At Finance Committee Hearing, Portman Says Tax Reform Means More Jobs & Better Wages

Press Release

Today, U.S. Senator Rob Portman (R-OH), a member of the Senate Finance Committee, questioned experts at a hearing on comprehensive tax reform. Portman discussed the urgent need to pass comprehensive tax reform in order to create job opportunities and boost wages. Portman has been outspoken on the need to fix our broken tax code to make Ohio and American workers more competitive on the global stage.

Transcript of his remarks can be found below and a video can be found here.

Senator Portman: "Thank you, Mr. Chairman. This has been terrific and I enjoyed hearing the testimony from all four of you. You're all four experts from various administrations, Republican and Democrat, and yet you all find consensus on the fact that not only is the code broken, but remarkable consensus on how to fix it. And as I listen to you and look at your testimony, I am reminded of the fact that this is not new. Let me quote Ms. Olsen's testimony: "your efforts are timely, particularly in light of the changing global landscape in reforming the tax system. We must be cognizant of the changes shaping other countries' tax systems because capital is mobile, and these changes are effecting investment decisions and capital flows in and out of the United States.' Well said. She said that six years ago at this same hearing where three of the four of you were present and all of you said something similar. So it's not just a question of finding common ground today, I think you have been on this for quite a while as this basic proposition that we need to broaden the base, we need to lower the rate, we need to have a simpler system, we need to have a fairer system. The devil is in the details and the details are important and Senator Thune just mentioned one of them: how do you deal with the past two entities: if you have a lower corporate rate and the individual rate is relatively high. That differential causes some unfairness in my view and yet the prescriptions to deal with it, and Mr. Soloman just talked about some of the ideas. Do not take away the complexity of the tax code, so it's not just that they are difficult philosophically to find; it's that once you find them the compliance is going to be a huge problem and let me just ask, do you all agree with that? Nodding of heads."

Pamela F. Olson: "Absolutely"

Portman: "Okay, so you know we have our work cut out for us and we need your help on that. I want to go back to something that Senator Wyden said earlier about wage growth, because I think this is really important. We've talked about this for years, maybe even decades, but we don't focus enough on why and a lot of it has to do with the very real problems in our current economy, which is, yes, slight growth and better job numbers in the last several months when you take them in aggregate, but no wage growth. When you take inflation into account, wages are flat maybe even declining on average and this is one way to provide some economic growth, but also wage growth. Kevin Hassett -- who is the incoming Council of Economic Advisors Chairman -- says one percent increase in corporate tax rates, wages decrease one percent. He's got some good studies around that. A 2009 study, a famous CBO study that I refer to a lot by William Randolph, says 70 percent of the burden on the corporate side, on the higher taxes, we talked about today is on workers. In other words, you have higher pay, better benefits if you can deal with the fact that the United States does have the highest corporate rate of all the developed countries. Professor Mihir Desai who came here in 2015 before this committee and testified said 67 percent of the burden of our high corporate tax rate and the way we tax on a worldwide basis falls on workers. So you want to get wages up, which all of us do, this is, I think, a great opportunity to do it and so I know T-R-I-H, #TRIH, Tax Reform Is Hard I assume is what you are referring to. So how about "TRIM' because that's easier to remember. Tax Reform Is Mandatory, and we've got to do it.

"So let me just ask quickly if I could about a specific issue and that's interest deductibility because that has been a tough one for us. Can someone tell me, maybe you Mr. Soloman because you mentioned it in your testimony, is the preference over equity financing versus debt financing an economic policy issue that you think is important to address and if so what would you do about it in a tax code?"

Eric Soloman: "Well certainly in the code today, as you all know, there's a difference in the treatment between dividends, the payment of dividends, and the payment of interest and it does create distortions because having additional debt in our system encourages companies to take on debt, it may affect the relative portion of debt they would otherwise undertake and could affect financial stability. So that is an example of a distortion in a tax code that if you were to try to level the playing field, you'd certainly pay attention to."

Portman: "And what would you do about it? Senator Hatch and his team have been talking about actually making dividends deductible. That's one way to do it. Another way is to, as the House bill does, limit the deductibility of interest, any thoughts on that from the panel?"

Jonathon Talisman: "Well I testified in my testimony, Senator Portman, that I thought corporate integration was a better approach than going after interest deductibility. Based on, you know, my discussions with capital intensive businesses, interest deductibility is actually more important to them than most other issues that we face. I actually somewhat disagree with my colleague here, Eric, because I believe that the debt bias hasn't led to overleveraging based on the research that I've seen recently, in the nonfinancial sector, so we have to demonstrate that the distortion is actually having negative economic consequences."

Olson: "Yeah I agree, I think that the better approach would be to go in the direction of corporate integration rather than limiting the deduction of interest. There are a lot of businesses that depend on debt financing because they don't have access to the equity markets so those are just some of the things that need to be taken into account if you think about doing an interest limitation, obviously a lot of other countries have put limitations on interest deductibility so there's a theme out there internationally of doing that. But I think that the limitations that other countries have put on interest deductibility are not so severe that they actually impede companies from getting the financing they need or being able to deduct the expenses associated with it."

Portman: "My time is expired, but if you wouldn't mind, Mark, if you would give me your views on it in writing, and also Eric in case you want to follow up, you could follow up. I want to talk about the sweet spot and where it is and what it is actually the best tax policy to address the issue of bias."

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