The Senate Finance Committee held hearings Tuesday to consider the Tax Code’s effect on job creation and economic growth.
The hearing was the latest in a series that the committee has been hosting since last September to examine productive ways to simplify and reform the Tax Code.
“Our Tax Code must maximize job creation and widespread economic growth,” said Senate Finance Committee chairman Max Baucus, D-Mont. “We need our tax system to stimulate economic development, encourage business activity, and promote fairness and certainty while minimizing compliance and administrative costs to taxpayers. Improvements to our Tax Code must support putting Americans back to work and ensure the long-term prosperity of our country.”
Baucus sought answers from the expert witnesses on how the Tax Code is affecting individual and businesses decisions and what specific changes could be made to incentivize job creation and widespread economic growth in light of increasing globalization.
The committee examined the tax system’s effect on household and business debt levels, and Baucus asked whether tax incentives for debt-financing contributed to the financial crisis or hurt the economy in other ways. He asked witnesses whether it is a problem that large businesses are much more likely to avoid the corporate tax by paying tax as a pass-through business in the U.S. than they are in other countries. He also sought answers to how the Tax Code could encourage investors to make sound investments instead of supporting investment in underperforming assets that can cause businesses to become overleveraged in a way that hurts the economy.
Baucus also asked whether the individual incentives for savings in the tax code effectively promote individual savings, and how best to simplify the multitude of provisions in the tax code to encourage Americans to save.
“Tax reform is greatly, desperately needed by our nation, and these hearings are a necessary first step in the reform process,” said ranking Republican member Orrin Hatch, R-Utah. “I want to make clear that I do indeed believe that the tax system supports job creation … for CPAs and tax attorneys. And I’m also confident that the tax system leads to broad-based economic growth … in China.”
UCLA Berkeley professor Alan J. Auerbach testified about tax expenditures and reform of the corporate income tax. “Substantial cuts in tax expenditures could be accomplished without harming their apparent objectives, while actually reducing economic distortions that hinder growth and employment and reduce economic well-being,” he said. “Corporate tax reform could remove the economic distortions of corporate borrowing and investment decisions while at the same time alleviating the pressure to compete in a global race to the bottom.”
University of Texas at Austin professor James K. Galbraith discussed the budget deficit, tax incentives, the payroll tax, the estate tax, value-added taxes, payroll taxes and energy taxes. “We face four pressing priorities: to create jobs, to change how we produce and use energy, to restructure our financial sector, and to curtail the pernicious power of a small number of wealthy persons—our new American oligarchs—who have taken undue advantage of past tax reforms,” he said. “A shift of the tax burden away from labor, onto energy, and onto accumulated wealth—with the philanthropic escape clause—would help give us back a healthier, more egalitarian, and more democratic society in future years.”
