Transcript: Sen. Max Baucus urges tax reform to raise revenues & reduce national debt
Bipartisan Policy Center’s panel discussion “The Tax Piece of the Debt Puzzle” on June 11, 2012
Transcript of remarks by Sen. Max Baucus (D-Mont.), Chairman of the Senate Finance Committee, on tax reform and deficit reduction:
“The need to overhaul the U.S. tax code seems obvious.
“Today, the code is certainly not beautiful. Instead, it reminds me of Hydra, the mythical Greek beast with hundreds of heads. Each time you cut one off, two more grow back. Like Hydra, our tax code is growing out of control.
“Since 1986, Congress has made 15,000 changes to the code.
“Everyone agrees we need to get rid of the dead wood and simplify the code. And we should.
“But tax reform can’t be an abstract, academic exercise. We need to heed Churchill’s advice, which is to start with a clear understanding of results we want to achieve.
“A 21st century tax code, I think, must promote four goals. These, I believe, are keys to America’s future and secure our lead in the global economy: jobs from broad-base growth, competitiveness, innovation, and opportunity.
“These four goals will be the heart of my tax reform plan, but there are challenges to overcome.
“We need to get our fiscal house in order. America’s deficits and debt are unsustainable. Today, the debt to GDP ratio is 73% – the highest it’s been since World War II, as Pete [Domenici] referred to.
“Deficits and debt are not just a spending problem. Revenues as a share of Gross Domestic Product over the last few years are the lowest they have been since World War II. We simply don’t raise enough revenue.
“Reasonable people disagree about the timeline, but the reality is we’re on a dangerous path. If we don’t act, it could lead to a fiscal crisis like some European countries.
“Any tax reform plan must be developed with a sound budget in mind that reduces deficits and debt.
“But the deficit is not our only hurdle – not by a long shot. Since the last major tax reform in 1986, the world has changed drastically. Our tax code hasn’t kept up, and now it’s acting as a brake on our economy when we need to move at full-speed. It’s time we have a tax code for the 21st century.
“When we crafted the ’86 law, I was a member of the Finance Committee, granted a young buck – a young, junior member. It was, in many ways, a different world.
“Back then cellphones were bigger than your head.[Laughter]
“Finding something online only meant you pulled a rainbow trout out of the Blackfoot River, but at dawn it’s off the charts. I guess, some things don’t change.[Laughter]
“The world has also changed in more profound ways. Since ’86, the U.S. economy has grown by 88% but this rising tide has not lifted all boats.
“After benefits and taxes, the income of the top 1% of the taxpayers has grown almost eight times faster than the middle over the past 30 years, and that’s grown 15 times faster than the poorest 20%.
“Tax policy can play a role solving this, but it can’t do it alone.
“We’re not educating our children to be competitive in today’s technology and information-based economy. Over the past 15 years, the percentage of young Americans with a college degree increased by only 15%. Meanwhile, among our foreign competitors, that percentage increased by 90%.
“We’re also in danger of no longer being seen as a land of opportunity. An American child’s future earnings depend more on his parents’ income than they do in other countries. This lack of opportunity undermines the American dream. It hurts growth. It means we’re not capitalizing on all our citizens’ talents.
“Family structures today are also different than they were in ’86. There are fewer traditionally married couples with one breadwinner and more single parents and working couples. This means more families need to pay for child care but the code hasn’t taken these changes into account.
“The makeup of the U.S. economy is also different than it was in ’86. The number of Americans in manufacturing jobs has dropped by a third. Services like consulting, information technology make up a bigger part of our economy. Our exports as a share of GDP have nearly doubled, and we’re exporting different kinds of products. The United States used to mainly export goods like TV set and clothing. Today, we export financial services, software, and engineering.
“The global economy has become more interconnected. America’s lead in the world has narrowed. Our share of world GDP has fallen by nearly a quarter. Competition has intensified.
“Other countries have responded by making investments in education and infrastructure and by modernizing their tax codes to be more competitive. They have lowered corporate rates to attract businesses. They have shifted to territorial systems to keep their companies from moving overseas. And they have tougher rules against shifting profits to tax havens. These tax games are easier in today’s world where companies’ most valuable assets are patents instead of factories.
“In contrast, the U.S. has one of the highest statutory corporate tax rates of the world. We give countless tax breaks to businesses but many don’t attract or retain investments. It’s a waste.
“We have stuck with a worldwide system but in some ways we have weakened protections against shifting income to tax havens.
“As a result, the U.S. loses billions in revenues every year to tax havens, and we also lose jobs to foreign companies acquiring U.S. firms.
“In the past two decades, the number of U.S.-based companies in the Fortune Global 500 list has declined by 20%. Foreign companies increasingly acquire U.S. companies. American jobs are often lost in the process. Two years ago, the European company Unilever acquired Alberto Culver, a U.S. company based in Chicago. They closed down the online production facility and hundreds of Americans lost their jobs. There are many examples of this where foreign companies acquire domestic [companies] because of compared difference in tax codes.
“When it comes to international tax rules, we seem to have the worst of all worlds. We haven’t kept up and it’s time to change.
“Well, how do we do that? We use tax reform to get the results our economy needs: jobs, more jobs, greater competitiveness, more innovation, and, clearly, more opportunity.
“First and foremost, we need to create jobs. Jobs come from broad-base growth. We can do this in part by trimming the fat from the code. Most economists agree that lowering rates and paying for it by getting rid of tax expenditures generates growth.
“Tax breaks have doubled since 1986 and they now cost as much revenue as the entire income tax brings in. Some are worthwhile, but many fail to create jobs or growth.
“And the uncertainty in the code. Uncertainty impedes growth. There are only 14 expiring tax provisions after the ’86 act; today there are 132. That makes it tough for families and businesses to plan or invest in their futures.
“We need to take a hard look at each and every one expiring provisions [to] decide which to make permanent and which to eliminate. We need to get out of the way of the market unless there’s clear evidence that a tax expenditure spurs growth and creates jobs. Every tax provision needs to prove it has a tangible benefit to our economy and society. If not, it doesn’t belong in the code.
“Second, we need to support American competitiveness. The tax code must adapt to the changes in the global economy since 1986. We need to update our corporate tax rules to prevent companies from shifting profits to tax havens where they haven’t earned any income. We need to reduce U.S. companies’ incentives to move overseas. Many U.S. companies are choosing to keep jobs here at home, and we need to encourage it.
“Third, we must support innovation here at home. Microsoft and Apple both started as smart ideas born in American garages. There’s a reason why Silicon Valley and Silicon Alley are in America. It’s because we’re innovators. The tax code needs to bolster this innovation. Innovative companies create jobs.
“Today’s economy depends more on innovative fields, like high-tech manufacturing and intellectual property. We can use tax measures to put research and new technologies on a more leveled playing field with existing technologies, especially in the energy sector.
“And finally, we need to promote opportunity. Tax reform can boost shared growth and make our society more of a meritocracy. Many tax benefits, including for education, currently give the most help to those who already have the most opportunities. Tax reforms should re-focus these benefits to help those who started out with fewer opportunities. We should ensure more students get more education, not just college but vo[cational] tech and community colleges and special training.
“Americans are the most creative and the most driven people in the world. Education is the key to unlocking that potential. It’s one of the best investments we could make as a nation. A college graduate working full-time earns $1 million more over his lifetime than a high school graduate. Promoting education and opportunity will pay dividends.
“We can accomplish all this with tax reform. We can get results – jobs – through broad-base growth. A tax code that puts America and our businesses in the best position to compete in the global economy. More homegrown innovation and opportunities so all our citizens have a chance at the American dream.
“Much of the talk in Washington these days is focused on the so-called ‘fiscal cliff.’ We need to address those crucial spending and tax decisions by the end of this year. But we must reach an agreement on a long-term, balanced deficit reduction plan, and as the Bipartisan Policy Center’s plan recognizes, everyone need to contribute.
“Deficit reduction must include both spending reductions and revenues, which need to ramp up over time to avoid slowing down [the] economic recovery.
“But as we address the deficit, we must look a couple of steps ahead to the next great challenge on the horizon and that is tax reform.
“Tax reform is a once in a generation opportunity. We can cement America’s preeminence. The work has begun. Last year, the committee began a comprehensive review of our tax system. We’ve held numerous roundtable discussions. We’ve reached out to businesses, labor groups, tax experts, and many others for input. We’ve held hearings to study the specifics. And I’m making progress on a detail proposal for tax reform that will attract bipartisan support.
“We know tax reform won’t be easy. We’ll need to slay some sacred cows. When favorite tax breaks disappear, someone will always be unhappy. But that’s the wrong way to look at it. The right way, I think, is to remember that tax reform should focus on the results that we want. It can create jobs. It can spark innovation. It can expand opportunity. It can guarantee our competitiveness. It can put America back on top.
“Thank you very much.”
(Edited by Jenny Jiang)
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- WhatTheFolly.com: Transcript: Former Sen. Pete Domenici says tax reform should be given ‘equal prowess’ as entitlement reform in deficit reduction package
- Bipartisan Policy Center: Tax piece of the debt puzzle
- Bipartisan Policy Center: Senate Finance Committee Chairman Max Baucus to Keynote Tax Reform Discussion at the Bipartisan Policy Center
- C-Span.org: Video of the Bipartisan Policy Center’s panel on tax reform and deficit reduction on June 11, 2012
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