▶ 0:20:36whole thing jumped on. Call the committee to order. I first want to thank our witnesses for taking time out of their busy schedules to come before this committee. I realize you all left which you do every day to come here. So I I hope it's as pleasant as we think it should be. Uh but again I will just defer. We just came out of Thanksgiving which is a great great holiday and doesn't uh she brings family together.
▶ 0:21:06Then we're going into Christmas which is a great holiday also. So, if we can keep that in mind, this is a great month, Thanksgiving to Christmas, and then we'll go into a new year and hope that it gets even better than the last year was. So, thank you all for being here. We really look forward to your testimony. In 2017, President Trump, Congress, and specifically Republican members of Ways and Means Committee passed the greatest tax reform seen in decades. The Tax Cuts and Jobs Act made this nation the best place in the world to build, to invest in, and to create jobs.
▶ 0:21:34We ended the unstoppable trend of American companies shipping their money, jobs, and headquarters to foreign countries. In fact, and Mr. Hearn is very much aware that we had zero inversions after tax cuts and jobs act. Now, eight years later, as these progrowth, pro-American tax policies were set to expire, Ways and Means Republicans came together to strengthen and make permanent our work in 2017.
▶ 0:21:58It took some late nights and countless hours of work, but on July 4th, 2025, President Trump signed his signature Working Families Tax Cuts Act into line. This new new bill grew America's tax base, promoted long-term domestic investment, and secured good jobs for Americans far into the future. Now, ultimately, the working families tax cuts protects and creates over 7 million American jobs.
▶ 0:22:24While Republicans were working to strengthen our international tax policy, Democrats worked to undermine American businesses and taxpayers by entering us into pillar pillar one and pillar two of the organization of economic cooperation and development also know known as OECD. And we are so for we are just fascinated with acronyms. I wish we could speak in real language. You know they say army and manuals are written at a sixth grade level and that's so people can actually understand them. So there's an old saying if you can't convince them confuse them.
▶ 0:22:54I am absolutely astounded by the alphabet soup that we have to look at every time we look at something and then codes that go with it. So, uh we're trying to stay away from that as much as we can. Now, according to analysis by the joint committee on taxation, the United States was slated to lose over $120 billion in tax revenue over 10 years under the global minimum tax. President Biden and Secretary Yellen bypassed Congress on these negotiations because they knew just how bad these deals would diminish the economic security of our country.
▶ 0:23:24Now, thankfully, on his first day in office, President Trump immediately reversed these American last policies. Over the last year, Secretary Bassant and Secret and Treasury Department have worked tirelessly to secure a strong international tax deal for the American taxpayer. I thank President Trump, Secretary Bassant and the administration for their great work and I urge our European country to come to the table. We will not go quietly into that dark night. We will work endlessly to provide a fair playing field for our country.
▶ 0:23:53It is after all America first. I now yield to ranking member Thompson for his opening
▶ 0:24:00Thank you uh Mr. Chairman. I want to thank uh all of the witnesses for being here and a very special welcome to Chairman Brady. It's always uh great to have a former committee member uh come back and I've got to say you look relaxed, you look younger, and you look You know, if our Republican colleagues really wanted to seriously discuss global uh competitiveness, uh then we'd be talking about the elephant in the room,
▶ 0:24:30the Trump administration's reckless and chaotic tariffs. These are crushing small businesses and our farming community and our farmers. Once again, the Ways and Means Committee is fiddling while Rome is burning. Our committee, the House Committee with Jurisdiction over tariffs has sat idly by and done absolutely nothing while the Trump administration has imposed the largest tax in history on the American people.
▶ 0:24:59and we've actually surrendered our authority on tariffs to the administration and that's just wrong. Uh we should be working overtime to take that authority back. Global competitiveness for American workers and businesses, the title of this hearing. Tell that to the Advanced Pressure Technology, a 33-year Napa manufacturer in my district that supplies parts uh to tech and semiconductor firms.
▶ 0:25:27Just this Monday, AP Tech permanently closed its Napa plant and laid off 237 workers in a community with a population of 79,000 people because the business has a significant consumer base outside of the United States and they simply could not weather this administration's chaotic global trade policy. And I'd like to submit for the record without objection, Mr.
▶ 0:25:56chairman, the article in the newspaper uh that uh that addresses this. In fact, the Trump tariffs have been an outright failure nationwide. As Professor Clausing stated in her written testimony, these tariffs amount to a $1,700 tax on each and every household in the United States of America.
▶ 0:26:17They've harmed US business competitiveness and again as the professor testified have actually uh cost the United States manufacturing jobs. But no sector has been harder by these reckless tariffs than our farmers. They've been devastated by this trade war. US agricultural exports to China fell by more than 50% at the height of the trade uh retaliation.
▶ 0:26:44Soybeans uh exports collapsed to uh to so severely that prices dropped to decadesl long uh lows with prices falling some 34% from prices in 2021. Dairy products have faced declining market access and pork producers lost major overseas buyers. Nearly 8,000 farms shut down nationwide during the early phase of the trade war.
▶ 0:27:14These aren't abstract numbers. These reflect a major harm that's been imposed on our constituents. These tariffs slam the door on foreign markets that took decades to build. Farmers cannot simply wait out a trade war. Once a foreign buyer shifts to another country, to Brazil or to Europe, those markets don't come back easy.
▶ 0:27:39This committee should work together to take back our tariff authority and develop a sensible, consistent trade policy rather than letting the administration run rough shod over the United States Congress. I'm sure many of my colleagues on the other side of the aisle are hoping that the Supreme Court does their job for them, and maybe they will.
▶ 0:28:01But that doesn't change the fact that struggling businesses, struggling farmers, and everyday Americans who are struggling to keep up with ever rising prices are asking Congress for help, and Republicans continue to turn a deaf ear to their please.
▶ 0:28:19I would hope that we could agree that affordability is a major issue impacting all of our constituents and the best place to start by to address this is in the tariff space and I yield back the balance of my
▶ 0:28:37Thank you, Mr. Thompson. Uh and I'm now now going to introduce our witnesses first. Kevin Brady who's the 66th chairman of the House Committee of Ways and Means and the author of the Tax Cuts and Jobs Act in 2017. It's great to have you back, sir. Agnes Webb is vice president of tax at Silvo. Brett Wells is the John Mixon chair and professor of law at the University of Houston Law Center. Kimberly A. Clausing is Eric M. Zult chair in tax law and policy at the UCLA School of Law. Thank you all for joining us today.
▶ 0:29:07I know you take a day out of your lives to come and do this. We really appreciate it. I am going to all members to stay here until you finish your testimony and they finish their question. I think it's only courteous if we ask you to come in for a full day that we should probably stay for the whole time you're here. So that's just a personal request of my own. We'll see how many people follow that. So thank you for joining us today. Your written statements will be made part of the hearing record and you each have five minutes to deliver your oral remarks. Mr. Brady, please start.
▶ 0:29:38Thank you, Chairman Kelly, Ranking Member Thompson, distinguished members of the tax subcommittee. It's an honor to be here today. It's even bigger honor to have served with many of you on a committee. I know firsthand the important constitutional role this committee plays and the many times we've worked together on bipartisan uh uh issues of importance to the country.
▶ 0:29:58Um the achievement of this committee in not just making permanent the tax cuts and jobs act but improving it and making it better is crucial to America's economic future. Uh if you recall um we undertook tax reform in 2017 because we had to. At the time the US was burdened with the highest corporate in the world uh in uncompetitive international tax code that was a relic of the Kennedy administration.
▶ 0:30:24As a result, for a decade before tax reform, our economy in the US was abnormally slow. Paychecks were flat for a decade. And almost every other month, another US company was being bought and moved overseas. Oftentimes with the manufacturing, the research and investment that goes with it. All because of an uncompetitive tax code. The time we were told this was the new normal, the best America could do. But we knew this country deserved better.
▶ 0:30:52So through policy work over eight years in more than 40 congressional hearings, the House Ways and Means Committee sought to create a tax code built for growth. Built for the growth of jobs, paychecks, and the US economy. We set out to leaprog America to the most competitive economy on the planet to become the premium destination in the world for investment, innovation, to ensure that America's businesses could compete and win anywhere in the world. uh especially here at home and when they did to bring those profits back here to invest here in America.
▶ 0:31:23The tax cuts and jobs act which many of you worked on led and signed by President Trump achieved those goals and remains a boon for American workers today. And if you recall in the first most important step we lowered the corporate rate to 21% from 35. We replaced the outdated worldwide system of taxation with the territorial one. We pioneered the creation of the first global minimum tax. We established safeguards against exporting business income to lower tax states and importing deductions to domestic returns.
▶ 0:31:53And we created crucial investments incentives to spur US investment innovation here at home. And as you noted after that, zero inversions from the day it was signed. But those benefits to American workers and families were at risk if Congress didn't act, if you didn't act in 2025 to make those tax reforms permanent.
▶ 0:32:13So, Republicans in Congress beat all expectations by quickly delivering to the president tax policy that locked in the progrowth provisions of the TCJ, fully restored incentives for innovation and competitiveness, investment in America, and made real thoughtful improvements to international taxes to ensure American businesses can continue to compete and win in the global Both for the short and long term, the working families tax cut is already proving to be a
▶ 0:32:43success, especially in the international tax area. It's spurring investment, keeping jobs in the United States, and positioning America to lead in innovation and exports for decades to come. The bill ensures America continues to be the best place in the world to build and invest. The immediate expensing for R&D is driving the hiring of staff, research staff within the US rather than abroad. The new deduction for manu manufacturing structures is already showing uh benefits for reshoring supply chains.
▶ 0:33:13Companies selling made in America goods and services around the world are discovering new reasons to expand here at home because of the changes you made with guilty beat and fitty modifying the fitty expense allocation rules. Make sure we can keep valuable IP here in expanding US operations.
▶ 0:33:32uh in other changes that you made you create incentives so that our business is now encouraged to make the US their global hub for developing and owning their IP modifying the expense allocation rules for guilty make sure make sure we don't have double taxation we don't damage the competitive position of US companies making it harder for them to grow jobs here at home and the reforms you made are crucial in how you uh overhauled export related income you've created a powerful incentive incentive
▶ 0:34:02to locate production, intellectual property and profits here in the United States and as a result uh the one big beautiful bill will make the US the most competitive in artificial intelligence and lead in this area. Uh in closing I would say these are signals and signs that should be embraced uh by members of both parties.
▶ 0:34:23Uh, is there more that can be done by Congress in the Trump administration to make American businesses more competitive and drive investment with the US? Absolutely. Starting with with the work you were doing with OECD. And there are a n a number of other next steps this committee uh can consider to build even more on the intent of you and Congress in this new tax bill. And I, Mr. Chairman, I would ask my written testimony be uh reflected in the written
▶ 0:34:52It will be. Thank you so much. Good to see you again, sir.
▶ 0:34:55Professor Wells, you are now recognized for 5 minutes.
▶ 0:34:58Thank you. My name is Brett Wells. I'm a professor of law at the University of Houston Law Center, and I want to thank the committee um for inviting me to testify at today's hearing. And um I also ask that my full written testimony be included in the record. Let [clears throat] me begin by stating that in 2017 and 2025, Congress enacted several notable international tax reform measures and this committee is to be commended for its role in making that happen. Even though important progress has been made, more can and should be done.
▶ 0:35:28First, I want to address inbound international taxation. In order to preserve competitive neutrality and raise much needed revenue, Congress must ensure that business profits earned within the United States are subjected to a comparable amount of taxation regardless of whether the US situs business is owned by a US person or a foreign person.
▶ 0:35:52To accomplish this goal, the United States must build on its recent reform efforts and address related party earning stripping transactions. Historically, the United States had failed to meaningfully restrict inbound earning stripping opportunities and the historic failure created a competitive advantage for foreignbased corporations in the ownership of US Situs businesses. Corporate inversions were a visible manifestation of the larger inbound earning stripping cancer.
▶ 0:36:20The corporate inversion phenomenon represented an effort by US-based multinational corporations to become a foreignbased multinational corporation exactly because it coveted the inbound earning stripping opportunities available to foreignbased multinational corporations.
▶ 0:36:38Congress was thus right to enact reforms and the reform of section 163J coupled with Congress's enactment of section 59 CAP A represent the most comprehensive congressional effort to address inbound earnings stripping in decades perhaps ever. These were needed reforms. Even though Congress took important steps to address the systemic inbound earnings stripping challenges, more can and should be done.
▶ 0:37:04In my written testimony, I've included five amendments that should be made to section 59 CAP A so that it can more effectively fulfill its base protection goals and better level the playing field among foreignbased and US-based uh multinational corporations. Second, I want to address outbound international taxation. In 2017, Congress enacted section 59 951 CAP as a global minimum tax.
▶ 0:37:31And in 2025, Congress enacted further technical corrections to make it a more effective global minimum tax. For the reasons further articulated in my written testimony, I believe that section 951 CAP is a much more effective global minimum tax in comparison to the OECD's pillar 2 acronym framework. Thus, Congress was right to enact section 951 CAP and Congress was right to reject the invitation to adopt pillar 2.
▶ 0:38:01However, now that the global minimum tax of section 951 CAP is in place, this is an opportune moment for you to consider further reforms to US outbound international taxation. The first needed outbound reform measure that should be considered is legislation that would address CFC inbound tax planning.
▶ 0:38:23Under current law, a controlled foreign corporation of a US multinational corporation can sell goods into the United States economy or provide services to US customers from offshore and achieve a lower tax rate than would occur if these goods or services were routed through domestic corporations. This is an inappropriate tax loophole that should be closed.
▶ 0:38:46It should not be the case that a US multinational can achieve a lower tax rate on the sale of goods or the provision of services to US customers via offshore affiliates than would be possible if those activities were conducted through domestic corporations. This loophole promotes offshoring of US business activities. In my written testimony, I proposed two reforms to the US subpart F regime that should be enacted to foreclose the CFC inbound tax loophole.
▶ 0:39:16Further, in my written testimony, I provide six further simplification reforms that are now made possible because section 951 CAP A has been grafted into the US international tax regime. These simplification measures are now made possible due to the good work and positive reform that this committee has already enacted. Let me conclude my testimony by saying that this committee is to be commended for the work it has already done. Even so, more can and should be done.
▶ 0:39:45I urge this committee to further um um its reform efforts on inbound taxation to better level the playing field. In the outbound context, I urge this committee to address um CFC inbound tax planning transactions and also to enact further simplification reforms that are now made possible as a result of the work the committee has already done. This concludes my opening statement. I'd be happy to answer any of your questions.
▶ 0:40:10Thank you, Professor Miss Webb. You are now recognized for five minutes.
▶ 0:40:13Thank you. Good morning, Chairman Kelly, Ranking Member Thompson, and members of the subcommittee. My name is Agnes Webb and I am the vice president of tax at Silvo. We are the world's paper company. Um, headquartered in Memphis, Silvamo is a global leader in uncoded free sheet paper. We proud we are proud to employ 1,800 Americans across three locations, supporting 5,000 additional manufacturing jobs in rural mill communities.
▶ 0:40:41We primarily make and sell copy paper, commercial printing paper, converting paper and specialty paper. We have a strong portfolio of brands in the US including Accent Opaque and Hammermill. And we are the exclusive global supplier for HP papers. So even in today's digital age, paper is a crucial part of Americans everyday life. We use it to educate, to communicate, and to entertain.
▶ 0:41:09So when Silvo became an independent company in 2021, we chose to stay in Memphis. In doing so, we benefited from the Tax Cuts and Jobs Act, which made the United States a much more hospitable business environment. The TCJA reduced the US corporate tax rate to 21%. And equally important, it established a competitive international tax system. One that made it easier to make things here in America and export them around the world.
▶ 0:41:41Without the TCJA, Silvo would have faced a 35% corporate rate on every dollar we brought back to the US. Um, limiting our ability to invest in our people, in our communities, and our products. It was an outdated tax code that locked companies profits overseas and made it more costly to manufacture here in the US. But here's what happened instead.
▶ 0:42:07The TCJA helped Silvo tap into the location, the infrastructure, and the skilled workforce here in America, creating jobs for thousands of hardworking Americans. In other words, the TCJA and specifically its international provisions worked. And this year, Congress stepped up to make those provisions work for the long term.
▶ 0:42:30The one big beautiful bill made the TCJA's progrowth provisions permanent and stronger, solidifying the US as a hub for manufacturing investment. And here's how. So, first and foremost, HR1 prevented devastating tax increases in our industry. Guilty, FDI, beat were all scheduled to become less favorable to taxpayers at the end of the year.
▶ 0:42:55HR1 prevented these tax hikes and set up a progrowth baseline for the tax code. The law also renewed and made permanent expired provisions that are extremely impactful for Silvano. Restoring immediate expensing for our R&D costs and our capital equipment purchases empowers us to invest more, to innovate more, to hire more, to grow more here in the US.
▶ 0:43:22And finally, HR1 made key TCJA provisions work even better for in the international tax space. That meant reforming guilty by improving how companies allocate expenses and reducing the foreign tax credit. It also meant enhancing the FDI deduction to strengthen the incentive to locate intellectual property in manufacturing here in the US and to export US innovation around the world.
▶ 0:43:54And HR1 did all of that while maintaining a 21% corporate rate. So with a stronger tax code here at home, Silvo can compete even more boldly across North America, Latin America, and Europe. That means converting more dollars earned abroad into opportunities here at home.
▶ 0:44:15In 2025, we were proud to announce approximately 150 million in new investments, investments in our facilities, in our employees, and in our communities in South Carolina. When we incentivize investment in America, we're strengthening our hand on the world stage with a permanent tax code that provides a foundation for growth.
▶ 0:44:38Manufacturing is set up to deliver for the American people, for the American economy, and for American prosperity. And that's what Congress did with HR1. That's what makes Samo's story possible. And that's how we secure a true US manufacturing renaissance. Thank
▶ 0:45:00Thank you, Mr. Whip. Professor Clausing, you're now recognized for five minutes.
▶ 0:45:04Thank you, Chairman Kelly, Ranking Member Thompson, members of the committee. Thank you for inviting me to testify today. I will make several points that amount to one bottom line. The most direct way to promote global competitiveness for American businesses and workers is to remove the Trump administration tariffs. During the early months of this year, Americans have faced the largest tax increase in a generation.
▶ 0:45:27But what was unique about this tax increase was it did not originate with Congress, who holds the power of the purse and the authority to tax, but rather it came from the Trump administration tariffs. These tariffs are a large tax increase. If they continue at today's levels, it will amount to about $1,700 each year for US households. These tax increases will dwarf any OB3 tax cuts for all but the richest Americans. Indeed, for more than 80% of the population.
▶ 0:45:58Today's tariffs generate a decade long tax increase of well over $2 trillion, the largest tax increase as a share of GDP since 1982. So far, policy changes by the Trump administration have not changed that bottom line. The grocery relief that President Trump provided a few weeks ago, while a welcome recognition of the fact that tariffs do raise prices, amounts to only $35 in tariff savings.
▶ 0:46:24While the US government certainly needs revenue to address our large deficits and debt, tariffs are particularly harmful way to raise that revenue for several reasons. First, tariffs are very distortion and the Trump tariffs have been severely detrimental to business. More than half of all US imports are intermediate goods that are inputs into final products. Tariffs are often particularly high for goods like iron, steel, and copper.
▶ 0:46:52These tariffs on inputs raise costs for US firms, whereas their competitors abroad often have tariff-free access to inputs. This means that US manufacturers are losing Tariffs harm our export industries by moving resources toward producing goods we would ordinarily import. US exporters are also losing market share due to foreign government retaliation and changes in foreign consumer sentiment due to the trade war.
▶ 0:47:18This has been particularly hard for US farmers and US Businesses also have to cope with persistent uncertainty about the future path of tariffs as well as high compliance costs. Complying with this tariff regime is no picnic. One estimate suggests that the compliance costs from the 2025 tariffs are 40 to70 billion for US manufacturers alone.
▶ 0:47:43Second, unlike most tax increases that Americans have experienced over the past century, these tax increases are particularly regressive. They burden poor households more than rich ones for the simple reason that tariffs tax consumption and poor households consume a much larger share of their income. Further, the Trump tariffs have been particularly harmful to US workers.
▶ 0:48:07Manufacturing jobs have shrunk in 2025 and growth in transportation and construction is also particularly weak. Indeed, in the recent data, and for the first time since the pandemic, the United States is on net losing bluecollar jobs. Year-on-year job losses are at about 60,000. Third, tariffs are rife with opportunities for corruption, rent seeeking, and lobbying.
▶ 0:48:33When large, well-connected firms receive tariff exemptions, smaller, less well-connected competitors lose market share to them. And this harms competition in our economy and hurts small businesses. Finally, while there are some positive elements of the 2025 tax legislation on net, it exacerbates the problems of the tariffs. Tariffs are a regressive tax and the tax cuts in OB3 also increase income inequality by giving the largest tax cuts to the richest Americans.
▶ 0:49:04OB3 also increases deficits, thus increasing interest rates and hampering business investment. These effects are larger than any modest positive effects that we'd expect from this legislation. Finally, the legislation doubles down on a steep tilt that is already provided in the tax playing field that benefits foreign operations relative to domestic ones. That tilt continues today. These problems are significant and Congress should remedy them.
▶ 0:49:33But the single most important tax agenda item for Congress is to remove the Trump administration's tariffs. This action would provide large tax cuts for every American, reverse harmful effects on investment and job creation, strengthen US exports, and improve US international relations, which have certainly taken a large hit in recent months. Congress has the power of the purse and the ability to end these tariffs.
▶ 0:49:59For good reason, the framers of the Constitution endowed Congress with the power to tax, a power that lies solely within the legislative branch. It is high time Congress retook that authority. Thank you and I look forward to your questions.
▶ 0:50:12Thank you, professor. Now, we thank you all for being here and your uh your statements will be made part of the hearing record. Uh so, I'm going to be the first to go on this. Uh chairman, it's really good to see you and I really remember there's five of us still on this committee that were here whenever you launched this whole program back [clears throat] in 2017. Days and nights, weekends, whatever we had to do, we did. Uh but the results of it were absolutely incredible. And I know as Mr. Hearn talks about all the time, zero zero in inversions.
▶ 0:50:42American companies didn't want to leave America. They just thought they couldn't be profitable anymore. So they went off seat. We made it possible for them to come home. And they have come home. And while people complain about a lot of different things and one thing I do know this, we reduced the rates and increased the tax revenue incredibly. So the math worked. So if you can uh give speak a little bit on the working families tax uh tax cuts and how it improves on the international tax work done in the tax cuts and jobs act.
▶ 0:51:12Well first first [clears throat] thank you for your leadership chairman Kelly not just this goound which was so important but in 2017 as well. Apparently you were so valuable uh you needed to stay around and deliver it a second time. So thank you coach uh for that leadership.
▶ 0:51:27I appreciate that but not everybody feels that way. especially my wife. So, I understand. Um, so, um, a couple thoughts. Uh, I don't think most people realize how how bad our international tax system was, how damaging it was back home.
▶ 0:51:43We talk about inversions but the truth of the matter is you know we are seeing you know whole plants pick up and move overseas taking research taking their headquarters literally leaving these communities you know desolate all because of a tax code that punished them for being here in the US and then our companies we all know it's not enough to simply buy American we need to sell American all throughout the world creates great uh income revenue job growth here in the US as Well, but but
▶ 0:52:13our tax code was not only making it tough for our companies and our Aggies and our manufacturers to win overseas, but when they did, you know, they couldn't keep those dollar they couldn't even bring those dollars home. And so the changes in international tax code basically created the incentives in a giant sucking sound of research, intellectual property, manufacturing. Back in the United States, we saw investment on average for companies doing it grow 20%.
▶ 0:52:43Um, after the tax cuts and jobs act, we saw intellectual property, the revenue from companies bringing it back and keeping it here. And I remember uh chairman being in California about a year after we passed the bill with about 25 tech companies all of whom you would know as we went around this round table.
▶ 0:53:02Every one of them had a story of either bringing the intellectual property back to America and the advanced manufacturing that goes with it or the new IP they were developing they were keeping here in US as well.
▶ 0:53:16Um all of those uh all of those benefits um had a huge role in allowing companies to do more manufacturing, more innovation in the US, do do more of the investment that allows them to compete and win around the world. And so yeah, the outcome of getting tax reform right and then what you've built on that what what we know in the international tax system is really complex.
▶ 0:53:44you know what individual provisions will do. What you don't know is the interaction. It's sort of like I don't know if you're a Formula 1 fan, but uh in that racing uh they bring upgrades to their engines throughout the year and sometimes it works and sometimes it doesn't. It's the interaction. So what over the last six years what this committee has seen are how different parts of the international code interact.
▶ 0:54:10to your credit uh and the work you you did with the Senate uh definitely made improvements that that make it easier for companies to invest here, easier to be the global hub, easier to compete and win. So, you took it to a new level, building on what we all had uh uh sought to achieve in 2017 and and America's economy is going to be better for it. So, thank you.
▶ 0:54:36Thank you. And the work you put in was incredible. Um, Miss Webb, I want to ask you a question because I I really believe nobody should be in a policymaking decision unless they've actually survived the private sector and worked on commission only uh or and lost their job at least once through no fault of their own. It's a much different playing field than people think it is. Uh, and but we supply the people who are profitable supply all this needed revenue that we have. So, you're the vice president for tax for a company that actually makes things in the United States of America.
▶ 0:55:06How have the changes we made this year to the international rules impacted you and make and when you make decisions about where to invest capital and workers at the margin? So, if you would please weigh in in that because you're the person that's on the field every day. You're actually in this and you either benefit or or you look at what the government's put in place and say, "I thought you guys were looking for more tax revenue. Please quit making it harder for us to be profitable." So, please, Miss Webb, if you could weigh in on what you do every day in your life.
▶ 0:55:35Um, yeah. Thank you for that opportunity. Um I think you know we we start with the foundation that TCJA set in creating a much more competitive tax code for for the US especially US manufacturers. I mean if you think about you Sulama wasn't a standalone company um before TCJA but I can imagine it would be very difficult for us to operate in an environment where we had to pay 35% tax on the cash that we repatriated.
▶ 0:56:02you know, we do have significant international operations and those operations generate cash that we bring back to the US. I think it'd be diff very difficult for us to succeed if we had to face that 35% repatriation. So, so that's one aspect. Um, so the TCJA laid that foundation. Now, when you look at the changes that were made in the big beautiful bill, um, that just really improved upon our ability to succeed. Now, specifically, I'll talk about the modifications to expense allocation.
▶ 0:56:32That was pretty important. Um, we pay a significant amount of tax overseas, and that's because our facilities are located near where the resources are that we need for manufacturing. Um, when we also want to be close to where our customers are as well. And and so before the changes in the big beautiful bill, we were limited on how much of that foreign tax credit we could use because of expense allocation. And that what that did was effectively expand our exposure to guilty.
▶ 0:57:01Um and and the changes to the expense allocation in particular have removed that double taxation burden um by giving us credit for those foreign taxes that we pay.
▶ 0:57:12Thank you. I I really do believe consistency and certainty. I mean it's really important that we actually know where we're going and how long we're going to be doing it. This the fact that sometimes we're kind of floating out there. It's hard to make a decision when you don't know where you're going. So, uh, with that, Mr. Thompson.
▶ 0:57:30Thank you, uh, Mr. Chairman. Before I ask my question, I just want to be really clear about what tariffs really are. They're taxes. And right now, there's some of the largest international taxes in the world paid not by foreign governments, but by American families and American farmers. Professor Clausing, uh, can you explain in plain terms how tariffs have directly cut into farmers income?
▶ 0:57:55What does that look like for an ammon farmer, a dairy producer, or a grape grower in a state like mine in California?
▶ 0:58:03Yes, this is a huge uh issue for farmers, not just in California, but throughout the country. Farmers lose markets abroad when the US puts on these high and reckless tariffs. And they lose markets for a couple of reasons. One, foreign governments retaliate. Um, and two, uh, former consumer sentiment can shift against the United States. We see this in the case of Canada, for instance, where people are less interested in buying American products.
▶ 0:58:33Farmers want to sell their products in world markets and we have some of the most productive farmers in the world but they're really facing this difficult dilemma of what to do when their markets you know uh dried up. Um in the past during the first Trump administration bailouts were offered to the farmers and farmers really would much rather sell their product uh with which is very competitive on world markets than receive a check for the government. And this has effects not just on farmers of course but on the rural communities that surround them.
▶ 0:59:05And and what happens in the grocery store? How does this impact the price of
▶ 0:59:10Yes. As tariffs increase prices on imported foods and uh services that raises the cost of those imports, but it also raises the cost of the domestic goods that compete with them. So if the Mexican avocado gets more expensive, the California avocado will also rise due to the the smaller supply of foreign avocados. Right?
▶ 0:59:32So this has been a huge affordability problem for Americans who have struggled with high prices for several years and and now facing an administration that's raising costs directly through this massive consumer
▶ 0:59:46Thank you. you. We spend a lot of time in this committee talking about affordable housing as we should. It's a real problem in everybody's uh districts. But um my sense is this tariffs have made the cost of housing a lot worse. Tariffs on steel, lumber, appliances, mechanical systems, construction materials. All of this raises the cost of construction and in the in the end the cost of a housing.
▶ 1:00:12These uh tariffs are effectively a housing tax and working families are paying the burden of that. In communities like mine, uh we're already uh facing severe affordable housing shortages. How much harder does that shortage become when tariffs increase the cost of materials?
▶ 1:00:32Yes. So tariffs are affecting wood prices. They're affecting metals prices. They're affecting all of those equipment that you mentioned. So housing costs are a significant affordability issue for Americans and it's been made worse by the tariff policies. I'd point out there's also labor shortages that have affected the costs of construction and those are also relevant with respect to the administration's policies and we've seen health care costs rising steeply as well.
▶ 1:01:01um which is to be expected given the big cuts in uh healthcare funding and and that's a big part of every good is is uh paying for the health care for workers. Thank you. Uh you've done a good job and I think we all already know that consumers have taken the brunt of the hit u that the uh tariffs have uh have uh levied.
▶ 1:01:22Uh, if the Supreme Court declares President Trump's tariffs and that refunds are owed, shouldn't the consumer really be the one getting the
▶ 1:01:35Yeah. So, the interesting thing about tariffs is it manages to hurt uh many Americans at once. It hurts US businesses and it hurts US consumers. And you're absolutely right that the US consumers are bearing the brunt of these tariffs with higher costs and they deserve refunds, too. Um, but one thing we should note is that businesses are also suffering. They've had to cut into their margins. They faced uncertainty, too, right? So, there's plenty of unhappiness to go around here.
▶ 1:02:01But you're absolutely right that the the consumers deserve uh uh some relief
▶ 1:02:06Well, thank you. I'm I'm working on legislation to make sure that the uh consumers who paid these uh these costs associated with tariffs aren't left out of the mix if in fact the court does what it looks like they're they're going to do. And I would appreciate any contribution you could make in helping us make that piece of legislation really good and really reach the consumer.
▶ 1:02:32Thank you.
▶ 1:02:34Mr. Mr. Schwanker, you're recognized for five minutes.
▶ 1:02:38Thank you, Mr. Chairman. Um, Mr. Brady, um, it's always a joy to see you and you know exactly what I'm going to ask, but let's actually walk through a a couple possibilities here. Um, let's say the Supreme Court makes a um, in regards to the enhanced um, tariff revenues.
▶ 1:03:02Um a decade ago you you when you were chairman of joint economic committee and other things we had meeting after meeting after meeting after meeting with economists, economic modelers on how to maximize economic growth, stabilize tax um and do it in the most efficient international fashion possible.
▶ 1:03:24Um we we designed um a destination cash flow tax that we even looked at things of refundability for certain types of exports. Um do you still believe that the work we did several years ago is economically viable and considering the arbitrage of other countries using their value added tax and refunding it when they're exporting to us creating almost a tax Um, is there a path here
▶ 1:03:54that we as I think the most important committee in the world actually could start to modernize our place in the international trade and actually also stabilize our tax receipts?
▶ 1:04:06Yeah, thank you uh thank you congressman for asking about this. The reason we pursued a border adjustment tax in the original TCGA, two big reasons. One was competitiveness because it applies to goods and services coming in the US on a level playing field. But we taken off our exports. It immediately made us dramatically more competitive, especially in those 170 countries with their own version of a border adjustment tax.
▶ 1:04:31It also created immediate expensing almost zero investment tax for the United States. So making sure we were the number one country in the world to invest in. Again, making us dramatically competitive. The simplicity of it was I think the beauty because essentially what this tax would do, the border adjustment tax would it would have wiped out huge portions of the international tax code and replaced it with the simple question.
▶ 1:04:59Do you sell your product here in the United States? Do you sell it here? Doesn't matter where you produce it. Doesn't matter how it's done. Do you sell it here? Everyone pays exact at the time 20% tax. So we we basically took away a made in America tax and created a level playing field and sort of a consumption tax in business that really drove simplicity in a big way. So we saw those as big benefits.
▶ 1:05:22The other one, Congressman, if you remember, you know, we really believed President Trump's never been shy, you know, about his use of tariffs as leverage. border adjustment tax really I think was a was an elegant a smart way to not just be competitive but to enhance our trading uh relationships and our benefits making us more competitive and so that's why we had proposed it uh as you know uh we didn't have the votes uh and I think in big part because
▶ 1:05:53while it has the idea has been around for a long time it was new for many and when you go bold you know You need the time to sit down with the industries and and the companies that are impacted. Retailers were concerned. Refiners were concerned. Others just didn't know.
▶ 1:06:11We didn't have the time to sit down and really have some thoughtful conversations about how how to make sure those industries and sectors so important our economy, you know, um uh those uh issues could be addressed. And so we didn't have the vote. We had to set it aside.
▶ 1:06:29I think um over time uh uh if if you have those thoughtful conversations, Congressman, if you work through those areas of concern, uh uh and if you recognize we were seeking to do that so that we could lower taxes on businesses, on families. So, we're not using it for spending. We're using it for progrowth measures, let people keep more of what they earn. You know, I think there is that value. Does it have a political support or uh today?
▶ 1:06:58I don't know, you know, that's really for members who are interested uh in that approach um uh uh to explore further. Uh but at the end of the day, I think the committee, we should always be looking for a way to be more competitive, simplify the code, make us even stronger economically, just as you did, by the way, in this new tax bill, especially in this the business provisions, the international tax. It was a great job there.
▶ 1:07:25All right. Um Mr. chairman. I hope at some point we get a second round because I wanted the professors because some of his writings in regards to some of these things. Um, but I think we intellectually need to be prepared for what's the next step and what would maximize economic prosperity and particularly for both the left and the right wage growth. And we have some very good economic modeling underneath this. And with that, I yield back.
▶ 1:07:54Miss Moore, you're recognized for five
▶ 1:08:00Thank you so much, Mr. Chairman, and thank you members of the committee and our extraordinary witnesses. Want to say good morning, particularly to the honorable Mr. Freddy, former member, uh, chairman of this committee. Always good to see you, uh, and to welcome you back. Um, I, um, I do have a question for you, Mr. Brady.
▶ 1:08:23Um, you know, and I just am asking you to imagine yourself back in in Congress, article one, section 8 of the Do you or do you not believe that Congress has has trade authority? And would you as chairman be fighting for the right of having trade authority? Well, um I actually helped lead uh the legislation that defined the trade rules for Congress and every administration.
▶ 1:08:53Uh making uh our negotiations more transparent, giving the public time to weigh in, making sure we're building US consensus on agreements like the US Mexico can agreement, the most consequential agreement, frankly, on the planet and one that benefits America in remarkable ways. Uh, I, Congressman, I would talk trade with you all day if I had the opportunity to do that.
▶ 1:09:18The reason I'm going to stay focused on international tax today is because I think international tax is actually an area where we can do bipartisan work.
▶ 1:09:28I think so, too. And Mr. Brady, just
▶ 1:09:30you care so much about jobs here at home. Um, America competing and winning, making sure we're locating those manufacturing plants here in the US. That's what international tax can do for Mr. Brady constituent. Honest to God, I would love to talk about international trade, too. We've been briefed on that.
▶ 1:09:50But I'm wondering if you think that the trade that the tariffs that we have now interfere with our um our international trade relations? Do they interfere at
▶ 1:10:03Yes. So again, Congressman, I think for the hearing today, I would actually encourage my Democrat colleagues to stay focused on the parts of international tax because it plays such a crucial role to your constituent background.
▶ 1:10:16Professor Clausing, let me move on, my good friend. I I I um I I was looking at section uh 232 uh and the president has imposed tariffs based on a national security threat. Uh and you none of the things that we see, you know, the president is mad at uh would would uh should invoke section 232.
▶ 1:10:45Uh, and as a matter of fact, we we don't know um there's no transparency. As Mr. Brady talked about the importance of transparency, there's just no transparency about which countries or which items are exempt. Um, uh, you know, we've heard the excuse that a trade deficit is the reason that we've got to do this. We have a trade deficit with Madagascar for God's sake. I've been there.
▶ 1:11:14It's like the poorest place on earth. We're always going to have a trade deficit with them. Um, and so I am wondering, can you speak about the transparency of certain exemptions? For example, there's a company uh in my district n 97 year old business called Hellwick Carbon Products. It's a US family-owned manufacturer and they rely on copper powder from India and Germany to make copper graphite products.
▶ 1:11:45Of course, there's no copper processing companies in Wisconsin or in the United States to make copper powder and the barriers to building one are nearly insurmountable. Um, as I said, this is a 97y old thing and I and and why why don't they have why don't they have a waiver for this company?
▶ 1:12:05Yeah, that's an excellent point and I also appreciated your points about national security. Like one of the goods that we're protecting with national security tariffs right now is kitchen cabinets. And last time I checked those weren't really a national security issue. uh the tariffs have been levied with a very mercurial non-transparent way and the exemptions are also very non-transparent and uncertain.
▶ 1:12:29What we learned in the first Trump administration was that donors to the administration were more likely to get exemptions and those who donated to opposite parties were less likely to get exemptions. So, this is putting sort of a political thumb on the scales in favor of of some well-connected and uh you know uh large companies relative to the small ones that may not have the resources to lobby the president and the administration on this issue.
▶ 1:12:58So, I I am a firm believer in markets determining which companies succeed rather than the whims of uh tariffs which can also lead
▶ 1:13:07So, you're not opposed to all tariffs. It's just that this is like willy-nilly. Is that your point?
▶ 1:13:12This is very willy-nilly. I think tariffs can have a very limited narrow use for things like national security or areas where we have a specific thing we need to remedy. But this is way beyond the scope of that. Um just orders of magnitude larger and more disruptive than that more narrow use.
▶ 1:13:33Mr. Chairman, thank you for your indulgence. I can see that my time has expired and I willingly yield back to you, sir. Thank you, Mr. Moore. Appreciate that. Chairman Smith, you are now recognized.
▶ 1:13:44Thank you, Mr. Chairman. It's a pleasure to to be with you all today. Um before I begin, I would like to welcome each and every one of the witnesses. Um I'm particularly grateful to have my former chairman of the committee, um Mr. Kevin Brady back with us after after we were able to after we were able to make some permanent so many of those successful tax policies um that helped out shepherd the law in 2017.
▶ 1:14:15Um it's good to have you with us. the economic expansion and wage growth, particularly for middle and lowincome Americans that followed the passage of the the TCGA inspired and it motivated this Congress. It motivated this Congress to build on those policies and enact additional tax relief for working families and for farmers and for small businesses.
▶ 1:14:46Now, I'd like to say a few words about ongoing pillar 2 negotiations and the sidebyside agreement as well. Um, I applaud I applaud President Trump's leadership that started on day one of his presidency with an executive order designed to stand up for American companies and American workers, which was lacking, which was absolutely lacking in
▶ 1:15:16the prior administration. That executive order led to the Trump working with Congress to craft retaliatory measures in the one big beautiful bill to protect American companies and workers from attempts to violate American tax sovereignty.
▶ 1:15:35I along with Senate Senate Finance Chairman Mike Crapo agreed to remove those retalatory measures from the bill when the G7 when the G7 publicly stated its intent to move forward with a sidebyside system that respects it respects the US sovereignty.
▶ 1:15:58And let me tell you, I intend to see that that June announcement through to the finish line. And the time for action is now for those G7 countries.
▶ 1:16:14We expect to see the technical work that has been done in these negotiations move forward this We have been patient to allow for all negotiating parties to have the space they need to reach agreement, but they must reach agreement soon.
▶ 1:16:33As Chairman Crapo and I said in June, and I'll quote what we said in our release, we are committed to restoring Americans confidence in our representative government by putting America first. Congressional Republicans stand ready to take immediate action if the other parties walk away from this deal or sloww walk its implementation.
▶ 1:17:00We mean it then and you bet you, Mr. Chairman, we mean it now. Um, perhaps one of the less discussed portions of the 2017 Trump tax cuts were the reforms that addressed what was at at that time a troubling a troubling behavior on the part of American companies to move their headquarters, their capital investment and jobs overseas
▶ 1:17:31called corporate Under President Obama, from 2009 to there were 71 71 such corporate inversions.
▶ 1:17:46And following passage of the 2017 Trump tax cuts, we have seen zero zero inversions reversing what was a decadesl long pattern under the Obama administration. Chairman Brady, thank you.
▶ 1:18:06Chairman Brady, how did the reduction in the corporate tax rate to 21% from an uncompetitive 35% coupled with reforms like the global intangible low taxed income provision or guilty among others level the playing field for US companies?
▶ 1:18:27And at the time of its enactment, were you expecting that American would respond as favorably as that they did and basically end the practice of corporate inversions?
▶ 1:18:39So, Mr. Chairman, first let me congratulate you on the achievement of not just extending and making permanent the Tax Cuts and Jobs Act, but building on and improving it. I can't imagine what would happen if we saw a cruel $4 trillion dollars of tax hikes on families and main street businesses or or if you've not take the steps to make America more competitive for our businesses and the jobs it creates here at home. So, thank you for that.
▶ 1:19:05Also would love to talk more about your role in the OECD uh and how dangerous a risk that is to the US economy and our businesses. But to answer your question, Mr. chairman. Um, yes, we did believe that if we got the tax code right that those inversions would stop because the old tax code, you looked at these companies and I think of those 71 16 were from Texas frankly and and it was because the tax code told them to
▶ 1:19:35move overseas or when bot uh preferenced the foreign owner over the US uh uh company and so that's why we saw that sucking sound leaving the US uh in all in all the uh economic damage that it did. um lowering the corporate rate.
▶ 1:19:54I have to tell you, you know, uh in the whole tax code, I'll tell you the corporate rate, uh is like the crown jewels of the tax code in the sense that its impact on jobs and paychecks and competitiveness and innovation can't be matched. And I call it a crown jewel chairman because it's one of those jewels that no matter what setting you put it in, it gets better.
▶ 1:20:23So you put it in that research and development, that expensing, the international tax provisions, you link that low corporate rate to those provisions, they all perform better. And it's been a key reason why we've seen the growth, especially in paychecks, as a result of that.
▶ 1:20:41And I think, you know, starting into this conversation, um, where people didn't know where the corporate rate would go, they didn't know that you were pondering some very important improvements on the international tax area. And then the permanency, restoring those three business provisions, those are incredibly vital to the US economy.
▶ 1:21:03And and again, a reason why my prediction is we're not going to see, thanks to your work, you're not going to see more inversions in in the future because you made it even uh more difficult to justify moving operations overseas. You made it much easier and a greater incentive to make the US the global hub for manufacturing, for intellectual property, for innovation, for AI.
▶ 1:21:28Uh, and so I I just want to having worked with you in TCJA, I would like to personally thank you for this your leadership. I know exactly how hard this is. I know the quality of the members you worked with to deliver not just on time but ahead of time and the certainty you created. So personally, Mr. Chairman, thank you.
▶ 1:21:48Thank you, Mr. Chairman. We have the hardest working, best team in all of Congress that was able to help deliver the biggest tax cut in US history. Um, one of our primary goals in enacting the working families tax cuts was making as many of the reforms as possible permanent.
▶ 1:22:08Um, and we succeeded including making permanent key progrowth policies like the the 100% expensing, the mediate and R&D expensing, um, the deduction for interest expense, the 20% small business deduction, and a slate of international tax policies.
▶ 1:22:29These policies and others are expected to protect or create 7 million small business jobs and spur more investment in manufacturing right here in the United States.
▶ 1:22:44Miss Webb, why is permanency within our tax code so um not just for individuals who must plan and save for their family's future, but for American businesses to invest here at home and how does that permanency benefit the US in the global economic competition and what else should policymakers be considering to help ensure US businesses are even more competitive
▶ 1:23:14in the future?
▶ 1:23:15Thank you for that question. And um I think you know SAMAO is in a very capital inensive industry. Um we make paper. Um in order to make paper you have to have big manufacturing facilities with lots of equipment. Um and you know we recently announced an an almost $150 million investment in our South Carolina facility. Well that investment requires um a lot of planning and a lot of equipment.
▶ 1:23:41Um, the ability to plan for the future really depends on having a predictable and stable tax environment. New investments like these can take years to plan and and the new equipment that we need for our facilities, well, we can't just go down to our local Home Depot and purchase it off the shelf. It takes years for for this equipment to to um to be manufactured. Um, so these investments take time to to plan and to be implemented.
▶ 1:24:10Therefore, that stability is crucial and and having that stability helps us to compete on that international level because we can make future um future decisions about what investments we need and and and how we can best fund those investments.
▶ 1:24:27Thank you. Thank you, Mr. Chairman.
▶ 1:24:30Thank you, Chair M. Mr. Delbane, you recognized for five minutes.
▶ 1:24:36Thank you, Mr. Chairman. I also want to thank um you for holding this hearing and I want to thank all of our witnesses for being here and taking the time. Um I I really appreciate it. Um I want to start with you, Dr. Classine. Um you noted in your testimony that the Trump administration's blanket tariffs with limited exceptions primarily benefit large firms because they can afford to lobby for these special exemptions while small businesses can't.
▶ 1:25:04and therefore they're stuck paying the full price of the tariff. Um, if the Supreme Court strikes down IPA, how will small businesses be impacted differently than large businesses?
▶ 1:25:16Yes, it partly depends on how the Supreme Court handles the issue of refunds and how broad their ruling is. Um but one difficulty will be that the small businesses won't have as much uh resources available to try to pursue the legal remedies to get uh their money back.
▶ 1:25:34And of course we discussed earlier before your arrival that this could also be harmful for consumers who've already faced the big tax increase but who aren't going to be mailed checks um to compensate them for those heavy tariffs. Mhm. Um if AIPA tariffs are struck down, um how can we ensure that the administration doesn't make small businesses pay the price?
▶ 1:25:56Yeah. So, if the AIPA um tariffs are struck down, the administration has indicated they're going to try to pursue uh similar policies using other authorities. Um, this is why I think it's so important that this body recognize that article 1, section 8 of the constitution gives Congress the power to tax and that includes your oversight over all of these types of trade remedies.
▶ 1:26:21Um, certainly kitchen cabinets aren't a national defense issue and there are lots of other things that might be claimed as defense for instance that aren't necessarily defense. Um so uh taking the care to legislate on tariffs I think would be important.
▶ 1:26:37Um I agree. Uh the the administration has also claimed that its tariff policy is designed to bring manufacturing back to the US. But as you know tariffs on intermediate goods make it more expensive to manufacture in the United States. So uh it's not surprising that we've seen a decline in US bluecollar employment since Trump's tariffs went into effect. that's not been an increase and so uh surely there's a better way to do this.
▶ 1:27:05What principles would you use to guide a strategic approach to tariff policy that benefits not harms American businesses and workers?
▶ 1:27:13Yes, you're exactly right about the harms to manufacturing and to investment. And one thing that concerns me about this present time is that the headwinds from the tariffs are going to offset any positive effects that we might expect from provisions like um expensing. And that's part of why we see this net decline in and blue collar employment which is a real problem. So the principles under which tariffs should be used I think are are very narrow. There's better instruments for almost every policy goal.
▶ 1:27:42If you want an industry to expand, you can subsidize it without also providing the consumers a big tax. Um, and there are some narrow areas of course where foreign governments might have done something where you want to respond with a narrow targeted tariff. Um, but I don't think it would entail anything like uh over a $2 trillion tax increase over a decade to address these very narrow things.
▶ 1:28:06So I would focus on areas where we think tariffs are the best most direct um policy response, but I would argue that in almost every instance they're not going to be the ideal response. Um, and another good reason to go through Congress. Um, Chairman Brady, it's great to see you. Thanks for being here. Um, it's strange to see you sitting down there. Um, you've been a de dedicated advocate for the benefit of trade deals and, um, that bring economies closer through shared rules and reduce tariffs.
▶ 1:28:34During this administration, you have remarked that Republicans don't count on tariffs for revenue because they are so economically damaging both in prices and in slowing the economy. Um yet Trump has repeatedly suggested replacing income taxes with tariff revenue, but only Democrats seem willing to point out how far-fetched and damaging that proposal would be. Um so what do you make of pres the pre president's proposal and do you think Congress would have to approve such a approach?
▶ 1:29:02Yes. So um one I absolutely believe in the freedom to trade. I I think it's one of our greatest economic freedoms. It's the reason uh the ability to buy, sell, and compete around the world with as little interference as possible. The freedom if someone builds a better mousetrap, the freedom to buy it for your family or business. If you build that better mousetrap, the freedom to sell it around the world uh uh legally uh to customers there I think are uh huge freedoms for us.
▶ 1:29:29Um, I think there is a great deal of uncertainty about what the impact will be, you know, of these tariffs, how they eventually work out. Where there is certainty are the economic benefits from this new tax bill, both for working families, certainly for Main Street businesses, in the economy as a whole. We know the bill that this Congress just passed is going to help again leapfrog and keep us in in the lead as the most desirable place in the world to do business.
▶ 1:30:00Thank you. Helps if Congress actually makes decisions though on what happens with tariffs. Um but thank you. I appreciate I yield back. Mr. Chairman,
▶ 1:30:08Mr. Arrington, you're recognized for five minutes.
▶ 1:30:10Thank you, Mr. Chairman. Thank you, witnesses. Big shout out to my fellow Texan mentor, our fearless leader and the architect of this current tax regime that has unleashed prosperity for every American at every level and has put our nation back at the top where we belong and I thank you for your service. Um, I've got a lot of thoughts and I and some questions along the way.
▶ 1:30:35I I think it it's telling that my Democrat colleagues have pivoted from tax to trade. I'm going to take that as tacid support for the incredible benefits that have accured as a result of Republican progrowth tax policy. I mean, there's just not much to criticize. I mean, let's just go through it. Give me a quick yes or no if you would, Mr. Chairman. Um, after TCJA, as we say in Texas, proofs in the pudding. Job creation up.
▶ 1:31:07Unemployment down. uh record levels hit the fifth year uh low AC especially um in the poverty rates for people of
▶ 1:31:17So poverty rates were they record low?
▶ 1:31:20What about wages? Were they up?
▶ 1:31:22Yeah. The first three years after tax cuts and jobs act the 9% average. Real wage growth. So in other words, your wages are growing faster than inflation are still the three highest years of record. What
▶ 1:31:33about that capital parked overseas? It's United States uh earned income. Were we able to repatriate that as a result of our positive progrowth tax policies
▶ 1:31:43as designed uh by this committee in this bill? Yes. Uh more than a trillion half dollars flooded back in the United States to be invested here. But not just that, we saw intellectual property manufacturing research follow that back into the United States as well.
▶ 1:32:00Corporate rates went down, but what happened to corporate revenue back to the Treasury? Yeah. So, we hit some of the highest levels of corporate uh revenue that we've seen in the country. It as you'd imagine there was an initial dip and then with economic growth and because if you recall within the tax cuts and jobs act, businesses paid for corporations paid for more than 80% of the corporate tax rate through the offsets that we created.
▶ 1:32:28Uh and so yes, you saw record revenue. Do you remember what the uh output economic output was uh at the tail end of Obama's tenure? It was it was 1.8 after the policies on trade on tax on energy. Uh that right before co it was 2.8 1% of economic growth u represents $3 trillion in the budget window.
▶ 1:32:55So we we actually strengthen the balance sheet of the federal government. But but that's happening now. It's happening now. Miss Clausing, Professor Clausing talked about her concerns. I can't I don't want to question her sincerity. She called tariffs a regressive tax. I assume you believe that inflation is a regressive tax as well. Yes or no?
▶ 1:33:16It depends on what happens to wages.
▶ 1:33:17Well, it doesn't depend in West Texas, let me tell you. Uh 20 22% cumulative increase in prices over the Biden administration because of their mainly unbridled spending. But record, by the way, deficit spending. You mentioned your concern about deficits. Well, the deficit went up at a record rate. If you include the interest cost on the debt, it's about 12 trillion. That is a feat that will never be replicated. Let me tell you, let me tell you something about the regressive tax.
▶ 1:33:45The regressive tax of inflation uh was uh let's go look at the TR just look at the 10-year Treasury. It was 1.1 at the beginning of Biden administration and Democrat control of Congress. 4.4% 10-year Treasury rates. They have gone down now. It's 4.1 and coming down. The 30-year rates are coming down. The fixed mortgage rate went from 2.8 at the beginning of the Biden administration to a record 7.8.
▶ 1:34:14I say record, it was a 23 uh year high. Americans who were buying homes were paying $1,000 on average more a month for their homes because of the cost of living crisis that was happening. So, I know that you are sincere about your concerns about this. So, let me also take your statement here about the $1,700 a year that you say could be an increase from tariffs.
▶ 1:34:44It is ironic that that's how much in wages were lost relative to inflation a month for median household incomes. That's unbelievable. But it's all changing. Prices are coming down. Actually, the mortgage rates are coming down. About $30,000 over the life of a 30-year mortgage uh is the value of that decrease. Um wages are going up. We're finally outpacing inflation.
▶ 1:35:14So, it's working. I I I I have so many thoughts about the trade deal. The Democrats did nothing on trade. Nothing. Trade activity increased under the first Trump administration because of of using his trade authorities. And we had a 25% increase. It helped manufacturing wages. It helped build out that which was hollowed out in middle America for years. We got better deals.
▶ 1:35:41We have 15 new open market deals today as a result of the president's leadership. There is no leadership. I've seen no leadership since Kevin Brady was here on trade. And this president is doing it and we're all the better for it. Thank God we've got somebody that's willing to take the slings and arrows on both sides to level the playing field and have fair trade that undergur true free trade. God bless
▶ 1:36:10Mr. Mr. Snider, you're recognized for 5
▶ 1:36:11Uh, thank you, Chairman Kelly, and I want to thank Chairman Kelly and Ranking Member Thompson for holding this hearing on international tax and global competitiveness. I I think it's important I think it's also important to uh clear some of the thing, clear up some of the things that I believe I'm hearing said. For example, I believe my colleague just said prices are falling. Well, I will tell you my uh constituents home are not seeing prices falling. Prices of groceries are up. We just experienced it on Thanksgiving. Prices of housing are up. Prices for energy are up.
▶ 1:36:39And if you talk to anybody in this country right now, prices for health care are going through the roof. They're getting premium notices telling them their premiums for next year are not just going up a little bit, they're going up 100 200%. Nationally, the average is 114%. In my district, it's at 78%. That's just unacceptable. Now, we're here to talk about taxes, and no one likes paying taxes, and that includes tariffs. They are a tax on the American people. But we have tax policy.
▶ 1:37:06The reason this is the oldest and first committee in in h our government is because we know that taxes are how we pay for what we want to do as a nation, as a society and we work to find a way to do that. The policy we create on this committee matters and the policy we create can create incentives, opportunities for economic growth that create jobs that provide uh wealth and a future for our children, but can also create disincentives.
▶ 1:37:34And the decisions, the policies we make here drive the decisions people make at home. They make in their own pocketbooks at their kitchen table. But as we talk about international tax in particular, it's about business decisions. And it's business decisions large and small companies make that drive our economy. I heard earlier the conversation about inversions. Inversions aren't a new idea. They started really in 1983. And it's because of the policies created by the tax code that created the incentive for companies to move.
▶ 1:38:04These aren't business strategies that drove inversions. It was tax policies that drove the decisions to make inversions. And Congress made an effort to stop that. I wasn't here. It was the early 2000s. George Bush was the president that passed the laws in 2001 and 2003 and 2004 that created some stability and reduced the number of inversions. But there were loopholes in that bill.
▶ 1:38:27and the loopholes of the policies created by this committee in the early 2000s is what led to the inversions in the mid part of the uh 2000 and 20110s. This is where I get frustrated because there are things we agree. I think we all agree that inversions are bad. That's not a Republican Democrat issue and we can all work together and I am glad that we took the steps to flip the switch and turn those inversions off. That's not good for the US economy.
▶ 1:38:56Chairman Brady, thank you for leading that effort. I wish we had done it in a a more bipartisan way. And why is that important? Well, Miss Webb, you touched talked about your experience as a business operator, business owner. We need business owners large and small make their decisions. What will they need to succeed? They need a stable business environment. And that is affected by the political instability and the tax policy instability that is affecting American companies today. And that's why it's so frustrating.
▶ 1:39:25You talked about making a $150 million investment in South Carolina. In my district, a company made the decision to cancel a hund00 million investment in my district with all that meant in construction and jobs on April 9th because of the tariff policy that President Trump announced. And I'm proud that that company's leading the charge and was at the Supreme Court trying to get those policies reversed because it's hurting small businesses. tariff and tax policy belong starting in this committee.
▶ 1:39:56That's why it was set up that way because we face our voters every two years. We're closest to our voters. We understand the issues in the district and that's what matters. The stability that we need to provide to the American economy comes from having conversations that lift up small businesses, American workers, American families to make the decisions. But we need to do it in a fiscally responsible way. I realize I'm not going to ask a question. I got on a soap box.
▶ 1:40:21But the deficit for the last two months of fiscal year uh 25 was $1.7 trillion for the last two months. That's not sustainable. And that was not because of the last administration. That's the policies this administration is taking. And manufacturing for the last nine months has contracted in this country. The policies the administration is taking and the failure of our Congress under Speaker Johnson to take policies to lift up the economy means that we're losing jobs.
▶ 1:40:50We're shrinking manufacturing. If we're not making things in this country, we're not prepared for the future. So, I I appreciate that there's a desire to celebrate the bills that pass. Well, no one's happy with the OBB. They're feeling that pain. We should be talking in this committee about international tax, the need to get to a decision and a conclusion on pillar two by the end of this year and to work to level. Speaker Brady, you said or chairman Brady, you said it perfectly.
▶ 1:41:17We need to level the playing field so American companies, American workers, American families can compete. They can buy products that meet the needs for themselves and their families and the American economy can grow in a way that leads the world as it should. I didn't mean to have a long speech, but I did. I yield back.
▶ 1:41:35Thank you. Now, pursuant to committee practice, we'll now move to a two to one questioning. Mr. Hearn, you're recognized for five minutes.
▶ 1:41:41Thank you, Mr. Chairman. Thank the witnesses for being here. Uh before we get into today's testimony, I want to give credit where credit's due. First of all, I want to say thank you to my my dear friend, Mr. Snyder on his comments on international tax. Uh spot on. It's something that uh we know works. Mr. Chairman, thank you so much for all your work and your leadership on that. I want to thank this administration and Secretary Besson for their relentless, unwavering fight to protect American tax sovereignty in the OECD negotiations.
▶ 1:42:07The previous administration gave away significant leverage in pursuit of a deal that was highly damaging to the American worker. The Trump administration has refused to surrender our tax sovereignty. The very power our founders enshrined in article 1, section 7 when the shot heard around the world was fired over the principle that Americans and only Americans will decide how Americans are taxed and governed. That principle is not negotiable. I say that again. It's not negotiable. Not in 1775 and not in 2025.
▶ 1:42:36And as long as I have the privilege of serving in this body, I will fight anyone, foreign or domestic, who tries to take that away from us. I'm hopeful that the negotiated sideby-side agreement will protect US businesses and US workers from the harmful effects of Pillar 2. Without a G7 sideby-side agreement, Pillar 2 puts US multinationals at a disadvantage by first exposing them to two layers of minimum taxes.
▶ 1:42:59The first of its kind in the US system and the emerging OECD system, and two, subjecting their traditional income-based tax incentives to stricter scrutiny than the corporate welfare programs in China and the EU. Under current OECD rules, traditional tax incentives can easily trigger the OECD minimum tax, enabling other countries to erode the US tax base.
▶ 1:43:22Conversely, direct cash handouts or refundable tax credits favored by the OECD are more likely to be protected from the OECD minimum tax regime. Chairman Brady, you and I together sent multiple letters and inquiries to Secretary Yelling regarding these major competitive advantages that she ultimately turned a blind eye to in her pursuit of a global tax deal.
▶ 1:43:45Professor Clausing, I don't know what you may have seen those, you may have used those as target practice in the trash can, but we never got a response at all from any of those letters that we sent. And um it's very unfortunate and I think even my Democratic colleagues were opposed uh to those uh initiatives that were put forth by Secretary Ellen. Mr.
▶ 1:44:08Chairman, um it is no secret that other countries are desperate for revenue and will do anything to take it from the US bisque. How concerned are you about the proliferation of DSTs, digital service taxes, and other forms of novel extrur ext extr territorial taxation popping up outside of pillar 2.
▶ 1:44:29So a couple thoughts, Mr. Chairman or Mr. Hearn, first thanks for your leadership on the international tax area. Congratulations and I applaud you for recognizing all of you the dangers of OEC pillar 2. I will would love to talk more about uh how out of the norm, how out of every traditional practice that Secretary Yellen, who I have a great relationship with, worked with her on monetary policy at the Federal Reserve, but but how that drove America to the brink of
▶ 1:44:59a very damaging uh pill or two and but for this committee's leadership, we might be in a different and President Trump different position uh today. So digital service taxes are a horrible idea. Uh it is a significant concern to the US. Uh and this committee uh they are at the heart discriminatory and clearly intended to target US companies as you know in other countries are pretty open about that's what they're seeking to do.
▶ 1:45:27Grab a major part of the US tax base. uh they're typically uh taxes are imposed on gross revenues, not this uh income that you're not eligible for foreign tax credits. So, American companies would be double taxed while we're giving away our tax base. And so, as you know, President Trump and Secretary Bessant uh really have focused on digital services taxes uh as part of the bilateral trade negotiations they're having today.
▶ 1:45:56uh they see this as this uh these taxes protectionist measures that distort trade flows discriminate against America. Um in an ideal world, Congressman uh I would hope foreign countries uh would repeal or respond in a way that doesn't invite further tariff action. I think that is exactly what needs to be done here.
▶ 1:46:20Uh and and in truth, I'm not convinced I'm I'm not convinced businesses in those countries that are imposing these digital service taxes think this is such a good idea either. So I actually think uh there is some common ground uh within the business community around the world against these damaging taxes.
▶ 1:46:41Thank you, Mr. Chairman, and I yield
▶ 1:46:44Thank you, Mr. Essence. You are now recognized for five minutes.
▶ 1:46:48Well, thank you, Mr. chairman and and thank you for all of our witnesses for being here today. It it's great to be able to talk about this issue that's so important for us as a country in terms of how do we keep our economy going moving forward. Uh starting off, I I want to uh bolster the comments that Chairman Smith said earlier regarding the current Pillar 2 sideby-side negotiations with OECD. Uh as you know, members of this committee agreed to have section 899 pulled from the reconciliation bill due to the G7 agreement.
▶ 1:47:17And I want to commend the work that Treasury's been do doing uh to address this point to ensure that the US tax code is treated fairly in a sideby-side agreement uh with pillar 2. Uh it's been from day one actually the the Trump administration and and secretary Bassant have been very actively involved in and helping address that. However, we have 28 days left in the year and I'm concerned that other countries and and certain bureaucrats are also just slow walking the process.
▶ 1:47:45Uh it's my understanding that the treatment of substance-based tax incentives is one of the stumbling blocks. Uh I want to emphasize as mentioned earlier that non-refundable US tax credits must be treated equitably with other countries refundable tax credits and if they're not this will adversely affect inbound investment into the United States and will certainly harm our tax base.
▶ 1:48:08I also want to emphasize uh that a swift resolution to this issue uh before the end of the year without a swift resolution uh of this issue uh would necessate uh necessary drive us to look at how do we bring back those protectionary measures in order to protect the US tax base.
▶ 1:48:26Uh, moving on, I I want to focus on how the reconciliation bill enhanced and reinforced America first progrowth international policies that have been incredible successful since passage of TCJA in 2017. The timely conversation is important that uh we can further uh sound tax policy and ensure that American businesses are successful globally. Uh the reconciliation bill made several beneficial tweaks to beat guilty and fitty.
▶ 1:48:55There's some those acronyms again chairman u by by locking in rates and simplifying the underlying calculations and of course coming up with some brand new acronyms in the process. Uh I think there's further work that we can do in this space.
▶ 1:49:08uh talking about beat, you know, consideration of the high tax exemption and allowing deductions for payments already subject to US tax would encourage businesses to bring more intellectual property back into the United States with uh NCTI or formerly guilty uh as the the new acronym has been created. Uh we would fully eliminate the foreign tax credits. uh we could uh eliminate the foreign tax credit haircut to simplify tax rules.
▶ 1:49:36And with the the new acronym FDI, formerly the FDI, oh only in government can you create that uh that jumbled word word salad. uh we could make beneficial ch changes to this provision that would further incentivize companies to build service and maintain future intellectual property here in the United States.
▶ 1:50:01We could also enhance future investments in the US by allowing taxpayers to deduct the cost of constructed access assets as they occur rather than waiting till completed properties uh placed in service. Chairman Brady, good to see you again as we talk through these issues. The working family tax cuts put us back on task to uh restoring immediate R&D expensing and full expensing for most domestic investments.
▶ 1:50:28But there's more we can do u to help make sure the United States is the best place to invest and and hold highly mobile assets. Looking ahead, what additional progrowth uh reforms such as allowing taxpayers to deduct the cost of uh uh progrowth reforms uh in uh and and uh assets as they're incurred or strengthening location of IP and US or simplifying our tax credits and audit adjustment rules that would best position United States for the next generation.
▶ 1:50:55Yeah. So, first uh Congressman, thanks for your leadership here and including in the OECD and section 899. um you did good work in the international tax space. It it it will ensure American continues to be the best place in the world to build and invest. Um but more can be done. I think first I would recommend you know deliver stability and certainty in the provisions you've just changed. I think the biggest concern for businesses is these are excellent changes.
▶ 1:51:24Will they be here for the long haul? I think that's important. Treasury regulations can create the certainty and stability and deliver the results you Congress did in this bill. So continue to work with Treasury in these areas. I I sense like in 2017 where they were eager to work to the intent of Congress. They're doing the exact same thing here today.
▶ 1:51:47I really applaud their efforts on deregulation uh of uh of uh tax provisions uh and regulation within Treasury. That's key. I think we you ought to keep working with that. And I think there's some more provisions within the Senator Tillis 2.0 legislation has sort of a laundry list of continued improvements in that international tax space. I think that's I think those are some good ideas, some more important than others.
▶ 1:52:16That would be a good place to have those
▶ 1:52:18Well, thank you. I appreciate those comments. Appreciate your comments on the digital service taxes and the problems associated there. Yes, sir.
▶ 1:52:24I just appreciate Chairman Kelly with you holding this hearing to talk about how do we help make sure US is competitive uh in international
▶ 1:52:32Thank you, Mr. Ber. You're recognized for five minutes.
▶ 1:52:34Thank you, M. Chairman Kelly, Ranking Member Thompson, thanks for doing this.
▶ 1:52:38Mr. Chairman, welcome back.
▶ 1:52:40Thank you.
▶ 1:52:40Professors, Mrs. Webb, um Ms. Web, first I want to say I don't know anybody here that objected to cutting the 35% corporate tax rate. It was certainly way too high. We have a debate about how low it would go. Um, you know, I just looked up the effective rate right now is not 21%, it's 16%. Um, so it's never actually been 35. And amazingly, corporate tax revenue as a percentage of our GDP is 1.3%. Almost the lowest in the in the wealthy world.
▶ 1:53:09Uh, we are relying on consumers to pay taxes, citizens, not corporations. We're very very low. This is a great place to do business. Um, I also have a different perspective than most because I got to serve as the ambassador of Switzerland for four years where the bulk of my time was spent on tax avoidance um because of people that were hiding their money there. In fact, there were 600 US companies in little Zoo alone. Uh, Zoo is about the size of a false church. Um, but it was a great place to be an American company.
▶ 1:53:39Um because the and the whole rationale for pillar two and for Janet Yellen's work and for work that many Democrats and Republicans have done is to try to get away from tax havens and tax avoidance. This whole notion of profit shifting, putting your expenses in the high tax jurisdictions and putting all your profit in the low tax jurisdictions and this was a real decrement to US competitiveness and uh people are just fleeing the country.
▶ 1:54:04this yes part of inversion was our 30% rate but also a lot of it was tax havens and we have not addressed that the base erosion is still very real and um by pretending it doesn't exist we're sticking our head in the sand but if this thing is not just about tariffs uh it's about global growth let's look at the fact that our global growth this year is 1.8% the rest of the world is 3.2% 2% almost double. We are getting hammered. We're way below we were back. We complained about Biden inflation. Fair enough.
▶ 1:54:34But the growth was a lot faster in 2024 and 2023 and 2022. And why? Well, look at the drags on growth right now. Um we have this no one here objects to deporting criminals who don't belong in this country legally.
▶ 1:54:49But we have literally millions of people who've been here generations with American spouses and American children and American parents that we are now locked up in Farmville or deporting and but construction industries um the the agricultural industries, meat packing, car dealerships everywhere is hurting for people because their people are gone. Um and and for the first time I think ever we're actually having a shrinking of the American workforce in the history of this country. Uh number two, we have gutted science.
▶ 1:55:20Nitsa, uh NASA, Noah, EPA, the CDC, National Science Foundation cut by 56%. Um NIH and what we've done to our colleges and universities. This is the worst time for research and development in American history right now. So it is no surprise that that we're dragging. But the biggest thing are the tariffs. And uh Dr. Colossing, I'm so glad you're here. day 317.
▶ 1:55:46Um, has the president delivered on his promise to lower costs for the American people?
▶ 1:55:52No, he hasn't. And you're right that there are many factors for that, but it includes the reduction in labor supply from immigration. The tariffs are huge, uh, which have been directly a tax on households, but also higher health care costs due to both OB3 changes and the expiration of the premium tax credits. Those are all big cost issues.
▶ 1:56:12Yeah, it's remarkable, too. By the way, China is having the biggest year it's ever had in terms of exports. Um, our trade policy has been a gift to our main competitive partner, uh, competitor in the world. Uh, it looks like $2,000 just an extra cost for groceries alone. Um, I noticed that 42% of Americans feel that grocery costs are the single biggest impediment to to their growth.
▶ 1:56:37Um, Miss Del Benny asked a very good question about what happens on uh the exemption stuff. Dr. Clausing we've seen the literally giving of gifts to the president. You know, gold bars, gold Rolex clocks on the desk in order to get reductions in tariffs. How is this exemption process doing anything more than boosting the profits of trade lobbyists here in Washington?
▶ 1:57:04It's really troubling and study after study has shown the harmful effects of corruption on economic growth. Um, it hurts investment, it hurts competition, it hurts efficiency, and I would expect the same here. Even if the tariffs were a good policy, which they very clearly aren't, the manner in which they're enhancing corruption is highly problematic and dysfunctional.
▶ 1:57:25Thank you very chairman Brady, I just want to thank you for fighting for Congress's authority for for trade authority and promise you that we are going to do our damnest to pull back 232s and other inappropriate giving away of our constitutional right to the president. many presidents, Democrat and Republican, over the years. With that, Mr. Chairman, I yield back.
▶ 1:57:44Thank you, Mr. Kustoff. You're recognized for five minutes.
▶ 1:57:47Thank you, Mr. Chairman. Thank you for convening us today, and thank you to the witnesses for appearing. Miss Webb, thank you for appearing. Uh we're proud to have SAMO in the Memphis area, and you are a great corporate employer, great resource for our community. If I could, I know we spent some time this morning talking about kind of the macro impact of the working families tax cut. We know that domestic investment, economic growth, global competitives, they're all critically important.
▶ 1:58:18With that being said, the bill will also have an impact, really a lasting impact on the day-to-day lives of American workers, their wages, their benefits, their future employment opportunities, their quality of life. Can you talk specifically about how these tax cuts will benefit the workers at Sabamo?
▶ 1:58:42Sure, thank you for the question. And um you know the tax cuts and the big beautiful bill help definitely help us to strengthen our cash position as a company. Um and that matters because we regularly re-evaluate compensation for our employees to make sure that we are that our pay in every market is is competitive. Um and when our tax burden goes down that gives us more flexibility and more resources to then invest in our people.
▶ 1:59:07Um, you know, while pay decisions are are based on market data and the needs of our business, the big beautiful bill tax relief absolutely gives us more room to stay competitive and support our employees and and it it helps us succeed and anytime we succeed, that helps our employees succeed and then the communities that we're that we're a part of.
▶ 1:59:28Thank you. I was going through your annual report and uh there was a passage on page 23 about the substantial capital that Savo requires to keep the operations going. Let me if I read from from the corporate report the annual report rather page 23.
▶ 1:59:50We make capital investments, sometimes substantial, primarily to expand and replace existing facilities and equipment, improve our operations, and comply with changes in environmental laws and regulations.
▶ 2:00:04Key pieces of equipment in our various manufacturing facilities may perhaps unexpectedly need to be repaired or And it goes on to say in 2025 we will make significant capital investments to enhance and upgrade our manufacturing operations uh etc.
▶ 2:00:26So the reason I bring this up is the working families tax cuts included two provisions designed to incentivize capital investment here in our country. The type of investments that SAMO must make to succeed. One, it makes permanent 100% expensing for investments into machinery and equipment. And then secondly, it provides 100% expensing for structures or facilities used for domestic manufacturing.
▶ 2:00:55So, can you talk about how those provisions uh in this bill that we passed on on July 3rd, what that means for Savo's capital investment strategy going forward?
▶ 2:01:07Um, absolutely. those investments that we're making are made significantly more affordable by those favorable provisions in the big beautiful bill. Um, and that saves us cash that we can then further invest in our in our mills and our people. Um, you know, while there are a number of factors that influence when and where a company invests, tax benefits of those investments are certainly a consideration.
▶ 2:01:33um you know we operate in a tough industry in a market where our overall demand for our product is declining and while it's true that the demand for paper in the US is declining it still remains a very attractive market for us and one that we want to be a part of and succeed in um you know a lot of the decisions around making new investments um is making sure that we get a good return on that investment and the math just gets a lot easier when
▶ 2:02:03we have competitive tax policies like low rates and immediate
▶ 2:02:08Thank you, Miss Web. Thank you for appearing. Chairman Brady, we're glad to have you here. Glad to have you back. I'm going to ask you maybe an unfair
▶ 2:02:19Be gentle. Be gentle, Mr. Congress.
▶ 2:02:22I think you can handle it. I if you could return as the chair of this committee for one day and pass a tax package to build upon the TCGA and the working families tax cut, what would your number one priority be?
▶ 2:02:39So I I'll just tell you, you did good work in this bill. Uh you did important work in this bill, both locking in these low rates for our businesses and families. um restoring fully the three business preventions provisions so prog growth but the improvements you made the international tax is going to translate into a much stronger economy and much stronger America here at home so I I will just I will just tell you and you did it in record time
▶ 2:03:09uh beat every expectation there so you have a great deal to be proud of in the work that you've just achieved
▶ 2:03:15thank you thank you sir Mr. Chairman I'll yield back
▶ 2:03:18thank you Mr. Malitak is here recognized for five minutes.
▶ 2:03:21Thank you, Mr. Chairman, and thank you all for being here. I think we as a committee have a lot to be proud of in this year. This year, we already passed, as was mentioned, many progrowth, pro-American business tax policies, including making numerous provisions of the Tax Cut and Jobs Act permanent. Uh but we've and it and it has already as you've mentioned and testified to le led to significant investment job creation and we're excited to see what the big beautiful bill will bring.
▶ 2:03:48Since 2017, these policies have demonstrated substantial increases in domestic manufacturing and investment and they have helped prevent companies from shifting profits overseas or moving their headquarters to other countries. As Chairman Smith uh mentioned earlier, we saw 71 companies leaving under President Obama, zero under President Trump since TCGA has passed. That is significant and that is putting America first.
▶ 2:04:15The Working Families Tax Cuts Act will build on the domestic growth, projecting uh projecting to protect and create over 7.2 million jobs, including 1.4 24 million manufacturing jobs and generate 284 billion in economic growth from manufacturing thanks to the 100% immediate expensing for mach machinery and equipment, 100% expensing for manufacturing structures and research and development expensing as well.
▶ 2:04:44We've already seen in just the first 11 months of this administration working with Republican trifecta, we have already seen trillions of dollars in investment in the United States from all sorts of companies. Fizer, Johnson and Johnson, Astroenica, uh Eli, Lily, Hyundai, Ford, Honda, Meta, Apple, Nvidia, I can go on and on.
▶ 2:05:07And these are companies that have each invested tens of billions if not hundreds of billions of dollars each here in the United Stand United States. Everything from expanding their workforce to uh whether it's uh expanding manufacturing facilities uh and their capacity uh to to do here make in America. It is fantastic to see that things are moving in the right direction.
▶ 2:05:33And as was mentioned by my other colleague, inflation has come down 9.1% high under Joe Biden and Democrat control. Uh once Republicans took the House in 2023, we saw that coming down because we stopped that wasteful spending that led to the inflation. Now Republican trifecta, it is a third 3% of what it was a third of what it was when the Democrats had control. Interest rates come down, mortgage rates coming down, gas prices are coming down.
▶ 2:06:00Um so my question is how do we build on this and I have uh legislation called the medical manufacturing economic development and sustainability act. It aims to strengthen domestic manufacturing by encouraging US companies to reshore operations from nations that pose a risk to the United States medical preparedness into economically distressed zones here at home.
▶ 2:06:24It does so by providing a dollar for-dollar credit against federal taxes for the wages and investments to make economically distressed zones um attractive and to really get us out of communist China. That is the true goal of this bill. Uh Chairman Brady, how can such incentives attract global investment and do you see an advantage in customizing these incentives to bring medical manufacturing back from China to distressed communities here?
▶ 2:06:50Yes. So I think one congressman thank you for your work uh on tax reform. I hope you enjoyed the process and the outcome uh in your service here on the committee. So I think COVID pandemic really pulled the curtain back showed where we were vulnerable. Uh excuse me I've got a cold uh uh really exposed that uh you know we didn't we we needed to do more uh in the area of medicines, medical equipment and essential ingredients.
▶ 2:07:17uh certainly in a way that secured uh that that manufacturing supply chain for the US including anchoring some of those key industries and products here in the US making sure is running through um reliable trade partners. I think the work that you've done uh on this new provision for structures I think is going to be very helpful uh in your goal because that was what we heard from businesses uh here. The lower rate was was hugely expensive.
▶ 2:07:44The business prevention provisions uh that you restored and made permanent really key as well. But I think that it's going to be interesting to see what that structure incentive does. I think it's that tied with the expensing and the equipment is really I think going to be helpful. Your thought is tailor that more and focus it toward distressed communities. Is that your thinking?
▶ 2:08:05Yes. And yes, and I think that would go a long way in um in in helping these communities develop, create jobs, and give people good paying work here in the United States. Um and also obviously as we look to reshore, it takes a while. It takes years to get a new facility online, particularly if we're talking about a new piece of legislation like mine. But we also need to have responsible trade policies.
▶ 2:08:28I have a medical supply chain resiliency act that allows the president the ability to enter into trade agreements for medical goods with trusted trade partners by empowering the US trade rep to enter its agreements um reducing barriers that actively discourage domestic What do you think of of giving that the the the president uh more authority to work with trusted partners? Um, do you think that is a a good way that we can couple trade with the tax incentives?
▶ 2:08:58You know, I think um I think we're fortunate in that the the authority the Congress over the years has given to the president uh is very expansive. Um provides the ability I think to work with those trusted partners.
▶ 2:09:14I think frankly for affordability, for full supply, for the ability for the US to be competitive in these industries against countries like China and other foreign competitors. I think the trade agreements like USMCA would be a great example of that, but others are really key to those resilient supply chains. I think there's an opportunity now.
▶ 2:09:39I think the whole world understands uh where the president wants to go uh in in those crucial industries and uh in products.
▶ 2:09:52Miss Plask, you're recognized for five
▶ 2:09:57Thank you very much. Um Mr. Chairman. Um, of course I want to thank the witnesses that are here, especially uh the former chair of the committee, the honorable Kevin Brady, and to the professors and the other witnesses that are here giving us their expert opinion. Um, of course, this is very interesting.
▶ 2:10:18You know, as a lawyer, I know that three lawyers will come up with five different opinions, and it appears that tax policy and tax lawyers, um, tax experts will do the same, uh, in terms of different opinions, uh, given the same data and what it means. I'm however looking at how things are affecting the American people and how Americans feel and how their everyday lives are.
▶ 2:10:48And I think so many of us here in Congress have been sent here to do that, to give opportunity and support to Americans so that their lives are better. While we're growing our economy, while we're continuing to try to make and keep America to be the best country in the world. Of course, we need a robust economy to do that. We need manufacturing and corporations. Uh we need American innovation.
▶ 2:11:14I know my colleague Tom Swisy is not here, but I love his coin that he's a democratic capitalist. Um, I would agree wholeheartedly that many of us on the committee are the same. Um, but while we are looking at issues such as corporations and how well corporations are doing, I don't think the American people would say that they're doing as well as they have been.
▶ 2:11:42Uh the tariffs have increased prices for American businesses, the small businesses as well as workers, costing US households so much more. Um these deliberate price hikes and tariffs and especially are making American lives unaffordable. And I don't think and we saw in 2017 with the tax cuts and jobs act that while it helped corporations, American homes were not doing as well.
▶ 2:12:13Particularly in the Virgin Islands, I think uh we know that the provision authorizing the US Virgin Islands economic development program was affected by guilty because oftent times when tax policy is written, it's written, it seems, to help corporations, but not in terms of thinking about those small individuals.
▶ 2:12:33The imposed guilty tax regime on investments by US residents in the Virgin Islands businesses has acted as a tariff on the United States Virgin Islands in American territory. I'm really grateful to my colleague Ron Estis who worked with me to sponsor legislation the restore economic vi vitality and investment in the Virgin Islands the revive vi act which fixed unintentional problems and restores the Virgin Islands right to have an economic development program
▶ 2:13:03that would benefit our economy and workforce and I'm hopeful that he and I will continue to be able to work on that. You know, um, we're talking about inflation outpacing wages, and it seems to be so for everyone except the wealthiest. Recent reports from the Federal Reserve Bank of New York show skyrocketing personal debt for American families with both housing and non-housing debt eclipsing previous records.
▶ 2:13:31So, we can't say that the economy is going well if the American people are not experiencing that at the kitchen table because at the end of the day, that's what matters. That's what's important. Professor Clausing, we've heard a lot from my colleagues across the aisle and other witnesses about how TCJA and the one big beautiful bill has uh had a wonderful effect on wages and growth.
▶ 2:13:59Is that your reading of the economic evidence and what do you see as the main consequences of these legislative packages for the economy?
▶ 2:14:08Thank you so much for that question and for your work. Um, if you asked a hundred economists to look at the data of what happened in the years after the tax cuts and jobs act and just look at the series of wages and the series of investment and the series of deficits and debt, um, they would have a hard time identifying when that tax cut happened because the trends underlying trends were were nearly unchanged.
▶ 2:14:34There's been some very careful econometric work which has unpeled um some small benefits from the expensing provisions but no uh discernable effect on wages and one of the reasons is that the legislation expanded deficits and debt and that acts as a drag on the economy. A lot of debt was added during the Trump administration. A lot of debt is being added now. That raises interest rates and increases costs for households.
▶ 2:15:02And that uh effect really dominates these other effects. In fact, when they did a dynamic score at Congressional Budget Office of the House version of OB3, they found that it had a higher cost than when they did a static score. And what that means is that the negative growth effects were dominating and making the legislation even more costly once you accounted for the fact that it had those negative consequences.
▶ 2:15:28Thank you. My time is um up. I yield Mr. Pster, you're Eric Niser for five
▶ 2:15:34Thank you, Chairman Kelly and Ranking Member Thompson. Thank you for holding this hearing and I want to thank all of our witnesses for being here today. The work we accomplished earlier this year through the working families tax cut enhanced what was already one of the most successful progrowth tax policies we've ever seen.
▶ 2:15:53By making these international tax provisions permanent and encouraging new domestic investment, we will lower costs for families, supporting stronger supply chains, and increase US production and provide millions of new highpaying American jobs. These permanent tax policies give businesses the certainty they need to invest and expand.
▶ 2:16:18The benefits under international tax to US manufacturers and consumers started through tax cuts and jobs act with the benefits of fitty deduction. Miss Webb, did you you do business around the world? Could you quickly tell us how Fitty deduction has helped enable your business to grow since it was founded in the Tax Cuts and Jobs Act in 2021?
▶ 2:16:39Absolutely. Thank you for that question. So um the fitty deduction lowers the tax rate that we pay on exports and it encourages companies to manufacture in the US. Um our business is most profitable when we can op we can maximize the operational time of our facilities. Um frankly it's difficult for a mill to be profitable if it's not running at full capacity.
▶ 2:17:00Um you know our p primary focus with our um domestic manufacturing is to serve the domestic market but you know there could be situations where if we have operational downtime um exporting provides a way of alleviating that pain but it has to make economic sense and be cost-effective.
▶ 2:17:19Um, so the FDI deduction helps manufacturers like us utilize these export markets to keep our production lines moving um because it does lower that tax on on that that export income. So it's it's a vital deduction for
▶ 2:17:35Thank you, Miss Webb. I I see this as we try to grow. I'm I'm from Iowa and and if we want to grow manufacturing in Iowa, uh here is the incentive. I I truly believe that we're going to see a tremendous amount of onoring as businesses say, "Hey, we want to bring more of our our manufacturing back to the US." So, dealing with that, Miss Web, I want to also ask you a question. So, already uh we've been uh heard how important it is to you.
▶ 2:18:00Uh but by removing the qualified business asset investment uh offset of the Fitty deduction, it became FIA A and will no longer penalize a deduction based on tangible assets located in the US. broadening this incentive further just further than just intellectual property and supporting investment into the United States. Miss Webb, you have significant numbers of tangible assets in the US.
▶ 2:18:24Could you explain how you can expect this to change uh with this new impact for your company?
▶ 2:18:32Absolutely. And I still refer to it as fitty. I can't quite get used to the new
▶ 2:18:35I can't either, by the way. But I I think removing this penalty for tangible assets is a very important step to promote manufacturing in America. Manufacturing is an industry that has both a lot of exports but also a lot of tangible assets. So given that the objective of the administration and this Congress is to expand manufacturing, this policy certainly supports that by removing a hurdle that limited our ability to fully uh take advantage of that bitty deduction.
▶ 2:19:02Yeah. Thank you. And again, what we're trying to do here is grow and expand manufacturing in the US. And this is what's going to happen. Uh I I I just applaud this bill and how it's going to perform. And we just heard from one of the the the leaders and innovators in the paper uh industry uh how it's going to work. So, thank you for that. Um I got a question for for for Chairman Brady.
▶ 2:19:25chairman, as we look forward um how do we stay ahead of the curve of when it comes to attracting investment into the United States through the improvements uh to Fitty and progrowth international tax p policies. I mean, we see now that there's a lot of uh other countries trying to do different things and and how do we stay on the forefront of making sure that businesses come here to innovate?
▶ 2:19:48Yeah. So, to to first um I hope you're enjoying your time on the committee. Uh, I was impressed the first day I met you when I realized that as a leader in the Iowa legislature, you conformed Iowa's tax laws to the TT TCJA. Uh, and I think the uh the results are proving out back home to your constituents in the state and the answer is the international tax area is complex. Um, and the interactions um reveal uh different strengths and weaknesses.
▶ 2:20:17So, it requires continual fine-tuning. So continue to be vigilant on um those interactions as you did now. Look for ways to improve it and strengthen it. Secondly, recognize always that international tax because of the businesses that are impacted in the complexity of those businesses. You know, what works in one area for one business may well work the opposite in the other. International tax requires a very thoughtful balance.
▶ 2:20:47Always look for balance. uh correct but don't overcorrect. Uh do the homework. Create a thoughtful solution I think often can be bipartisan. That would be my
▶ 2:20:57I agree fully, chairman. Thank you so much for your comments and I yield back. Thank you.
▶ 2:21:02Thank [clears throat] you Mr. Gomez. You're recognized for five minutes. Thank you Mr. Chairman. Um good to see you Mr. Brady. You're um I actually missed the times even though I disagreed with um Republicans on a lot of issue when Republicans were Republicans. um they had a theory of economics and they believed it and it was somewhat rational and and it had um some uh rationality behind it. Here's an article from 2018. GOP rep. Kevin Brady.
▶ 2:21:31Tariffs are taxes that impede the nation's economic growth. Republican rep. Kevin Brady is worried about the long-term impact President Trump's tariffs could have on economic growth. Tariffs are taxes, quote unquote. They impede economic growth. They pick winners and losers. We do worry about that. Um, I'm assuming you still agree with that tariffs are
▶ 2:21:57that's a simple yes or no.
▶ 2:21:59So, Congressman, I will tell you very well. I'm going to reclaim my time and reclaim my time. Mr. Brady, Mr. Brady, I know you don't want to get in trouble or piss off some people out there. the president with like speaking out of turn. But here's the thing. Tariffs are taxes. And that's what what I want to talk about how it's actually hurting the American people. We've seen it across the board. You're seeing prices increase across the board for families.
▶ 2:22:29Prices on groceries are up. You see car prices up. Housing costs are up, up, up, up. And here's the thing. No matter what they say, and this is what I told even the Democrats last year, you might look at economic indicator and say things have improved, but if it's not improving in the pocketbooks of the American people, then you have a problem. If you're they're struggling to make ends meet, you have a problem. If you can't uh buy a car, you have a problem.
▶ 2:22:59And one of the statistics that we know that this this quote unquote investment in our country, this economic growth is not helping is that fact that more Americans are defaulting on auto loans than ever before. These are working people that need their cars to get by. I was a person that worked minimum wage jobs, so I understand if you don't have a car to get to work, then your economic outlook is going to get worse. It's going to get worse.
▶ 2:23:25So, one of the things I want to continue stressing is that every time we leave these tariffs in place, more people are going to suffer. As a a dad of a toddler, cost of um baby clothes and and kids clothes is up. Shoes made 99% outside the United States are up. And yesterday, how many of you agree that that when Donald Trump said that uh affordability is a scam, how many of you guys agree with that?
▶ 2:23:56Raise your hand. I mean, he is your president. So, this is my point. Like, growth is good, but as if it helps people, does it raise people out of poverty? Does it actually give them an opportunity to buy a house? Uh, does it give them an opportunity to start a small business? Does it give them an opportunity to send their kids to college? Do they have health care that's Mr.
▶ 2:24:26Brady, and you and I know that we like we can reach trade deals that are good for the American people. We did that with USMCA. 394 votes in the House of Representatives, 90 in the Senate. I'm saying that we need to get back to the common sense economics that help create real growth. And this is also about our democracy.
▶ 2:24:50More people now, I think almost 70s something percent believe that their kids are going to do worse than the last generation. Worse. That's not an a healthy democracy. When you think the system is fundamentally broken, when you think that you can't get ahead, if you play by the rules, what they start believing is burn it down. Burn the system down. And that's not just on the left, that's on the right as well.
▶ 2:25:19So, when we like let ACA subsidy expire, you see prices go up, that's a problem. So, we're going to be uh pushing back because it's about how does it change the lives of people on the ground. When Trump had a chance to give $40 billion, only 20 billion it takes to extend the ACA subsidies, he took it, take 40 billion and gave a bailout to Argentina.
▶ 2:25:45Then turned around and Argentina then turned around and used it to uh cut a soybean deal with China. Like that's not America first. That's the working people last. And we need to get back to common sense policies. and we might just disagree on the policies on how to do it uh sometimes, but at least the old Republicans had some rationality behind their their policy making. With that, I yield back.
▶ 2:26:13Thank you, Miss Miller. You're recognized for five minutes.
▶ 2:26:15Thank you, Chairman Kelly and Ranking Member Thompson, and thank all y'all for being here today and taking the time to testify. Under the guidance of President Trump, the United States has been a leader in global competitiveness, promoting pro progrowth, pro business, America first policies. The working families tax cuts strengthened and reinforced the successful policies from the 2017 tax cuts and jobs act.
▶ 2:26:42Specifically, the Working Families Act made permanent the 199A, Small Business Deduction, and incorporated my bill, the Saving Gig Economy Taxpayers Act, which restores the 1099K reporting threshold to $20,000 in 200 transactions so that the gig workers aren't unfairly hassled by the IRS.
▶ 2:27:07The Working Families and Tax Cut Act also made permanent crucial international tax policies that have resulted in more domestic jobs and investment. Chairman you warm my heart. It's great to see you. Can you speak to how the TCJA and the Working Families Act international provisions helped promote domestic manufacturing industries and how might we see these policies benefit everyday
▶ 2:27:35Yeah. And I think I think good to see you, Congresswoman. Thanks for your leadership in so many areas of this committee. So I don't I don't think there's any doubt uh that um the actions you've taken both to lock in that competitive lower rate for corporations and businesses is key. Fully restoring the three business provisions are are extremely progrowth if not the most progrowth uh in the bill and key.
▶ 2:28:01Uh but thirdly, I think the changes in the international area are not just needed but vitally important. As you know, uh the international tax area is complex. The the interactions reveal strengths and weaknesses. It is Congress has to pay continual attention to those provisions to continue to improve them.
▶ 2:28:23I I don't think there's any question that the changes you made in Guilty Beat uh and Fitty for example um is going to create more reasons for US companies to invest and build and grow here. Uh the changes you made throughout international tax really creates incentives to locate IP here, make America that global hub and build the manufacturing to allow you to sell and compete around the world from here uh in America.
▶ 2:28:51uh you made changes um that punished to your point um punished companies that were doing heavy investment manufacturing in the US. We want to reward that again an an inadvertent consequence of the interaction of all of these provisions.
▶ 2:29:08You're even see seeing this now the great work you did in R&D in this bill is being you know handicapped by the interaction with a corporate alternative minimum tax uh in a negative way actually minimizes the incentives you're creating and so I have no question that from TCGA JA from the low unemployment rates the low poverty rates the higher real real wage growth a good part of that came because
▶ 2:29:39of the changes we made to become more competitive and I'm convinced uh those same benefits to working families you know and mainstream businesses uh will grow because of the improvements you made in the international tax arena.
▶ 2:29:54Thank you so much. Professor Wells, in layman's terms, can you tell us one new policy change that you think we should consider that could reduce unnecessary burdens and reduce complexity in international tax?
▶ 2:30:10Thank you for the qu Thank you for the question. Yes, I think that now that we have a robust global minimum tax on active foreign business income, I think there's an opportunity to rethink the scope of the subpart F regime, which is a companion regime that um duplicates that same area.
▶ 2:30:32So in my written testimony, I indicated that the US subpart F regime should be limited to ensure a a normal corporate tax on the provision of goods and services into the US economy from foreign affiliates. But after that, active business income earned in foreign jurisdictions should simply be subject to the global minimum tax at of 951 cap.
▶ 2:30:59And there would be significant simplification if those historic legacy imported for the era um foreignbased company sales income rules and foreignbased company services rules were were pruned in light of the enactment that you've made with the in 2017 and 2025 with section 951 CAP A. The enactment of that provision um calls into question and makes somewhat redundant the earlier provisions that were in place.
▶ 2:31:30Thank you. I yield back.
▶ 2:31:32Thank you, M. Miss Mandine, you were recognized for five minutes.
▶ 2:31:35Thank you very much, Mr. Chairman, and thank you to all of our witnesses for joining us here today. Throughout this year and last, this committee has met and deliberate for hours on end to deliver promises to the American people. And today's hearing gives us an opportunity to highlight those results that have actually worked and the momentum that we cannot afford to lose. Before the 2017 tax cuts and jobs act, our tax code was actually pushing jobs, pushing research, an entire headquarters um overseas. Corporate inversions were rampant.
▶ 2:32:06Our tax base was eroding and American workers were paying the price. The TCJA reversed that trend. It modernized our international tax system. It reduced incentives for base erosion. And most importantly, it made America a more attractive place to invest and innovate. This year, Congress has built on that success by passing the Working Families Tax Cuts Act. The tax package would strengthen and made permanent the international reforms that have been so central to American competitiveness.
▶ 2:32:34By establishing stable rates, we gave US companies the long-term certainty that they needed to be able to invest here, to be able to hire here, and to be able to keep their innovative work in the United States. At the same time, we work closely with the Trump administration to ensure that the United States maintains its tax sovereignty in the face of the OECD's pillar 2 and digital services taxes.
▶ 2:32:55And I appreciate Treasury's progress toward a sidebyside arrangement that protects American workers and prevents foreign governments from imposing their taxes on US businesses. This has been a core priority for this committee, and we must stay vigilant. Chairman Brady, it's great to see you back. Um, I look at this picture every time that I'm in here and I while I love this picture, I really do think that the one that was presented to you by the Texas delegation, um, I hope you have that proudly displayed and would prefer to have that sometimes in here.
▶ 2:33:25Could we strike that from the record, Mr. Chairman? [laughter]
▶ 2:33:28Prior to uh, 2017, we saw constant inversions, uh, capital lockout in an international tax system that simply wasn't competitive. Uh, Chairman Brady, you were instrumental in crafting the TCJA. Can you speak on how TCJA's international provisions actually helped to reverse those trends and bring investments back to the US?
▶ 2:33:49Yes. So, those inversions, those companies picking up and leaving or moving their headquarters or dragging along their manufacturing research out of our communities was a result of a outdated and uncompetitive international tax code. One from the Kennedy administration. In fact, our international tax provisions, if they were a person, were old enough to qualify for Medicare. Um, and as a result, we were seeing that uh those activities in a very negative way.
▶ 2:34:17What we knew is if we could make the corporate rate competitive again at 21%. If we could move from a worldwide taxation system to more of a territorial system, if we could put in place, which we did, safeguards against companies either exporting their profits to low tax countries or importing their deductions to artificially lower their taxes here.
▶ 2:34:40If we did all that and combined it with incentives for investment in the US, innovation in the US and make us competitive, we knew we could reverse uh the damaging effect of inversions. And that's exactly uh what we did. But I think the work that you've done here and the one big beautiful bill builds on that and makes it even harder for companies to justify those inversion type activities.
▶ 2:35:06I predict we won't see taxdriven inversions as a result again of TCJA and the work that this committee has done that's a continues to be a positive development but beyond that the incentives and the fine-tuning the improvements you made again takes this up a notch as far as our goal to make us the premier destination in the world for new investment for IP for jobs for growth all of this uh you've built upon that and
▶ 2:35:36as we're hearing from the industries of the future like AI, you know, they've made it very clear the work that you've done in building on this is going to frankly put the US in the forefront of winning uh the innovation race and as you know and as you've said the country that wins the innovation race really wins the future. You just took I think a very important step to positioning America to do just that. I appreciate that very much.
▶ 2:36:06You know, you may have heard of the National Association of Manufacturers reported that failing to pass this year's tax package would have resulted in $6 million job losses, $540 billion in lost wages, and a trillion dollars in loss GDP or millions in lost jobs and significant reductions in wages and GDP. Why would these economic damages have been so significant? And what does that tell us about the importance of a certainty in our tax code?
▶ 2:36:29Permanence matters. When you get the tax code right and policy right, permanence is the most progrowth thing you can do. And you can see it because it's the opposite on provisions that are good in policy but are temporary. You don't get bang for the buck because businesses can't see the certainty to make the long-term investments that really grow the economy in the US locally.
▶ 2:36:52So, I think I think the permanence that that you um insisted upon on this bill is going to continue to enhance the progrowth provisions you've got in here.
▶ 2:37:03Perfect. Thank you very much and I yield
▶ 2:37:06Thank you, Mr. Horseford. You were recognized for five minutes.
▶ 2:37:08Thank you very much uh Mr. Chairman and to the ranking member and it is an important discussion around international taxes and digital service uh services specifically and I look forward to working with my colleagues on those issues. Uh, Mr. Brady, it's good to see you. Um, but unfortunately, you know, we also need to deal with the the elephant in the room, per se.
▶ 2:37:30And so, as many of my colleagues here today pat themselves on the back for showering multinational corporations with tax breaks, working people here in America and small businesses here in America are being hit with the largest tax increase in 32 years. Let's talk about some facts. The Trump tariffs are the largest US tax increase as a percentage of GDP since 1993.
▶ 2:37:59According to the Tax Foundation, the Trump tariffs threatened to wipe out the very tax cuts that Republicans keep touting. And there's proof. Just this week, the Wall Street Journal reported that US manufacturing has contracted for the ninth consecutive month. So, who pays the price for these blanket tariffs? American consumers and American businesses. Let me repeat that.
▶ 2:38:26American consumers and American businesses are footing the bill and feeling the pain. And, Mr. President, affordability is not a hoax. It is reality. and your policies are making life more expensive for Americans, not bringing down cost as you promised.
▶ 2:38:47So, while Republicans pre praise themselves for helping the biggest corporations, let's remember that the average American household is paying an extra $1,700 this year because of these tariffs. That's $1,700 that could be used to pay groceries and rent or health care. Professor Clausing, my colleagues want to talk about competitiveness.
▶ 2:39:13So, let's talk about how Donald Trump's chaotic tariffs are decimating Nevada's tourism economy. From January through September of this year, Las Vegas welcomed 2.5 million fewer visitors. Harry Reid International has seen a 6.4% 4% year-over-year drop in total passengers and a 13.5% decline in international arrivals.
▶ 2:39:38And as Professor Alan Feldman of UNLV's International Gaming Institute put it, a lot of the state's economy is tied up in our tourism sector. Your testimony explains that these tariffs raise prices on intermediate goods, suppress demand, and weaken US exports.
▶ 2:39:57In Nevada, where our economy is really entirely focused on hotels to restaurants to gaming, it depends on price sensitive tourism and global supply chains. These shocks are pushing businesses to the brink. Would you agree that Trump's tariffs are directly harming Nevada's tourism economy and accelerating the financial distress we're seeing among small businesses and midsize businesses? Yes or no?
▶ 2:40:27Absolutely agree.
▶ 2:40:29Thank you. As you also know, businesses are scrambling because the Trump tariffs were imposed without congressional authority. Something that I think all of us should be concerned about. And they've slammed every importer in America. Just this week, Costco, one of the largest retailers in the country, filed a lawsuit because they want their tariff money back if the Supreme Court rules these tariffs illegal. And frankly, they can afford to sue.
▶ 2:40:59But the small businesses in my district, the family-owned importer, the toy shops, the restaurant supply companies, they don't have legal departments. They don't have the cash to take the federal government to court. They just pay the tariff bill and swallow the cost.
▶ 2:41:16If this committee is serious about making US businesses competitive, it must recognize that the ability to sue for tariff free funds can't be the dividing line between which businesses survive and which go bankrupt. That's why I'm working on legislation right now to ensure small businesses can receive tariff refunds automatically and quickly.
▶ 2:41:41If these tariffs are struck down, as we expect they will be, without having to hire a lawyer to take on the federal government. Professor, you've testified that these blanket tariffs raise cost and weaken America's global competitiveness. In Nevada, small and midsize businesses are absorbing those cost potentially without any path to a tariff refund.
▶ 2:42:05So, how does our system where only the largest firms can protect their tariff refund rights distort competition and undermine US firms operating in international markets?
▶ 2:42:18Thank you. Yes. Um, the unlevel playing field is a very real phenomena when it comes to tariff exemptions and the compliance costs associated with these tariffs. It's very hard to even figure out the rules which are constantly changing, much more complicated than it used to be. And that's a higher share of cost for a small business than it would be for a very large one. And this is a more general problem in our tax code.
▶ 2:42:44If you look at the favorable regimes that we've provided for multinational companies, they get taxed at a much much lower rate than domestic small businesses which pay the full freight. So this is a systematic problem through which our tax code is encouraging uh market concentration.
▶ 2:43:01Perfect. Thank you so much. I yield
▶ 2:43:04Mr. Marion, you're recognized for five
▶ 2:43:06Thank you, Mr. Chairman, and good morning to the witnesses. I want to thank you all for joining us here today to discuss the past, present, and our future successful international tax regime. Prior to the enactment of the 2017 tax cuts and jobs act, the US tax system was experiencing a fundamental lack of competitive competitiveness due to America last policies. In my opinion, these policies led to several detrimental economic trends that eroded the tax base. Three specific ones come to my mind.
▶ 2:43:35First, companies frequently shifting income outside the US leading to persistent base erosion. Second, tax motivated corporate inversions. And third, capital lockout, where capital was trapped offshore and not being invested domestically. Congressional Republicans and President Trump saw these consequences and decided to put the bad policies to rest.
▶ 2:43:57Uh with the creation of Fitty, guilty, and beat combined with a 21% corporate income tax rate and enhanced business deductions, the trend of base erosion and corporate inversions is largely over. While these now uh permanent policies are leading the US into a new age of economic growth, it's important that we continue to streamline these provisions without impacting impacting tax liability. Uh Chairman Brady, I want to focus on the base erosion and anti-abuse tax, also known as beat.
▶ 2:44:27And under your leadership, uh you brought on a successful package in the passage of the TCGAA in 2017. And you have seen how beat prevents companies from shifting profits to lower tax jurisdictions. However, there are certain circumstances that subject co companies to beat when they are in fact not engaging in wrongful profit shifting. For example, say a company acquires a certain intellectual property in an offshore jurisdiction and attempts to repatriate that IP to the US.
▶ 2:44:58The repatriation of that IP can often trigger beat liability, making it costly for well-intentioned companies to invest more in the US when bringing this IP back would create good paying jobs and expand the US tax base. Chairman Brady, after TCJA and the working families tax cuts, do you think there are still ways where we can improve BEA? And in what ways do you think it makes sense to modify beat to ensure we are not discouraging IP repatriation by US
▶ 2:45:26Yes. So, first thank you as a fellow Texan. Thanks for your leadership on the committee. I'm in on international trade issues including this. um one beat is working uh as we envisioned uh in the base erosion area that combined with guilty and the other safeguards.
▶ 2:45:43Uh a new report from PWC shows that the multinational income on average for our corporations when you in 2022 the last full year we have that tax revenue um when you include state and local to that are averaging about 26%. In fact, every year since 2012, uh, that average multinational tax is well above the 15% global minimum tax. So, it's working. Can it be improved? Yes. It doesn't make sense.
▶ 2:46:13We now know it doesn't make sense to include um taxes uh income you're already paying taxes on in the US. When you're being taxed 30% in Germany, doesn't make sense to be punished there. Uh, and then there are what I would call the Congress approved business tax credits. Seems to me uh you'd want uh to to uh to exempt those as well. One one word of caution, I think there are good areas here.
▶ 2:46:44Tax code, international tax is complex. It has uh unforeseen impacts. Uh as I mentioned earlier, do everything in balance. Correct, but don't overcorrect. Catch what you need and know more. Uh, as you look at beat in other areas, be thoughtful.
▶ 2:47:05Reach out to stakeholders because I can guarantee you, uh, in this complex beat area as others, there will be consequences for business, not because they're bad actors, just because that's how they're formed, that's where they sell, that's how they're taxed. And so uh I really think there can be more improvements in that area and taking what how you handle your uh legislative work anyway which is to think through issues welcome input look for that balanced solution.
▶ 2:47:34I think that's exactly the right approach. I would encourage you to do it.
▶ 2:47:38Yeah. Thank you chairman. And that's exactly what we're doing. We're currently writing a bill and I agree with your answer completely. We're currently writing a bill that would encourage IP repatriation by adjusting the beat rules so that reasonably and prudently so that US companies can continue making robust investments in the American economy. Since 2017, congressional Republicans and President Trump enacted two pe major pieces of tax reform that have enhanced and done great things on the international stage. I think a little bit more needs to be done.
▶ 2:48:07we need to tweak as we're moving forward and that's what we're working for working uh towards while we champion the success of these policies. We're going to remain diligent and work prudently to continue to encourage repatriation of those IPs that are trapped overseas. Thank you. I yield back, Mr. Chairman.
▶ 2:48:25Dr. Davis, you're recognized for five
▶ 2:48:27Thank you. Thank you um Mr. Kelly for letting me wave on to this hearing. And I want to thank uh all of the witnesses. It's good to see you. Uh Chairman Brady, it's always good to see
▶ 2:48:42Good to see you, doctor.
▶ 2:48:44Thank uh Dr. Clausen, it's good to see you again, too. And it's a delight. You know, as I listened to the hearing, I was thinking that for my constituents and for the nation, tariffs are the biggest tax increase we've seen in a generation.
▶ 2:49:08And just as you said, Professor Clausen, in your testimony, Trump tariffs are raising prices for Americans on a range of necessities and crippling businesses all over the I'm especially concerned about the well-being of vulnerable groups of Americans um such as foster youth, senior citizens, and
▶ 2:49:38others who have limited resources and who face challenges in responding to sudden price increases in essential Professor, could you tell us how do tariffs related price increases for food, housing, utilities, and prescription drugs affect vulnerable foster youth, seniors, and others who have limited
▶ 2:50:09Thanks so much for that question. I think it's a very important one. Tariffs are particularly damaging for the lowest income Americans. One study finds that the burden as a share of income is three times higher for the lowest decile than it is for the highest decile.
▶ 2:50:27And one estimate is that the 2025 tariffs will put an additional 650,000 to 800,000 people below the poverty line because they will be taxed below that level by the higher prices. These higher prices are substantial. Estimates indicate textiles and clothing prices will rise by 14%, motor vehicle prices by 13%.
▶ 2:50:52This can amount to costs of thousands of dollars for US households and particularly hurt those that are most vulnerable. And let me ask things that sometimes we don't think about is how how does this cost of child care for example just child care.
▶ 2:51:18Yes. So any good that is becoming more expensive will impact the whole economy and in child care uses traded goods too. But there are a lot of other policies in play right now that are also increasing the cost of child care. Utilities are becoming more expensive due in part to the phasing out of the clean energy subsidies. Health care is becoming more expensive as as the premium tax credits go away and as Medicaid is going to be cut.
▶ 2:51:48SNAP is being cut under this new OB3 bill. And labor is becoming more expensive due to these immigration crackdowns. And I think that those um policies, the moral implications I think are particularly serious, but the labor um force implications are serious as well. And when you take that whole portfolio of policies, it's all raising costs for child care in addition to the
▶ 2:52:14You know, all that I've been hearing is I'm trying to find out who benefits. Um we know that consumers don't. We know that producers like farmers who can't sell their crops or can't distribute what they've produced, all of these are Who are the winners?
▶ 2:52:41Who who benefit?
▶ 2:52:43That's a good question. I mean, I think partly tariffs are avitation for political corruption. And so at times if one company can get an exemption when their competitors don't get an exemption, they may have an advantage in the marketplace. Or there might be certain sectors where the tariff provides temporary protection and they're able to, you know, sell a little bit more.
▶ 2:53:06But we find even that when you put tariffs on things like steel, right, that you might create an extra thousand jobs in the steel industry, but studies suggest that costs you tens of thousands of jobs in the industries that use steel. And I think one of the big costs that we haven't talked about here today, but is really important is the cost to the international relations of the United States, too.
▶ 2:53:26Uh we've alienated some of our closest trading partners, countries like Canada, Japan, Korea, Europe that have stood by our sides and been great allies in all sorts of ways. And one of the reasons that uh Congressman Horford sees less tourism in Nevada is because public sentiment in those countries is is turning against the United States in part because of this harmful trade war. So it's very hard to find winners and I I don't really see any.
▶ 2:53:53Thank you very much. Thank you all, Mr. Chairman. Thank you. And I yield back.
▶ 2:53:57Thank you, doctor. Uh I want to thank everybody for coming here today. I mean I I know you give up a day of your life and what you do every day and you kind of walk away from that and make your way down here. Sometimes it's not a cheap trip. Um, thank you so much for being here today. The other the other thing I I want to recognize right now. We have a staff behind us who does incredible work getting us ready for all of these and they're the unsung heroes on this. We kind of go by, yeah, fine, we all got that.
▶ 2:54:24We get our moment of being on TV and talking about how great we are, but we don't talk about the people who do all the work. And I just want to let the staff know on both sides how much we appreciate the work that you do. So thank you. [laughter]
▶ 2:54:41So now please be advised that members have two weeks to submit written uh questions to be answered later in writing. Those questions and your answers will be made part of the formal hearing record. With that the subcommittee stands adjourned.