can accomplish by slashing cluding subsidized flood Matthew was only a Category greenhouse-gas emissions by and hurricane insurance, 1 hurricane when it reached the curbing fossil-fuel use. mainland United States. Thus, it The administration’s have contributed to rising has been 4,019 days since the last biggest climate push is the disaster costs.

Category 3 or above hurricane Environmental Protection made landfall in the United States Agency’s (EPA) Clean Power – an ever-increasing record for the number of consecutive Plan (CPP), which mandates a 32 percent reduction in days between major hurricanes striking the U.S. mainland. emissions from new and existing coal-fired power plants Concerning rainfall, multiple studies in 2016 find below 2005 levels by 2030. The Energy Information no evidence rainfall amounts or severity have increased Administration estimated a draft version of CPP, which in recent years. For instance, a recent American only requires a 28 percent reduction in emissions, (cont’d on page 6) Meteorological Society report examining rain data found RIPON FORUM November 2016

5

“EXTREME WEATHER EVENTS: A NATURAL OCCURRENCE, OR A REASON TO ACT?” (Burnett, cont’d from page 5) would result in up to $1.23 trillion in lost GDP (in 2014 dollars) by 2030, with an average annual GDP loss of $112 billion. An analysis by NERA Economic Consulting of the final plan estimates consumers in 40 states could see double-digit electricity price increases due to CPP. In 28 of 40 of those states, consumers will face electricity price spikes greater than 20 percent.

All this harm does not help the environment since EPA has testified CPP will reduce global temperature by less than one one-hundredth of 1 degree Celsius by the year 2100.

Fossil fuel use is not causing weather extremes, but federal policies, including subsidized flood and hurricane insurance, have contributed to rising disaster costs.

Government-subsidized disaster insurance encourages people to build homes where they otherwise would not. The National Flood Insurance Program (NFIP) does not require homeowners whose homes are damaged or destroyed by floods, even repeatedly, to relocate. Since 1984, NFIP has paid out more than $1 billion for least 10,000 properties experiencing two or more losses.

(Hayworth, cont’d from page 4) to the expansion of hydraulic fracturing, enabling the switch from coal to abundant, cheaper, and cleaner natural gas for heat and electricity.

Innovation is sorely needed as well in our country’s tax and regulatory policy. In the decades since passage of the 16th Amendment to the Constitution, Congress created tax preferences first for the oil and gas industry, and later for other forms of energy generation. Exxon Mobil alone has earned near record annual profits of over $44 billion in recent years5. They don’t need a subsidy to survive.

Indeed, the estimated $65 billion-plus that taxpayers would save over 10 years without oil-industry preferences6 could and should go towards other innovations in an “all-of-theabove” energy and conservation portfolio.

Crucial to this portfolio is our nuclear industry, producing power with zero emissions at baseload scale irrespective of wind or weather – and with a compact footprint. Nuclear energy has gained strong proponents among eminent scientists and environmentalists, including James Hansen, who coined the term “climate change”7. We

5) http://money.cnn.com/2013/02/01/news/companies/exxonmobil-profit/

Despite the National Climactic Data Center saying increased population and development of coastal areas is responsible for the higher losses from hurricanes and flooding, NFIP encourages people to relocate to the coasts. According to the 2000 U.S. Census, half of Americans live within 50 miles of a coast, and by 2025, it estimates 75 percent will. This is especially important because according to the Heinz Center, absent government subsidized flood and hurricane insurance, development in areas that have a high risk of flooding would be about 25 percent less than in low-risk areas.

Ending government insurance programs that perversely encourage people to build homes, hotels, and luxury resorts in disaster-prone areas will do far more to prevent harms from natural disasters than the Obama administration’s efforts to end the use of coal, natural gas, and oil.

RF H. Sterling Burnett, Ph.D. (hburnett@heartland.org) is a research fellow on energy and the environment at The Heartland Institute, a nonpartisan, nonprofit research center headquartered in Arlington Heights, Illinois.

need to streamline permitting and facilitate construction of small-scale reactors. Completion of the Yucca Mountain spent fuel storage facility, on which U.S. ratepayers have already spent more than $30 billion, will remove a major obstacle to the expansion of this critical source of power.

Responding to climate change is driving the financial sector as well. Fifteen percent of the Standard & Poor’s 500 already factor a price on carbon into their financial strategies. Insurers include climate modeling in product pricing8. Investors are designing portfolios that support reducing carbon emissions.

Conservatives should take the lead in crafting public policy that will reward consumers, investors, and industry for being good stewards of our planet.

American innovation and prosperity have transformed the world more than once in our country’s history; it’s time now for us to help ensure that our history on this planet will not come to an ignominious end.

RF The Honorable Nan Hayworth is a member of the Board of Directors of ConservAmerica. She previously represented the 19th District of New York in the U.S. House of Representatives.

6) http://www.taxpayer.net/library/article/understanding-oil-andgas-tax-subsidies 7) https://www.scientificamerican.com/article/nuclear-powermust-make-a-comeback-for-climate-s-sake/

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8) https://www.greenbiz.com/article/5-signs-private-sector steppingclimate-change

RIPON FORUM November 2016

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Politics & Perspective

The Forgotten Issue of the 2016 Campaign ROBERT L. BIXBY

The presidential campaign is coming to a close with both Beyond the next decade, the nonpartisan Congressional of the major-party candidates having managed to avoid clear Budget Office (CBO) projects that the debt will continue rising answers about what they would do to put the federal budget on under current law, reaching 141 percent of GDP 30 years from a sustainable path. now. The highest recorded debt level in U.S. history was 106 The omission is striking for two main reasons. percent of GDP in 1946.

First, the growing national debt is a threat to the economic The nation deserves a candid discussion of the budget well-being of future generations outlook and the forces that and deserves the attention of are driving the debt higher: anyone aspiring to become population aging and health care president. costs.

And second, the American According to the latest CBO people have a right to know what projections, 82 percent of federal the candidates plan to do about spending growth over the next such a major problem.

10 years will be driven by major Glossing over the issue health care programs (34 percent during the campaign, as the of the increase), Social Security candidates have done, just makes (29 percent of the increase), and it harder for the winner to propose interest on the debt (19 percent of serious solutions once he or she the increase). takes office. They have built in Clinton and Trump have unrealistic expectations that when both made some expensive exposed to real-world budgeting proposals but neither has will soon come crashing down, proposed anything to change the increasing public cynicism. upward trajectory of debt.

The first reality test will It’s not as if the numbers Robert L. Bixby come shortly after taking office have no connection to the future when either Hillary Clinton economy.

The growing national debt or Donald Trump will have to A high national debt is a threat to the economic wellsubmit a Fiscal Year 2018 budget leads to increased government to Congress against the backdrop borrowing, which crowds out being of future generations and of rising deficits and debt. investments in deserves the attention of anyone productive Consider what awaits people, machinery, technology aspiring to become president. the next occupant of 1600 and research, resulting in slower Pennsylvania Avenue: economic growth and lower For the first time since 2009, wages. the federal budget deficit increased in the recently ended fiscal Growing debt also crowds out public investment by year, going from $438 billion (2.5 percent of GDP) in 2015 to requiring an increasing share of the budget to go towards interest $587 billion (3.2 percent of GDP) in 2016. payments instead of into new public investments in education, The upward trend will continue under current law with the infrastructure, and research and development. deficit projected to reach $1.2 trillion (4.6 percent of GDP) in Indeed, federal investment spending has already been 2026. Â Deficits have averaged 2.8 percent of GDP over the past declining for years. Forty years ago the government spent 4.1 50 years. percent of GDP and 22 percent of the budget on investments.

Federal debt held by the public is projected to grow from It now spends only 2.7 percent of GDP and 13 percent of the 77 percent of GDP this year (the highest level since 1950) to 86 budget on investments. During that time, transfer payments have percent in 2026, far above the average over the past 50 years (39 increased from 48 percent of the budget to 71 percent. percent of GDP).

On the other hand, reducing deficits can be a source of 8

RIPON FORUM November 2016

strength. According to CBO, a responsible deficit-reduction plan ($2 trillion over 10 years) could boost real per-person output by about $5,000 in 2046.

Moreover, there is a substantial cost to delay. According to CBO, waiting five years to begin reforms aimed at stabilizing the current debt-to-GDP ratio in 2040 would increase the cost by about one-third. Waiting 10 years would increase the cost by two-thirds. Delay also shifts more of the burden to future generations.

What do the candidates have to say about this? Not much.

Hillary Clinton says her new spending plans would not add a penny to the debt because she has proposed higher taxes on the wealthy to pay for them. Even assuming the accuracy of this assertion, her proposals would still not address the unsustainable path we’re already on.

Donald Trump says that his plan to aggressively cut taxes will be paid for by cutting waste, fraud and abuse and by a huge boost in economic growth stimulated by the tax cuts. The spending cuts, however, are mostly unspecified and the rate of economic growth he assumes as the result of his tax cuts is beyond the range considered plausible by most nonpartisan analysts. The most likely scenario is that Trump’s proposals, if enacted, would make the debt outlook worse. But, as with Clinton, even if his assumptions were correct paying for his new

proposals would still leave us on an unsustainable path.

With the campaign wrapping up, it seems unlikely that either candidate will now come forward with new, more credible, ideas for putting the budget on a sustainable path. Attention must be turned toward what they will propose in the first budget the November winner will produce next year.

While it would nice to think that the first budget will contain a comprehensive proposal dealing with Social Security, health care and taxes, a more realistic scenario would concentrate on a few defined prospects for change that could engender a bipartisan compromise and make incremental progress on the long-term fiscal outlook.

Focusing on Social Security alone might be a possibility.

Another would be a compromise on infrastructure spending and tax reform. In either case, some element of compromise would be essential for laying the groundwork for future negotiations by rebuilding trust across the vast partisan divide.

One thing is clear. If the next president doesn’t come up with something better than we have seen on the campaign trail, our fiscal challenges will fester and grow.

Treading water is not enough.

RF Robert L. Bixby is Executive Director of The Concord Coalition.

CONSENSUS & LEADERSHIP.

RIPON FORUM November 2016

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For Party & Country, GOP Leaders Must Deliver the TPP DANIEL IKENSON On the political stump and in the media, trade agreements national sovereignty and weaken domestic accountability. have been blamed for killing American manufacturing, Accordingly, the usual anti-trade arguments from labor, stealing jobs, widening income inequality, degrading the environmental, and other groups on the left have been environment – even causing cancer. Much of the ire has been supplemented by free-market oriented assertions that the directed at the Trans-Pacific Partnership, a trade agreement TPP is too much about global governance and too little about signed earlier this year by the United States and 11 other market liberalization.

Suspecting that the agreement Pacific-Rim countries on four was a mixed bag, scholars at continents. Although not a perfect the Cato Institute conducted a agreement, the TPP is a good deal chapter-by-chapter, provisionfor American consumers, workers, by-provision assessment and and businesses, and its ratification concluded that – like most

by Congress is crucial to protecting trade deals – the TPP augments U.S. economic and geostrategic our economic freedoms, but interests going forward. also includes some baked-in In terms of economic heft, protectionism. However, as a the TPP is the largest U.S. trade whole package, the pros outweigh agreement ever negotiated. the cons and free traders should In 2014, its 12 signatories be supportive of ratification. Of accounted for 23 percent of the the 22 chapters that were assessed world’s exports and 36 percent and assigned scores (on a scale of global GDP. If implemented, of 0 to 10), 15 were determined the deal would eliminate tariffs to be trade liberalizing (scores on 90 percent of regional trade above 5), five were found to be immediately, open growing protectionist (scores below 5), and Asian services markets to U.S. Daniel Ikenson two were determined to be neutral providers, prohibit customs duties (scores of 5). on electronic commerce, expand Economic studies from Americans’ access to imported Although not a perfect the U.S. International Trade goods and services, and reinforce agreement, the TPP is a Commission and the Peterson the institutional architecture that Institute for International has enabled the rules-based, good deal for American Economics both found that the global trading system to flourish consumers, workers, TPP would generate modest under U.S. leadership since the and businesses.

– but positive – increases in end of World War II. U.S. incomes. However, those The agreement’s 30 chapters estimates do not account for deal with tariffs and other traditional market access issues, but also include rules the fact that the TPP is a “living agreement,” open to new governing certain aspects of e-commerce, operations of countries that can meet the relatively rigorous obligations state-owned enterprises, intellectual property and labor laws, of membership. This dynamic feature means that the TPP environmental rules, and other areas that are less obviously has greater upside potential than the estimates suggest, and associated with trade or trade barriers. Arguably, these makes the agreement a candidate to fill the void created by governance provisions belong in trade agreements because the breakdown of the consensus-dependent, multilateral domestic laws and regulations could have protectionist intent negotiating “round” approach that undergirded global trade or consequences, but their inclusion also raises concerns liberalization for a half century.

With 36 percent of global GDP represented by its charter about the potential for overreaching that could erode 10

RIPON FORUM November 2016

members, the TPP already has achieved critical mass. Several fluid than this suggests, but Congress will either consider countries already have expressed interest in joining the implementing legislation in the Lame Duck session – between agreement. As membership increases, the cost of remaining November 14 and December 23 – or it won’t. Congressional outside the TPP will rise, as preferences, supply chains, and Republican leadership has rejected the idea of a Lame Duck investments shift from TPP outsiders to TPP members. With vote, claiming a lack of support for TPP. Certainly, the its neighbors and most vitriolic, anti-trade important trade partners Economic studies from the U.S. rhetoric that has cascaded joining TPP, Beijing will from the top of the ticket have no better alternative International Trade Commission and up a fissure in than to embrace it, as well, the Peterson Institute for International opened the GOP over trade. But and accept the new rules Economics both found that the TPP if the party expects to that will rein in some of recover from this year the abusive trade practices would generate modest – but positive and be taken seriously of which China is so – increases in U.S. incomes. when it advocates free frequently accused. markets and economic The TPP is a crucial liberalization, its step in the process of reestablishing the primacy of non-discrimination and other leadership needs to deliver the TPP before Christmas.

If it doesn’t, the fate of the TPP will descend into tenets of the U.S.-led, post-WWII liberal economic order. It is a blueprint for securing U.S. geoeconomic and geopolitical deep uncertainty, determined by a president who claims to interests now and into the future by reinvigorating the rules of oppose the deal and a Congress in which both parties reject international trade law and accommodating those institutions the merits of trade liberalization and U.S. global economic leadership.

RF to a multi-polar, 21st century global economy.

But one major hurdle remains – Congress has not yet ratified the TPP, and prospects for doing so are extremely Daniel Ikenson is director of the Cato Institute’s Herbert A. limited. The politics behind the fate of the TPP are more Stiefel Center for Trade Policy Studies.

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Cover Story

A Better Way for

AMERICA’S TAXPAYERS

by KEVIN BRADY

Americans are fed up with the broken U.S. tax code and the incredible burdens it imposes on families, local businesses, and our economy. The only real solution is bold, pro-growth tax reform that rejects the status quo and propels America into a new era of economic freedom and competitiveness.

In June, House Republicans delivered this plan as part of Speaker Paul Ryan’s “Better Way” agenda. Our Blueprint for bold, pro-growth tax reform represents the first consensus proposal to overhaul the tax code put forward 12

by House Republicans in 30 years. Regardless of who is elected president in 2016, we intend to turn this Blueprint into fiscally responsible legislation and push it forward in the New Year.

First and foremost, our Blueprint is built to unleash growth – the growth of families’ paychecks, the growth of our nation’s small businesses, and the growth of the American economy as a whole.

According to an analysis performed by the Tax Foundation, our plan would boost America’s gross

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domestic product by more than 9 percent. That’s a gain to the standard deduction, our Blueprint will spare the vast our economy of $2 trillion, or nearly $6,000 per person. In majority of individuals and families the hassle of itemizing. addition, the organization found that our Blueprint would Our plan also improves and streamlines vital tax significantly raise wages and promote the creation of provisions that support families, charitable giving, and nearly 2 million full-time jobs. higher education. This will make it easier for Americans to This all starts by supporting the success of Main Street save and invest in what is important to them. Additionally, job creators and the millions of American workers they by cutting tax rates on savings and investment, the employ.

Blueprint will incentivize these essential economic America’s small businesses will no longer be taxed activities to further promote growth. under the individual side of the code at rates as high as Ultimately, the House Republican Blueprint delivers 44.6 percent. Instead, they will be subject to a tax rate a tax code so straightforward and fair that, come Tax Day, of no more than 25 percent. This will spur job growth the vast majority of Americans will be able to file their in communities across the country by allowing local taxes on a form as simple as a postcard. employers to keep more of what they earn and reinvest it in But our Blueprint does not stop here. We know that their companies, their workers, and their local economies. a simpler, fairer tax code demands a simpler, fairer tax Next, businesses of all sizes will be able to fully administrator. So we bust up and redesign the Internal and immediately write off purchases of new equipment Revenue Service. or technology needed to produce and compete at a Instead of the unresponsive and unaccountable agency higher level. This will boost that exists now, the IRS would productivity, output, and job be centered around three units Our Blueprint is built to creation in a major way by focused on delivering top quality providing a zero tax rate on unleash growth – the growth customer service to taxpayers. new business investment. With The first would be dedicated to of families’ paychecks, the these savings, local businesses providing accurate and timely throughout the country will have growth of our nation’s small assistance to individuals and more freedom to grow, hire new families when they have tax businesses, and the growth workers, and increase wages. questions. The second unit of the American economy Our Blueprint also takes will do the same for businesses dramatic steps to level the playing large and small. The third unit as a whole. field for U.S. companies by will function as a small claims transforming America’s outdated court separate from the IRS to international tax system into one of the most modern, prohelp taxpayers resolve routine tax disputes quickly and growth systems in the world. effectively.

We cut our nation’s 35 percent corporate tax rate – Finally, our plan imposes new checks on the power of currently the highest in the industrialized world – to a flat the IRS Commissioner. We make clear that this person’s 20 percent. We move the United States to a true “territorial” sole objective is to administer the tax code in an objective, system, where multinational businesses are not taxed non-political manner for the benefit of American taxpayers. twice on the same dollar of income. And companies that Future IRS Commissioners will be limited to a term of currently have income trapped overseas will be able to just three years and may be reappointed by the President bring this money home at very low tax rates so this money only once. This will ensure new, effective management can be invested in our communities. perspectives and prevent entrenched bureaucrats from These bold measures in our Blueprint will remove abusing their position, their authority, and the rights of incentives for businesses to relocate elsewhere and make taxpayers.

America a magnet for investment – and reinvestment – in At the end of the day, this is not the House Republican our local economies. The plan will make it easier for our tax code – it belongs to the American people. We will businesses to compete and succeed anywhere in the world, continue to lead on tax reform by listening and incorporating but especially here at home. feedback from American families and job creators.

In addition to the unprecedented pro-growth features To bring lasting strength to our economy, we must of our Blueprint, we take historic actions to simplify the have the same kind of leadership on bold, pro-growth tax code for taxpayers, bringing long-awaited relief from tax reform from the next resident of 1600 Pennsylvania the nightmare of tax filing season.

Avenue. RF We eliminate dozens of special interest loopholes in order to deliver a fairer, flatter tax code with lower Kevin Brady represents the 8th District of Texas in the U.S. rates. Rather than the seven income tax brackets we have House of Representatives. He also serves as Chairman of currently, there will only be three. And by increasing the Ways & Means Committee.

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Families as the Sine Qua Non of Tax Reform RYAN ELLIS Tax reform is one of those perennial Beltway issues income. It’s an absolute flat tax of 15.3 percent for nonthat is always around the corner yet is always far away affluent workers. What this tax lacks in progressivity it (1986’s watershed act being the sole exception in living makes up for in utter simplicity: you earn $100 in wages, memory). Ask any tax lobbyist in Washington what and $15.30 will go to Uncle Sam. Not surprisingly, for the hot topics are in today’s version of the tax reform many working families with kids, the payroll tax is the debate, and you’ll hear a long largest tax they pay. list of answers: international The income tax, by contrast, tax rules, how to treat business is steeply-progressive. There interest, business entity tax is a generous combination of rules, the marginal tax rate on a standard deduction, personal corporations, the distribution of and dependent exemptions, and the tax burden, cost recovery, a $1000 child tax credit. The and many other important introductory rate on taxable factors. income is only 10 percent. As a What is often left out or is result, the Congressional Budget at best an afterthought is helping Office (CBO) reports that just working families with children. under half of all taxpayers do Yet this element of reform can not have an income tax liability. not only improve our nation’s Within this half are many future economic prospects, families with kids, the kind that but also make all the other tax are more working class than reforms possible. mass affluent.

Robert Stein famously There are two general Ryan Ellis argued in National Affairs that proposals to cut taxes for these there is a very good economic paycheck-to-paycheck families A tax code that recognizes reason to cut taxes on families as part of fundamental tax the outsized expense with children: namely, the reform. The first is to directly entitlement system we are reduce their payroll tax burden, and value of families is laboring under requires more perhaps by exempting some one which is more likely workers to support our aging portion of wages from the population. Parents who raise FICA tax base—more children to have a correlative costly, large families are in means more exempted income. benefit of reducing the effect donating a large social The challenge with this idea is unfunded liabilities of the good that all taxpayers benefit that it presents some serious from. A tax code that recognizes administrative concerns entitlement state. the outsized expense and value for employers and payroll of families is one which is companies, and that it’s not more likely to have a correlative benefit of reducing the concentrated exclusively on families who need it most. unfunded liabilities of the entitlement state. This and The second middle class tax cut proposal involves other human capital arguments have been a neglected increasing the child tax credit. The credit, currently $1000 consideration within tax reform. per child, begins to phase out at $110,000 of adjusted What’s the current state of the tax system on working gross income for married couples. As a result, it’s wellfamilies? For many, it’s a tale of two tax codes. The first targeted south of the “mass affluent” line on the earnings tax regime is the Social Security and Medicare payroll spectrum. House Republicans have proposed increasing tax burden (FICA), taken from the first dollar of wage the credit by 50% to $1500. Hillary Clinton has proposed 14

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doubling it to $2000. Senators Marco Rubio (R-FL) and support for tax reform. A payroll tax cut or a child Mike Lee (R-UT) have proposed to increase the child tax tax credit increase would bring to the table average credit up to $3500. Increasing the credit but keeping the Republican and independent voters, who would see income phase-out in the current area has the advantage themselves as direct beneficiaries of the tax reform. Even of targeting the credit where it is most needed. The Democrat families would have to admit that such a plan disadvantage is that an expanded tax credit is of no use to would be good for them. And it is that kind of support a family without an income tax from the American people that liability today unless the credit will be essential to advancing It’s my assertion that any is made refundable, for example pro-growth tax reform. successful tax reform effort against the payroll taxes paid by President Ronald Reagan the taxpayer. must reduce the tax burden understood this. So did It’s my assertion that any President George W. Bush. So on working families with successful tax reform effort has every Republican candidate must reduce the tax burden on children. for president since Reagan. All working families with children. have run on (and some have Not only can one argue that this passed into law) tax relief or is the right thing to do, it’s also the practical thing to do. reform bills which are good both for business owners and It’s difficult to see how a tax reform package comprised capital investors on the one hand, and average working entirely of business tax rate cuts, cash flow business families on the other. You need both to win. expensing, and large tax cuts on capital savings will pass The lesson is simple: if you want tax reform, put into law. Many Republicans would view such a package together the whole coalition for tax reform. And that as balanced too much toward K Street, and Democrats means not forgetting about families with children. RF would balk for similar reasons.

A healthy dose of pro-family tax relief thrown into Ryan Ellis serves as Senior Advisor for Tax Policy at the the above pro-growth mixture changes the political Conservative Reform Network.

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Reform U.S. Taxes to Boost Investment & Innovation JOHN ENGLER taxes worldwide income, an outmoded approach that our America’s business leaders have long warned that the competitors have abandoned to create a more welcoming outdated, inefficient and anti-competitive U.S. tax system is environment for investment. Other countries tax only threatening the shared prosperity that our nation’s citizens earnings made in their country, enabling companies based should be able to count on. there to readily send money they earned abroad back home.

Thankfully, more and more people of both political In contrast, the United States adds its own domestic corporate parties understand this threat. Leading members of Congress taxes when a company seeks to return profits home. are working on promising new reform plans that could fix the “Consequently, foreign companies can afford to bid more many flaws of the U.S. tax code and, in the process, counteract for acquisitions in the United years of lagging growth and States and abroad as compared employment. to U.S. companies,” concluded While comprehensive the global consulting firm reform of the tax code is needed, EY in a 2015 report on crosstwo problems are especially border mergers and acquisitions problematic for business and (M&A). As a result, the U.S. harmful to the U.S. economy: economy has lost $179 billion 1) the high corporate tax rate – in assets over the last 10 years. now 40 percent, including state Overwhelmingly, the U.S. and local taxes – the highest in companies being acquired the developed world, and 2) our by foreign entities represent nation’s policy on taxation of smaller scale, newer companies income earned outside the U.S. – the kind that innovate and Three decades ago, when grow, fostering a dynamic President Reagan signed the economy that puts people Tax Reform Act of 1986 into to work. As EY’s study put law, the corporate tax rate it, “Divesting some lines was among the lowest in the of business and acquiring world. Other countries took others allows companies to note. They began dropping enter new markets, access their rates and improving their Three decades ago, when distribution channels, develop tax systems. This has been especially true over the last President Reagan signed the Tax new technologies, and release capital for reinvestment.”

10 years – a period that not Reform Act of 1986 into law, the Put simply, a high corporate only saw the U.S. statutory corporate tax rate was among tax rate and our self-defeating corporate income tax rate method of taxing income earned remain steady, but saw a the lowest in the world. Other outside the U.S. has slowed our plethora of foreign countries countries took note. economic growth, made it harder create sophisticated tax for our companies to compete systems and drop their rates in the international marketplace, and made it easier for our below U.S. levels. companies to be bought by foreign competitors. Moreover, Why does this matter? The Organization for Economic these policies are a major disincentive to establishing corporate Cooperation and Development (OECD) has reported: headquarters in the U.S. As a result, we’ve lost up to 1300 “Corporate income taxes are the most harmful for growth companies in the U.S. over the last ten years – innovators that as they discourage the activities of firms that are most would have been spinning off their ideas for the benefit of U.S. important for growth: investment in capital and productivity workers and consumers. With our lagging GDP, we could use improvements.” those companies and the jobs they create!

The United States is the only major country that 16

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The consequences to U.S. workers should not be underestimated. One study cited by the House Ways and Means Committee reported that the failure of the United States to keep our corporate rate competitive with other countries reduces wages by 1.0 to 1.2 percent.

Recognition of the problem is also bipartisan. Laura Tyson, the former top economic advisor to President Bill Clinton, said that: “For many years, the conventional wisdom was that the corporate income tax was principally borne by the owners of capital in the form of lower returns. Now, with more mobile capital, workers are bearing more of the burden in the form of lower wages and productivity as investments move around the world in search of better tax treatment and higher returns.”

The impact on employees, businesses and the economy is why American business leaders were encouraged by the recent work done on tax reform by Chairman Kevin Brady (R-TX) of the Ways and Means Committee. In June, Chairman Brady and Speaker Paul Ryan (RWI) unveiled a tax reform blueprint that could spur much-needed change in 2017.

The Chair of the Business Roundtable Tax and Fiscal Policy Committee said the blueprint contained provisions that could “dramatically improve” the U.S. investment climate for both domestic and foreign businesses.

“Competitive business tax rates and a modernized international tax system are needed to add jobs, boost wages and grow the economy,” said Mark Weinberger, Chairman and CEO of EY. The current economic recovery is the weakest since the post-WWII era, with annual GDP growth never topping 3 percent since the end of the Great Recession – an unprecedented period of slow growth that has also witnessed millions of people giving up on work altogether.

Business leaders agree that modernizing our tax code through major tax reform is the best way to escape this rut and expand growth, encouraging innovation and investment, hiring and improved wages.

Congress and the next President should make reform a priority in 2017.

RF John Engler serves as President of the Business Roundtable. A former three-term governor of Michigan, he previously served as President & CEO of the National Association of Manufacturers.

Combined National & Subnational

Figure 1 Corporate Tax Rates Among Organization OECD Combined National and Subnational Corporate Tax Rates for Economic Cooperation and

Combined nationalDevelopment and subnational top Nations corporate tax rate Enacted or Rate Enacted or Ratein Proposed Changes Rank in 2016 Rank in 2016 Proposed Changes in2016 2016 1 United States 38.9 2 France 34.4 3 Belgium 34.0 4 Italy 31.3 27.8 5 Germany 30.2 6 Australia 30.0 25.0 7 Mexico 30.0 8 Japan 30.0 29.7 9 Portugal 29.5 10 Luxembourg 29.2 26.0 11 Greece 29.0 12 New Zealand 28.0 13 Canada 26.7 14 Austria 25.0 15 Israel 25.0 16 Netherlands 25.0 17 Norway 25.0 23.0 18 Spain 25.0 19 Korea 24.2 20 Chile 24.0 25%-27%* 21 Denmark 22.0 22 Slovak Republic 22.0 21.0 23 Sweden 22.0 Cantonal reductions proposed or 24 Switzerland 21.1 enacted for 2017 and 2018 25 Estonia 20.0 26 Finland 20.0 27 Iceland 20.0 28 Turkey 20.0 29 United Kingdom 20.0 17.0 30 Czech Republic 19.0 31 Hungary 19.0 32 Poland 19.0 33 Slovenia 17.0 19.0 34 Latvia 15.0 35 Ireland 12.5 OECD average, excluding United States 24.2

Source: The Business Roundtable. For more information on where the Roundtable stands on tax reform, please visit http://businessroundtable.org/tax-reform-facts.

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Fearing the IRS:

History need not keep repeating itself PETE SEPP A McKenna Research Poll taken at the height of terrorism business ultimately racked up a tax bill of over $300,000. She fears found that, by a 50-32 percent margin, Americans prevailed in court after spending some of the proceeds from worried more about “receiving an audit notice from the IRS Mr. Council’s life insurance policy on legal representation. in the mail” than “receiving anthrax in the mail.” This is but Other suicides were brought to the attention of Congress, one artifact testifying to Americans’ historical concern over along with armed IRS raids and auditors threatening to ruin how we should administer taxes, beyond how we should taxpayers over minor issues.

While accounts such as these are rarer today, the House structure taxes.

Ways and Means Committee These two considerations recently revealed more than 600 are interrelated: an analysis from cases involving over $40 million the National Taxpayers Union’s of seized funds from “individuals research arm calculated that the and families who have been forced federal income tax demanded 6.1 to forfeit their assets even though billion hours and $234.4 billion they have not been proven guilty in compliance costs – and both of any crimes.” They were targeted will rise by one-third in the near only because they engaged in future. Such complexity begets certain “patterns” of cash-based far-reaching administrative, transactions. investigative, and enforcement Intrusive Examinations powers.

Although formal audits were Despite decades of delays conducted on just 0.7 percent over systemic tax reform, a success of all tax returns in 2015, the story has been four bipartisan IRS utilizes many methods to “Taxpayer Bill of Rights” laws scrutinize taxpayers. That same that have gradually built some Pete Sepp year, the agency received 2.6 protections from IRS excesses. billion “information returns” from These initiatives, (in 1988, 1996, An analysis from the third parties such as employers and 1998, and 2015), have, for example, created a National Taxpayer National Taxpayers Union’s investment brokers, and issued 1.68 million math error notices.

Advocate’s office to meaningfully research arm calculated Lately, the agency has been assist citizens, established limited applying special enforcement that the federal income remedies for wronged taxpayers and summons powers normally through the courts, and prescribed tax demanded 6.1 billion reserved for precedent-setting or fairer procedures for collection hours and $234.4 billion in exotic tax shelter cases to more activities. Yet progress has been routine corporate audits, and uneven in a number of key areas, compliance costs. even contracted with the highincluding: priced law firm of Quinn Emanuel Overzealous Enforcement - While the majority of IRS staff has not acted abusively, to assist with a sensitive corporate examination. These the level of incidents against taxpayers, especially during alarming procedures could be readily adapted for taxpayer the 1980s and 1990s, would not have been tolerated from examinations outside the corporate sphere.

Politicization - Well before the Lois Lerner scandal made other law enforcement arms. Thomas Treadway testified to Congress that he lost his business due to a $247,000 headlines, the Nixon Era’s infamous Operation Leprechaun IRS assessment – one that was later thrown out on appeal. was targeting opponents of the President. Under LBJ and The agency even went as far as to seize $22,000 from his JFK, special IRS units like the Ideological Organization girlfriend’s bank account. Kay Council described how her Project pursued war protesters and “un-American” righthusband was driven to suicide after an IRS audit of their wing groups alike with microscopic tax investigations.

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Today, battles are being fought over matters such as privacy of donors to nonprofits.

Bureaucratic Breakdowns - The IRS’s “Tax Filing Season from Hell” in 1985, which resulted from several botched computer modernization projects, generated millions of erroneous tax due notices, delayed refunds, and lost taxpayer records. Other debacles would follow. Last year, over 700,000 people’s tax records were breached, ironically, by thieves who hacked into the IRS’s own identity theft resolution service.

The good news is that help in these and other areas may be on the way. The House GOP’s tax reform blueprint envisions reorganizing the IRS into individual and business service units, backed by an independent small claims court to expedite problem resolutions. Other practical, constructive steps beckon.

According to the National Taxpayer Advocate, the IRS has for many years failed to follow a law requiring the agency to annually report on sources of complexity in the Tax Code, as well as to liaison more effectively with Congress.

Rectifying both these situations would encourage more stafflevel cooperation on improving the system for taxpayers.

The 1998 taxpayer rights law created an independent

Oversight Board that would keep the IRS on track with management and strategic planning matters. The Board has been inactive for nearly two years because a spat between the Administration and the Senate has held up Board nominees. The Senate should act on these nominees or craft a new oversight mechanism, rather than pretend the Board doesn’t exist.

Additional bills also deserve swift enactment. For example, Senator Rob Portman introduced legislation (S. 2809) to create new audit safeguards such as guaranteeing a taxpayer’s appeal prerogatives. Along similar lines, Senator John Cornyn’s Small Business Taxpayer Bill of Rights (S. 949) would establish an innovative “alternative dispute resolution” for tax cases. And Senator Charles Grassley’s Taxpayer Bill of Rights Enhancement Act (S. 1578) definitely lives up to its name.

Whatever direction tax reform takes, it is vital to ask questions about its administrative impact. Our economic efficiency, civil liberties, and tradition of limited, accountable government all depend on finding the right answers.

RF Pete Sepp is President of National Taxpayers Union (ntu. org), a non-partisan citizen group founded in 1969 to work for limited government and economic freedom.

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A Tale of Three Tax Plans SCOTT A. HODGE Had this presidential cycle not degenerated into a serious bipartisan agreement for comprehensive tax clash of personalities, we might have been treated to reform in 2017. one of the greatest debates over the direction of tax policy of any presidential election.

Where the two candidates stand Starting with the primaries, there has never been Simply put, Clinton’s plan would be a boon to an election in which so many candidates produced tax lawyers for decades to come. Her plan would such detailed and significantly raise well-vetted tax taxes on highreform plans. This income taxpayers is especially true by enacting a 30 on the Republican percent minimum side of the aisle, tax called the where my Tax “Buffett Rule,” a Foundation team cap on itemized was asked to score deductions, and a at least a dozen tax 4 percent “surtax” plans for candidates. on incomes above We scored four $5 million. Her variations of a Flat plan would also Tax, two different significantly plans containing increase the estate a value-added tax tax, especially (or “business flat on very large tax”), a variant of estates.

She what’s known as would balance the Bradford X-Tax, these large tax and a number of hikes by doubling Now we are down to two candidates, plans that blended the tax credit neither of whom has a plan that moves us components of these for families with toward tax reform. other plans. small children But now we and allowing are down to two e x p a n d e d candidates, neither of whom has a plan that moves us expensing for small businesses. None of this represents toward tax reform. Hillary Clinton’s plan would make a simplification of the tax code. the tax code more complicated while shifting even more Tax Foundation economists estimate that her plan of the tax burden on those she considers “rich.” Donald would increase federal revenues by $1.4 trillion over Trump is offering a huge tax cut plan for individuals the next decade, not taking into account the impact on and businesses, but he falls short of implementing the economic growth. Under Clinton’s plan, the economic kinds of reforms that reshape the system. effects of the higher taxes would decrease the long-run The good news is that no matter who wins level of GDP by 2.6 percent. This would reduce longon November 8, all tax bills start in the House of run wages by 2 percent and employment by 700,000 Representatives, and Speaker Paul Ryan and Ways and full-time equivalent jobs. Taking into account the Means Chairman Kevin Brady have proposed a tax smaller economy, we found that her plan would raise reform “blueprint” that could provide the basis for a “just” $663 billion over the next decade, a fraction of RIPON FORUM November 2016

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the money needed to fund her new spending programs. tax code for individual taxpayers while lowering rates Trump’s tax plan significantly cuts taxes, but across the board. The big economic benefits come from mostly steers clear of the more difficult task of the business side, where the plan cuts the corporate tax eliminating the loopholes and sacred cows in the tax rate from 35 percent to 20 percent and makes major code. His plan would cut the individual income tax for changes to our international tax rules. most taxpayers by cutting marginal rates and expanding In the parlance of tax nerds, the GOP blueprint the standard deduction. He would cut corporate income transforms our system into a destination-based cashtaxes by reducing the corporate income tax rate from flow tax system. The first step is allowing businesses 35 percent to 15 percent and allowing businesses to to write off the cost of their investments immediately, choose between a deduction for net interest expense which will ultimately lead to more investment, higher and the full expensing of capital investments. His plan productivity, and 7.7 percent higher wages by our would also introduce an estimate. expensive new credit The new system for childcare costs. will be border-adjusted.

We estimated that This means that his plan would cut tax domestic and imported revenue by between goods will be put on a $5.9 trillion and $4.4 level playing field, and trillion over the next our exports won’t be decade, depending taxed at all by Uncle on how his plan Sam. treats “pass-through” We estimate that the businesses. However, blueprint would boost because the plan would GDP by 9.1 percent significantly reduce over the long term and marginal tax rates create 1.7 million new on work, saving, and jobs. With all that new investment, it would economic growth, the boost the long-run size plan comes pretty close of GDP by between 6.9 to paying for itself over Scott A. Hodge percent and 8.2 percent. the next decade. Just as The larger economy importantly, the plan The House GOP blueprint represents would boost wages will make the U.S. one between 5.4 and 6.3 a real down payment on fundamental of the most attractive percent, and create as places to do business in tax reform. many as 2 million fulland do business from. time equivalent jobs.

Tax reform must Of course, the larger be a top tier issue for economy would end up broadening the tax base and the new president and Congress. Although tax reform reduce the ultimate cost of his plan. We estimate that got swamped by the debate over personalities in the his plan would reduce revenues by between $3.9 trillion presidential campaign, Speaker Ryan and Chairman and $2.6 trillion on a dynamic basis.

Brady have given us hope that 2017 can be the year America gets the tax reform plan it has deserved for What House Republicans would do more than a generation.

RF While the Trump plan sounds good to many, the House GOP blueprint represents a real down payment Scott A. Hodge is President of the Tax Foundation, a on fundamental tax reform. It greatly simplifies the nonpartisan tax policy think tank in Washington, D.C.

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The Pence Record on Tax Relief and Tax Reform RICHARD AUXIER In a very unconventional campaign, Mike Pence was a Pence then proposed big business tax cuts in 2014. very conventional choice for vice president. He is the governor He eventually signed legislation to gradually lower of Indiana and served for over a decade in Congress. He is Indiana’s corporate income tax rate from 6.5 percent to also a member in good standing of the “establishment” wing 4.9 percent by 2021, and allow Indiana counties to trim of the Republican Party with a long history of supporting tax personal property taxes for businesses – although this was cuts, and particularly business tax cuts. His approach has won a smaller change than the governor’s proposed repeal. him kudos from many Republican leaders in 2016, but would Did Pence’s tax cuts work? He often tells a success it boost his 2020 prospects? story -- but it’s incomplete.

On the day that Donald Indiana’s unemployment Trump announced Pence as his rate has fallen from 8.4 running mate, House Speaker percent when he took Paul Ryan said he could “think office in January 2013 of no better choice for our vice to 4.5 percent today. But presidential candidate.” He the national jobless rate added that Pence’s tax record fell from 8.3 percent to as governor “put his principles 5.0 percent over the same into practice.” Indeed, Pence period.

Furthermore, successfully cut individual Indiana’s 3.9 percentage income taxes, corporate income point drop is comparable taxes, personal property taxes, to declines in neighboring and completely eliminated the states such as Michigan (-4.3 state’s inheritance tax in just points), Illinois (-3.7 points), three years. He continuously Kentucky (-3.1 points), and championed his tax cuts as Ohio (-2.7 points). a way to make Indiana more It’s a similar story with competitive than its neighbors the state’s overall economic in attracting businesses and growth. Since Pence took growing the state’s economy. office in 2013, Indiana grew When Pence took office, Pence successfully cut individual at roughly the same pace as Indiana’s 3.4 percent flat the national economy and income taxes, corporate income individual income tax rate fell between the best (Ohio) taxes, personal property taxes, was already the second-lowest and worst (Kentucky) among in the nation. Still, in his first its regional competitors. and completely eliminated the state of the state address, Pence Ultimately, any attempt state’s inheritance tax in just pitched a 10 percent cut as a to grade a governor on way to “unleash half a billion his state’s economic three years. dollars” into Indiana’s private performance is precarious economy. The Republicanbecause a state’s economy controlled legislature eventually passed a 5 percent reduction, depends on a lot more than what the governor does -bringing Indiana’s tax rate down to 3.23 percent. particularly over three years. Would Pence’s policies The same legislation also killed Indiana’s inheritance still have delivered good times if the national economy tax, which affected estate transfers greater than $250,000. It stumbled? Long-term studies (see “The Relationship was already scheduled to phase-out by 2022, but Pence and Between Taxes and Growth at the State Level,” Urban the legislature repealed the tax for the estates of all persons Institute 2015) show that tax cuts don’t guarantee state deceased after 2012. economic growth.

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But you can judge governors on what they do. And households that do not pay income taxes. Rubio proposed like other recent Republican governors, Pence felt that a larger child tax credit aimed at middle-income families. individual income and corporate tax cuts were the best And Cruz proposed a tea-party favored overhaul: a major way to boost his state’s economy -- by keeping and shift from taxing income to taxing consumption. recruiting businesses. He did In contrast, Pence’s not lower Indiana’s 7 percent record as governor is oldsales tax, increase its relatively school Republican. In fact, it Indiana’s unemployment rate low earned income tax credit, looks most like the blueprint has fallen from 8.4 percent or make other changes that put forward by Ryan and when Pence took office in might have more directly the House GOP leadership. benefited low- and middlePromoting his solid record January 2013 to 4.5 percent income Indiana families. in Indiana of cutting taxes today.

If the polls are right and certainly won’t cost Pence Trump loses on November 8th, votes in a GOP primary. But Pence could become a frontare tax cuts for businesses and runner for 2020 GOP nomination. But would his tax the wealthy pitched as a way to jump-start the economy record still fit the GOP primary playbook? enough for an evolving Republican Party electorate?

The Tax Policy Center analyzed the tax plans of That, as with so many other questions facing the four 2016 Republican candidates: Trump, Jeb Bush, party, remains to be seen. But one thing is certain – Marco Rubio, and Ted Cruz. All proposed huge tax cuts when it comes to tax relief, Mike Pence has a proven (with unprecedented costs) aimed at boosting economic record to run on, and a list of real accomplishments he growth. But there were also new spins on the old tax cut can call his own.

RF formula. Trump proposed a huge increase to the standard deduction (notably scaled back in his second plan) Richard Auxier is a research associate in the Urbanthat would have significantly increased the number of Brookings Tax Policy Center at the Urban Institute.

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News & Events

Upton, Blackburn & Welch Tout Benefits of 21st Century Cures Act and its Prospects for Passage this Fall WASHINGTON, DC – Energy and Commerce Committee Chairman Fred Upton (MI-6) appeared before a breakfast meeting of The Ripon Society on September 22 to deliver an update on the 21st Century Cures Act, a landmark measure that would accelerate the discovery, development and delivery of life saving and life improving drugs and therapies in the U.S. Upton is the author and architect of this bipartisan measure, which was overwhelmingly approved by the House of Representatives by a vote of 344-77 this past July and is awaiting consideration in the U.S. Senate. He was joined at the breakfast

by U.S. Reps. Marsha Blackburn (R/TN-6) and Peter Welch (D/VTAL), two members of the Energy & Commerce Committee who, Upton said, have played key roles in helping to pass the 21st Century Cures Act through the House.

“This has been a multi-year effort with lots of meetings all over the country,” the Chairman stated. “Just about every Member on both sides of the aisle has hosted events in their districts, attended by me and others. And whether it’s reaching out to universities, industry, or NIH, it’s been an amazing process.

“We all know how disease impacts everybody’s lives. For me, my wife has lupus. My Dad has diabetes. The device that he wears – I talked to him this morning – that device he wears saves his life literally every single day. He’s 92years old. My Mom is a cancer survivor.

And my uncle who lived across the street died of Parkinson’s. All of us have those same stories. And what we can do to advance the science to find cures can really impact not only America, but the rest of the world as well.”

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Introduced by Upton in July 2015, the 21st Century Cures Act would achieve a number of key objectives. These objectives include: removing barriers to increased research collaboration; incorporating the patient perspective into the drug development and regulatory review process; measuring success and identifying diseases earlier through personalized medicine; modernizing clinical trials; removing regulatory uncertainty for the development of new medical apps; providing new incentives

for the development of drugs for rare diseases; helping the entire biomedical ecosystem coordinate more efficiently to find faster cures; investing in 21st century science and next generation investigators; helping to keep and create jobs here at home; and, reducing the deficit by over $500 million.

“We really see the bill advancing and getting to the President’s desk for his signature before the end of the year,” Upton observed. “It’ll be a great hallmark success. As Mitch McConnell said the other night, it may be the most important piece of legislation this Congress undertakes.”

Blackburn shared Upton’s optimism, and praised his work on the measure and his efforts to build the bipartisan coalition that has advanced the bill this far.

“Chairman Upton has done a RIPON FORUM November 2016

tremendous job shepherding this through the committee,” she stated, adding that he allowed “the committee to do its work in work sessions and come to bipartisan agreement before we got into the markup process. I think that is significant and important to what we have done.”

Blackburn also had words of praise for NIH Director Dr. Francis Collins and his team at the National Institutes of Health for the important work they do and their role in building support and awareness for the legislation.

“They’ve been so helpful in working with us around the country.

Senator Alexander and I worked with Dr. Collins and with researchers at a symposium at Vanderbilt, and it was just amazingly helpful. And that’s the approach we should take as we work on legislation and items that are going to be significant. I was so pleased to see the response that came from that, and the buy-in and the ownership that some of the medical community and the researchers took from the program.”

Welch echoed Blackburn’s remarks.

“One of the significant achievements in 21st Century Cures is that there was a mutual commitment to NIH,” he stated.

“And I want to thank Frank Pallone and Diana DeGette, who have really been leaders on our side of this. We made a commitment to not only work with NIH and get their scientific research budget boosted, but to also try to streamline some of the regulations. You know, no regulations is a real bad thing, and excessive regulations is a real bad thing.”

“I think the NIH budget is really important because that keeps hope alive for a lot of folks who are suffering from diseases that are rare or from cancer that is common.”

RF

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Name: Mimi Walters Occupation: Representative for California’s 45th District First job & lesson learned from it: My first job was working at Disneyland, where I had the opportunity to work with people from around the world.

I learned a great deal while working there, but the most valuable lesson taught me how to work with people with very different perspectives and backgrounds. This skill has been invaluable throughout my career, especially since coming to Congress. The people I represent expect me to work across the aisle to find and implement real solutions that will better their lives and this nation.

Book(s) you’re recommending to friends: I am reading Alexander Hamilton

by Ron Chernow. It is an excellent book detailing his life and the tremendous role he played in the founding of our country. I highly recommend it.

Top issue(s) in America that no one is talking about: While cutting government spending may be difficult at times, it is imperative that we put an end to reckless spending and focus on fiscal restraint. As it stands now, two-thirds of our budget is dedicated to mandatory spending programs like Medicare and Social Security.

This means that this spending is locked in by existing law. If we continue this unsustainable trend, by 2022, 100 percent of our budget will be dedicated to entitlements and servicing the national debt. That means zero dollars for defense, intelligence, or any other program.

Our children and grandchildren will be left holding the bag if we do not start addressing the significant fiscal issues this country is facing.

Challenge facing your District that you’re working hard to address: The state of our economy is a topic that comes up in nearly every constituent meeting. It is vital that Congress addresses this issue. At a more local level, the state of transportation infrastructure throughout Orange County and California is an issue. As a member of the House Transportation & Infrastructure Committee, I am pleased we now have a long-term surface transportation bill that will help address some of these issues, but more work – particularly in terms of finding a long-term, sustainable funding source – is needed.

Finish this sentence: “If I could set one goal for Congress in 2017, it would be to…” implement our Better Way agenda, particularly the economic growth proposals, which generate a pro-growth environment, revitalize the economy, create jobs, and increase wages.

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